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Tuesday, June 27, 2017    Login


Mike Randle, Editor

It's down to the Southern Auto Corridor and Mexico for automakers

Au revoir, Canada. The Northeast? Your automotive assembly history is already forgotten. The West? Puleeeeeeeeze. How did you land automotive assembly in the first place? Detroit? Wait a minute, you're destitute.

Automakers, you are left with two choices in North America to produce your vehicles: The Southern Auto Corridor or Mexico.

Welcome to the newest war in economic development on this continent. It's a war with the ultimate prize; the Big Kahuna. That's what SB&D and have called automotive assembly plants for over 20 years.

Yep, it's the American South in this corner and Mexico in that corner fighting for the future of North America's automotive industry. It looks like this fight is going 15 rounds.

Mexico is winning the bout post-recession, landing four new assembly plants since 2009 and it looks like more factories are on the way. The Southern Auto Corridor hasn't seen a new assembly plant come its way since Volkswagen chose Chattanooga in 2008.

Currently, Mexico has an advantage. That country holds more than double the number of free trade agreements with countries it exports to than does the U.S. Regardless, foreign direct investment has basically stopped in Japan, Korea and Europe, but it is off the charts in the South and Mexico. One reason is it looks as if a free trade agreement with Europe will soon be a reality for the U.S.

Mexico has another advantage. It has all of the labor any automaker could want, which can backfill for years. And that labor goes for about $3.50 an hour, for now anyway. Labor costs must be recalculated each year.

For example, in 2001, when China joined the World Trade Organization, the average manufacturing wage in that country was 58 cents an hour, more than five times less than Mexican manufacturing wages. Today, Chinese manufacturing workers are paid more than Mexican workers, more than 10 times what they were paid in 2001.

In comparison, wages in the Southern Auto Corridor have grown about $3 an hour in 16 years. New members of BMW's and Mercedes' production lines in the mid-1990s started at $12 an hour. Today, they start at $15 an hour.

Personal safety issues are also at the forefront in Mexico and it doesn't look like they are getting any better. Management and technicians in Mexico are in short supply. And in most cases, automakers in Mexico must house, feed and transport their workers to the plant.

And then there is the question about productivity. Many believe manufacturing workers in the South are the most productive in the world, but site consultants working with companies setting up shop in Mexico also praise the work ethic of the Mexican worker.

Most experts in the field predict that solid growth in the automotive sector will occur in both Mexico and the Southern Auto Corridor over the next few years. But there is one thing happening in Mexico that is troubling some automakers and their suppliers.

Only about 12 percent of Mexico's workforce is a card carrying union member. However, about nine of 10 workers in Mexico belong to "protection unions." Protection unions are illegal in the U.S. A story in GlobalPost in 2012 read, "Their leaders, who often receive kickbacks, negotiate secret deals with company bosses designed to shield businesses from strikes and worker demands for substantial increases in wages and benefits. These agreements, in turn, are known as protection contracts."

According to a recent U.S. State Department report, protection unions now cover nearly all public and private sectors of Mexico's economy. But the gig is up on the protection unions at a few large factories in Mexico.

A landmark strike by workers at U.S.-based Johnson Controls' facility in Puebla, Mexico in 2010 still has labor activists fired up, even those in the United States. Mexican law requires that 10 percent of a company's annual profits must be shared equally with the workforce. Workers walked out of the Mexican parts plant when Johnson Controls offered their workers $5 each in profit-sharing. The workers then organized a democratic union with the Miners and Metalworkers. Johnson Controls promptly closed the plant.

Earlier this year, more than 2,000 automotive workers ended a three-day strike at the El Salto, Jalisco, plant after they were offered $25 each in annual profit-sharing. In 2011, the company gave workers a $5,500 profit-sharing payment. In April, the workers returned to their jobs after each received a payment of $1,383.  

The increase in democratic unions in Mexico -- while small at this point -- wouldn't even be an issue if protection unions didn't exist in the country. But they do, and because they exist a union uprising in Mexico may be the K.O. punch the Southern Auto Corridor needs to win this 15-round fight.

 Southern Business & Development

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