Mexico is facing its own job drain

Having low-wage workers
is no longer enough for
Mexican auto parts plants.

CHICAGO TRIBUNE

PUEBLA, Mexico — She came home from the auto parts plant feeling faint, the burden of being six months’ pregnant and working an eight-hour shift on her feet with only a half-hour off for lunch.

She wondered what would happen if she didn’t take care of herself, but said her main concern was keeping her $55-a-week job at the Johnson Controls plant, regardless that she is paid nearly 40 percent less than those working beside her.

“It is very little. But I have to support my son,” said the small, almost birdlike woman in her 30s who asked that her name not be used out of fear she’d lose her job.

She is just a lowly “temporary worker” at the bottom of Mexico’s auto parts industry. Such workers are growing in number as the country’s parts makers struggle to reduce costs to remain competitive.

Not so long ago, Mexico floated along as a low-cost producer to the auto parts world. But now its niche is threatened by global rivals who can trump it with lower salaries or superior quality and productivity. As a result, Mexican auto parts firms keep pressing to trim costs, and Mexican workers find themselves working longer, harder and sometimes for less.

It’s a mirror of the process that plunged a number of U.S. auto parts firms into bankruptcy and which wiped out 200,000 auto parts jobs in the United States in the last seven years — nearly one-fifth of the nation’s auto parts industry.

Mexico’s auto parts companies are being challenged from almost every direction.

Chinese companies are quickly siphoning away auto parts work that would have been done not so long ago in Mexico. And one Chinese firm, FAW Group Corp., even plans to plant a beachhead in Mexico with its announcement last month it will build an auto plant here to make cars for Mexico and Latin America. That step is likely to usher in a wave of Chinese auto parts firms.

Eastern European companies, which boast higher levels of productivity and technological expertise, also threaten to pull away business. Even the American South, where job-hungry communities lure parts makers with subsidies, promises of low wages and no unions, offer competition and the ability to say their product is made in the U.S.A.

And there also is Central America, where workers earn a fraction of the $1.50 an hour Mexican auto parts workers typically receive.

Mexico is just one player in a global market, explained Jeff Williams, a group vice president for Milwaukee-based Johnson Controls, one of the largest auto parts suppliers in the United States. On the basis of economics alone, he said, “There are some regions that may be more attractive than Mexico.”

And yet the greatest pressures to cut costs comes from within Mexico.

Some Mexican auto parts firms have stepped up recruitment of workers from distant poor communities or from countries that have suffered natural disasters, said Huberto Juarez Nunez, an auto industry expert at the University of Puebla. And some companies have shifted plants to communities where workers will accept lower wages, he added.

One relatively new cost-cutting tactic is hiring workers from temporary help firms. The workers do the same labor as permanent employees but earn lower wages and often remain as temporaries longer than the few months it takes to learn the job, he said.

This, indeed, is the case for the pregnant worker at Johnson Controls.

She has been there for about a year, earning at least $30 a week less than those who do the same work. Still, she doesn’t complain because her pay is better than what she’d get at most factories, and she hopes to become a permanent worker one day — the reason, said Nunez, most workers gladly accept such work.

The greatest pressures may come from the automakers themselves.

“They don’t ask you for price reductions. They basically just impose them,” said Ramon Suarez, president of the Industria Nacional de Autopartes, or INA, the Mexican auto parts-makers’ trade group. The auto companies also demand that the parts makers produce more with fewer workers, he said. That is why, he added, Mexico’s nearly 460,000-worker auto parts industry has barely nudged upward in number of employees over the last few years.

His group’s advice to auto parts-makers is to dump their long-term strategy of being low-cost, low-wage competitors, a strategy that helped them expand dramatically after the 1993 passage of the North American Free Trade Agreement.

Instead, they have to offer higher technology and more value to the auto companies, he said.

“There will always be someone who will pay lower wages than you,” Suarez said.

Some auto parts firms have embraced this strategy, but “it is not at the rate we would like,” he said.

Ricardo Haneine, an auto industry expert in Mexico City for Chicago-based A.T. Kearney, who has advised the Mexican government and the auto parts industry on strategies, said Mexico must pump more money into “technological development” and the training of skilled auto workers. The hurdle is the low-wage strategy has been locked into the way foreign-owned auto parts-makers and others do business in Mexico, said Jorge Carrillo, an auto industry expert at the Colegio de la Frontera Norte in Tijuana.

Pleading competitive pressures, the companies try to get unions to keep wages down, said Carrillo. In some cases, the unions do not resist because they are weak. And in others they go along because they are pro-business, he added.

Even before they begin doing business in Mexico, some firms sign so-called protection agreements, which guarantee them labor peace and low wages, Carrillo said.