Factories Go South. So Does Pay

Mexico's auto industry is booming, but parts outsourcing is keeping a lid on wages

These should be the best of times for Mexico's auto industry. The country produced a record 2 million cars and light trucks last year, exporting three-fourths of them, while more than $4 billion in foreign investment poured into the sector. And the government anticipates much more as Detroit's cash-strapped automakers head south for cost savings.

But Mexico's auto workers are worried. The reason: outsourcing. Sure, U.S. carmakers are shuttering plants up north, which will likely lead to new factories in Mexico. General Motors Corp. (GM ), for example, is building a $600 million plant in San Luis Potosí that will employ 2,000 starting in 2008. The Mexicans, though, fear new investments may not mean oodles of relatively high-paying jobs. That's because even south of the border automakers face relentless pressure to cut costs.

So they're saving on inventory and labor by shifting work to suppliers, which deliver pre-assembled pieces of cars directly to the factory floor. More than 13,500 parts jobs were created in Mexico last year, vs. 4,500 coveted assembly positions, which have been a ticket to the middle class for many Mexicans. "Ford and other automakers are increasingly relying on outsourcing," says Juan José Sosa, national secretary-general of the Ford Autoworkers Union in Mexico. And like their Detroit counterparts, Mexican auto workers are feeling the squeeze of global competition. "The companies are always saying...that in China costs are much lower or that unions in the U.S. are offering very good concessions," says Sosa. Ford acknowledges that it's outsourcing more, as part of an effort to become more competitive worldwide.

That's not to say Detroit isn't already saving a bundle by moving to Mexico. Mexican assembly workers average just $3.50 an hour plus benefits, compared with about $27 hourly plus benefits at a GM or Ford plant in the U.S. But less skilled workers at parts makers such as Delphi Corp. (DPHHIQ.PK ) in Mexico earn as little as $1.50 per hour, and their benefits are skimpier because unions are weaker in the fragmented parts industry.


Karla Fabiola Valdés knows just how big the difference is. In October, 2000, she started working in Ford Motor Co.'s (F ) Hermosillo plant in northwestern Mexico, and for almost three years earned $3 an hour assembling Ford Focus compacts. Then Ford laid her off after U.S. demand for autos slumped. In December, Valdés started working in the plant again--but delivering components as an employee of a logistics outsourcing company. Now she earns just $1.50 per hour. "I was so happy working for Ford," says the 36-year-old mother of three teens. "I hear they may be hiring again. I'm still holding out hope."

Thousands of other Mexican workers are waiting to see if much-rumored investments by U.S. carmakers materialize. After Ford announced it was shuttering 14 North American factories, word spread that it would open new facilities in Mexico. The company denied the reports, but the Mexican government predicts the auto industry will attract $16 billion in investment over the next five years. The lure: Mexico's proximity to the U.S., its low wages, and its free-trade agreements with the U.S., Europe, and Japan, which make exporting easier.

Yet as investment picks up, even assembly jobs in Mexico are becoming less lucrative. Two years ago Ford embarked on a $1 billion expansion in Hermosillo, which employed 1,200. The company sat down with union leaders and pledged to create as many as 2,000 more jobs, as long as workers agreed to flexible work rules and lower starting wages. Today, the union says, about half of the factory's 3,000 hourly workers earn $2 an hour--just half what those with more seniority do. "It's a reality we cannot deny," says César Flores, president of the Mexican Automotive Industry Assn. "An assembly plant now creates fewer good jobs."

By Geri Smith

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