No profit in making automobiles here.

GM, Ford Accelerate Shift to Mexico Workers Making $26 a Day

By Thomas Black - Jun 9, 2010 3:26 PM CT

GM, Ford Accelerate Shift to Mexico Workers

Lower labor costs in Mexico may help U.S. auto companies build smaller cars profitably. Photographer: Susana Gonzalez/Bloomberg

June 9 (Bloomberg) -- Mexico’s share of North American auto production may rise at a quicker pace as General Motors Co., Ford Motor Co. and Chrysler Group LLC seek out workers making less than 10 percent of what their U.S. counterparts earn.

The lower labor costs may help the U.S. companies build smaller cars profitably amid demand for fuel-efficient vehicles in the wake of last year’s recession. Mexico’s gains will come at the expense of workers in the U.S. and Canada, said Dennis DesRosiers, president of DesRosiers Automotive Consulting Inc.

“There is going to be more capacity put into North America and Mexico is going to get more than its fair share,” DesRosiers said from Richmond Hill, Ontario.

Moves to Mexico may speed up when Chrysler and GM reduce some of the political pressure they face by paying back government bailout money, said Michael Robinet, vice president of global forecasting for CSM Worldwide in Northville, Michigan. The U.S. government has distributed about $80 billion in the Auto Industry Financing Program to support the industry.

DesRosiers says Mexico’s share of North American auto production will rise to 19 percent over the next decade from an average 12 percent in 2000 to 2009. Over the same period, the U.S. will lose 7 percentage points to 65 percent of the market and Canada’s share will hold at 16 percent, he said.

Average Wages

GM workers in Mexico earn wages and benefits of 340 pesos a day ($26.40) on average, or less than $4 an hour, said Tereso Medina, head of the union for GM’s 5,000 workers in Saltillo, a city that makes one in four Mexican autos. Ford workers in the U.S. earn about $55 an hour with benefits, compared with $50 an hour for Toyota Motor Corp.’s U.S. workers, Lewis Booth, Ford’s chief financial officer, said on a Jan. 28 conference call.

Representative John Dingell, a Michigan Democrat, said U.S. automakers that received government assistance should work to preserve U.S. jobs.

“I understand the economic argument for the off-shoring of production, but I think the practice is reprehensible,” Dingell said in an e-mail. “U.S. automakers have benefitted greatly from federal largesse and should feel morally compelled to retain and create as many domestic jobs as possible.”

In addition to labor costs, automakers are attracted to Mexico because of the North American Free Trade Agreement and the country’s proximity to the U.S., Robinet said. Other benefits include Mexico’s more than 30 free-trade accords with European Union members, Japan, Colombia and other countries, and quality that matches the U.S. and Canada, he said.

Union Concessions

U.S. and Canadian unions have made concessions to bring costs at older factories in line with Toyota’s and Honda Motor Co.’s U.S. plants. Ron Gettelfinger, the outgoing United Auto Workers president, oversaw an agreement to allow lower wages for new hires.

Even with the UAW concessions, Mexico remains attractive, Medina said.

“For the new strategies of the automobile industry, this region should benefit,” Medina said in an interview.

Christine Moroski, a UAW spokeswoman, declined to comment.

Mexico stands to benefit from more stringent U.S. fuel- efficiency requirements because it’s more profitable to make small cars where labor costs are lower, Robinet said.

Chrysler announced in February it’s spending $550 million to retool its factory in Toluca to assemble the Fiat 500 model.

Last month, Ford reopened an assembly plant in Cuautitlan to build 2011 Fiesta cars. The factory will generate 2,000 jobs and is part of $3 billion in investments announced since 2008. In the U.S., Ford has closed four assembly plants since 2006 and plans to close four more facilities by the end of 2011.

Ford’s Investment

Mexico was responsible for 14.2 percent of Ford’s U.S.- Mexican car production last year, and 16 percent in 2008, compared with 11.8 percent in 2006, according to company data.

For every dollar Ford invested in Mexico during the past five years, the company spent $7 in the U.S., said James Tetreault, vice president for North American manufacturing. Ford’s two Mexican assembly plants have operated for more than 30 years, he said.

“In North America, it’s all about utilizing our existing footprint,” Tetreault said in a phone interview from Dearborn, Michigan. “It’s not like we’re building greenfield plants and moving production to Mexico.”

Ford fell 17 cents, or 1.5 percent, to $11.05 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 11 percent this year.

U.S. car and light truck production declined every year to 8.45 million in 2008 from 11.5 million in 2005, according to Ward’s Automotive Yearbook. In Mexico, output rose every year to 2.08 million in 2008 from 1.61 million in 2005, the data show.

Auto Production

Production fell in both countries last year, by 28 percent to 1.5 million units in Mexico and 34 percent to 5.56 million in the U.S., according to Ward’s.

This year, U.S. production in April rose 40 percent from a year earlier to an annualized rate of 7.05 million vehicles. Mexico’s output jumped 77 percent and is on pace to top 2008, according to the Mexican Automobile Industry Association.

GM has announced investments of $3.67 billion in Mexico since November 2007, including a new assembly plant in San Luis Potosi, said Mauricio Kuri, a company spokesman in Mexico City.

The company has closed five U.S.-based assembly plants and put three more on standby since June 2005, Tom Wilkinson, a GM spokesman, said in an e-mail.

A significant portion of Chrysler’s production of the Fiat 500 will be sold in South America, said Jodi Tinson, a spokeswoman.

“Mexico is in an ideal position as a bridge between Nafta and Latin America because of the country’s free-trade agreements with its neighbors to both the north and south,” Tinson said in the e-mailed response to questions.

To contact the reporter on this story: Thomas Black in Monterrey at tblack@bloomberg.net.

if they toss out the union, they could get cheaper workers here. unions cutting their own throats there.

Unions have outlived whatever 'usefulness' they may have ever had ... now they're just Socialist propaganda machines for the regime ... well, that and their 'strong-arm boys' ...

yea, about 20 years ago...

Agreed on the unions. I wouldn't have as a big a problem with companies doing this if they significantly lowered their prices.

HA! Ha! Ha. Hahahahahahahahahaha. HA! ha ...

Your tax dollars 'at work' - again ...

key word "should"....

Allow me to qualify why I despise Unions so much...
The drive the cost of Labor way up with their demands.

How is it some schmuck with no HS education can earn $70 an hour turning bolts on an assembly line?

I went to school as an Air Craft mechanic. My first job in General Aviation was $8.00 an hour. I was college educated yet the guys washing airplanes were making $15 an hour. What is wrong with this picture?

EVERY place the Teamsters Union gets in to winds up shutting down and moving over seas. Guess why?

And then to get into a Union and the dues? I was UAW 148. Screw those jerks in their azzes! When I lost my job they did nothing to help me find other employment. I had to get in line. I paid them for nothing!

If I ever started a major production facility of any kind I would have a contract already and if people wanting the jobs wanted to unionize I would lay them off and replace them! There are plenty of Americans looking for work!

need more CEO's that think like you...

When I belonged to the Musicians Union (Local 174-496), it was the closest I've come to directly experiencing the 'benefits' of 'organized labor', 'collective bargaining', and outright Communism. Our 'elections' were always a running joke with no funny punch line ... below each name was the statement in parentheses that 'You must vote for at least one' ... well, there was only one name for each office to start with. The 'union' never did a damned thing to help us FIND work - it only had a list of the rooms and clubs we COULDN'T play ... and if the Local's 'business agent' caught NON-union musicians on stage with us, well, we were lookin' at payin' FINES for being 'scabs' ... SCREW THE UNIONS. I resigned in '72.

the thing that really pisses me off about this is that once they do move, and they are saving all that money, the prices will still continue to rise.

I pay a Union and they sure did help during this past recession....even though we lost pay we gained certain things against certain loses....union definitely organize and get u moving to where u need to be....

From Mc Donalds where we all want to work.. Because they pay so well. and benefits are great. reagonomics 101.

U need to be born into money to make any money.. yep screw the unions..huh

Oh how I would love to buy out a company like GM and walk into the labor meeting and tear their contracts up in their faces and tell them you want a job here is our contract and go EFF yourselves! You want a job play ball or get replaced! Then comes all that unnecessary management. Streamlined Administration! YUMMY! The savings alone would be tremendous. And a push for product quality, OH YEAH! And about all that taxation, well, with lower wages comes less taxation. And all those super juicy benefits? HA HA HA HA! Yeah the business needs to maintain basic insurance to cover injuries on the job but the rest? I would make sure to have four insurance plans available they can pay into at a reasonable rate but making that the business's responsibility? Take it to Russia! OH BUT COMMUNISM IS DEAD! And there are states that would welcome the auto industry with open arms!

With a business take over all contracts become null and void! If the union wants to strike they can but they cannot impede operations. They would see hoards of scabs descending on their jobs! $12.00 an hour in many states would have people clamoring riot style to get the jobs!

Unions way over stepped their power and now it is time to put them in their places!

and they would do a good job for that 12 dollars an hour.... why? because they know they can be replaced...

It goes like this...

Unskilled labor usually is not worth that much per say becasue any monkey can do the job.

When college training is involved that takes money to get the education but what do you do when there is very little work? Gotta make money you know.

I have heard that "Pay for performance" argument but how hard is it to turn screws? Not hard at all becasue I have done it! So why should "unskilled labor" like most assembly jobs make $50 an hour? They do a good Job?

Pipe Fitters are WAY different. I have had a taste of that job and it requires skilled labor. I can see a Sprinkler Fitter getting $50 an hour!

A little time to walk on reality street.

Say I am a Wealthy Business owner making cars. Now I am having a tough time making any money even though the cars I make are selling like hot cakes but the cost of Labor to make them is too damn high. My profits are gobbled up by taxes (TAX MATCHING!!!) and paying the labor as in of all the money used to make the cars and the end profit from sales is wiped out. Now I raise the prices of the cars and sales fall off. How do I make money? Well, two options, pay cuts so I can make money too or I shut down operations and move my facilities to a place (MEXICO, China cough cough) where I can pay less in wages and sell my cars.

Face it, if a manufacturing business can't make money they leave! Local Police unions here have taken pay reductions to keep their jobs prudently and also did so to save the jobs of other officers! When was the last time any UAW took a pay cut?

They don't and Auto Makers are going over the boarder as their only way past the unions.

Shame on them! And shame on the Teamsters becasue of all the unions they are the Thieves Guild! They drive business away as if they are a plague of boils!

so..here is the irony in global markets, after all the big companies leave the USA for cheaper labor markets in foreign lands, you really wont have to worry much about illegal aliens anymore, since there wont be any jobs worth having in the USA left..come to think of it, the fence jumpers just might end up comming from the other side...

it's not just cheaper labor, i'm sure taxes and environmental laws have something to do with it too.

Once the health care bill jumps into full swing I'd be willing to bet more companies will be going over seas to get out of paying for heath care or the fine they will be impose if they don't offer insurance.