Auto Industry Eyes Mexico

Dennis Cuneo car factoryThe American auto industry’s unlikely comeback has generated countless new jobs at Fiat Chrysler, Ford and General Motors.  However, as the United Automobile Workers (UAW) Union enters talks on new contracts with Detroit-based car companies, they seem to be most concerned about losing its vehicle production to lower-wage nations, such as Mexico.

Ford, which starts negotiations with the Union later this week, shocked UAW leaders after deciding to move small-car production from a Michigan assembly plant to an “undisclosed location”.  The rapid growth of the Mexican auto industry has been a growing source of concern for the Union, especially since many of the products built in Mexico end up getting sold in the US.  Mexican auto plants have been stepping up their investments to take better advantage of cheaper labor costs and Mexico’s attractive trade environment.  Companies like Toyota and Volkswagen have already started to build new plants in Mexico, while Ford and GM have announced big new investments in existing facilities in the region.  At the same time, the number of unionized manufacturing plants in the US has remained more-or-less the same.

Union leader Dennis Williams is a well-known critic of American companies’ investments in Mexico, where auto workers are paid a tiny fraction of those in the US.  However, the Union is fighting an uphill battle in trying to reverse policies; free-trade pacts are expanding to other parts of the world, and Mexico is an increasingly attractive destination for companies that want to maximize profit margins.  Ford hasn’t specified yet where it plans moving production of its Focus sedan and C-Max hybrids, although they’re already cutting 700 jobs at their Michigan plant, and plans on shipping the rest of production elsewhere in the next three years or so.  Ford said that the future of the plant would be decided while negotiating with the UAW.  These talks will test Union leader Dennis Williams’ ability to determine a pattern agreement suitable for all three of Detroit’s automakers.

By relocating production, Ford is more or less acknowledging that it can’t make a decent profit by manufacturing small cars in the US.  Small-car sales have been suffering in recent months, and Ford’s limitation on hiring lower-paid, entry-level Union workers has hurt its ability to trim labor costs at many of its US factories.  Fiat Chrysler and GM can hire an unlimited number of entry-level workers, typically paid under $20 an hour under their current UAW contracts.  Ford, on the other hand, is required to bump entry-level employees up to full, $28-an-hour status once their percentage reaches 25 percent of its overall Union work force.

Ford executives have indicated that the company wants parity on entry-level employees with GM and Chrysler in their next contract.  Some industry analysts have suggested that Ford’s choice to pull small-car production from its Michigan factory serves as a bargaining chip in the upcoming contract talks.  The factory needs a new product to secure jobs, and Ford may be looking for concessions on entry-level hiring before it ultimately agrees to keep the plant open.  Thanks to tougher restriction on entry-level hiring, Ford has been hamstrung with tougher restrictions, and is intent on closing the gap on overall labor costs with its rivals in Detroit.

Dennis Cuneo

Dennis Cuneo is a seasoned automotive executive, with a large scope of experience gained through a career that has spanned law, business and economic development. Formerly serving as the Senior Vice President of Toyota Motors North America and trial attorney in the Department of Justice, he currently sits and has on the Boards of numerous trade organizations, economic development groups, and research groups.

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