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Automakers building factories in Mexico

An employee works on a Passat sedan at the Volkswagen plant in Chattanooga, Tenn., in 2012. Lured by low wages and tax-saving free trade agreements, auto companies from the U.S. and overseas are accelerating plans to build new factories and add jobs in Mexico. (Associated Press)
Associated Press

DETROIT – Mexico has become the most attractive place in North America to build new automobile factories, a shift that has siphoned jobs from the U.S. and Canada, yet helped keep car and truck prices in check for consumers.

In the past two years, eight automakers have opened or announced new plants or expansions in Mexico. Just last week, Toyota announced a new plant in Guanajuato to build the popular Corolla, work now done in Canada, while Ford unveiled plans for Mexican engine and transmission factories.

Low labor costs and fewer tariffs are the swing factors. A worker in Mexico costs car companies an average of $8 an hour, including wages and benefits. That compares with $58 in the U.S. for General Motors and $38 at Volkswagen’s factory in Tennessee, the lowest hourly cost in the U.S., according to the Center for Automotive Research, an industry think tank in Ann Arbor, Michigan. German autoworkers cost about $52 an hour.

Mexico also trumps the U.S. on free trade. It has agreements with 45 countries, meaning low tariffs for exporting globally. That, along with low labor costs, convinced Audi to build an SUV factory in the state of Puebla. The German automaker will save $6,000 per vehicle in tariffs when it ships a Q5 to Europe, compared with building the same vehicle in the U.S., says Sean McAlinden, chief economist at CAR.

Audi also sells the Q5 in the U.S., where tariffs on cars built in Mexico were dropped under the North American Free Trade Agreement.

The cost savings also should allow automakers to add expensive fuel-saving features to meet stricter U.S. government gas mileage requirements without raising car prices. Two-thirds of cars made in Mexico are shipped to the U.S.

While Mexico’s auto industry booms and workers welcome the above-average wages, they are speaking out more loudly about working conditions.

Mexican auto production more than doubled in the past 10 years. The consulting firm IHS Automotive expects it to rise another 50 percent to just under 5 million by 2022. U.S. production is expected to increase only 3 percent, to 12.2 million vehicles, in the next seven years.

Automakers now have 18 factories in Mexico, many built in the past 10 years. In four years, five more will be built, moving the country from the world’s seventh-biggest auto producer to fifth.

The shift means jobs that could have gone to the U.S. or Canada went south. The number of auto-making jobs in Mexico has risen almost 40 percent since 2008, from 490,000 to 675,000 last year, according to government and industry statistics. During the same period, U.S. auto manufacturing employment grew 15 percent to nearly 903,000.

Toyota’s new plant will create 2,000 new jobs, while Ford’s $2.5 billion investment will add 3,800 jobs.

For Mexican workers, the plants “originally appear like marvelous places because you can earn a salary in exchange for good work,” said Huberto Juarez, a professor at the Center for the Study of Economic and Social Development at the Autonomous University of Puebla.

Some Japanese automaker plants start workers at 90 to 150 pesos per day, or $6 to $10, Juarez says. Others, such as Volkswagen, have paid more than double that. Juarez said Mexico’s auto-making wages are now below China, but better than Mexico’s minimum wage of $4.50 per day.

There is pressure to improve working conditions at Mexican factories. Last week, three former Mazda factory workers publicly complained of injuries and of being worked longer than legally allowed. A union official announced protests in support.

Even so, Juarez said workers probably will stay put. “The big threat is always going to be unemployment. That’s why they stay. Because you leave there and where are you going to go?”

The United Auto Workers complain that companies building in Mexico are taking advantage of “slave-like” wages. “American manufacturing workers could have had good paying jobs that respect basic human dignity,” UAW President Dennis Williams said.

Still, the auto industry’s investments aren’t limited to Mexico. Automakers poured $46 billion into improving U.S. factories from 2010 to 2014. U.S. auto-making employment grew 37 percent during that time.