Mexico's New Auto Plants Unable To Find Enough Labor... As Detroit Still Suffers Massive Unemployment

Tyler Durden's picture

North American auto OEMs and their tier 2 suppliers have been in a race to move auto production across borders to low-cost countries (LCCs) for the past couple of decades as soaring wages, pension and OPEB obligations made production in the U.S. all but impossible.  Supporters of minimum wage hikes could learn from the efforts of the United Auto Workers Union which did a masterful job negotiating off-market wage and benefits packages which ultimately only served to provide their members with permanent job losses.

Of course, the groundwork for the shift of auto production to Mexico was laid with the passage of NAFTA in 1993 by former President Bill Clinton (a fairly inconvenient fact that Hillary would prefer to forget).  Since then, Mexico has been a huge beneficiary of automotive plant relocations with offsetting closures coming from the U.S. and Canada.  A chart from the Wall Street Journal, perfectly illustrates the transition of production capacity to our southern neighbor.     

Mexico Production Share

 

And now, with Detroit unemployment still over 10% (in spite of Obama's stellar jobs "recovery"), newly constructed auto plants in Mexico have only 1 problem, they can't find enough labor.

Per the Wall Street Journal, soaring auto demand (or if you're as cynical as we are, soaring demand for subprime paper backed by loans on brand new $70,000 Escalades made to people with a 550 credit score) and substantial new auto manufacturing capacity in Mexico has resulted in a bit of a labor crisis.  To attract workers, OEMs are being forced to pay over 300% more than minimum wage and provide incentives like retention bonuses and "new cowboy boots."  Another lesson for minimum wage supporters...labor markets work...when labor demand exceeds supply then wages rise.  Unfortunately, the opposite is also true as low-skilled American workers are acutely aware. 

Auto-industry investment in the country accelerated in the 1990s after the signing of Nafta. In the lead were Detroit car makers and parts suppliers looking to avoid high labor costs at their unionized plants in the U.S.

Today, with an auto-production boom in high gear, those advantages are being chipped away.

 

Toyota Motor Corp., BMW AG, Ford Motor Co. and several other auto makers have committed to spend a combined $15.8 billion to build new assembly plants or expand existing factories. That is on top of the more than a dozen plants already in operation and billions more being spent by auto-parts suppliers to keep pace.

 

The competition for employees—both finding and retaining them—is nudging up labor costs. Retention and retraining programs are becoming the norm as are bonuses for employees who agree to stay in place, especially those with valued skills. Some factories are luring recruits with perks such as a new cowboy boots. Vacancies are becoming the norm.

 

“We have a huge supply gap in Mexico that needs to be resolved,” says Stephan Keese, a Chicago-based partner at consulting firm Roland Berger, which works with manufacturers in Mexico. “We’ve only seen the tip of the iceberg of this shortage. Labor rates going up will be unavoidable.

Mexico Auto Jobs

 

Still wages aren't nearly high enough to offset the cost benefits of moving to Mexico which still remains among the cheapest places in the world to build cars. 

Ford is scheduled to open a new $1.6 billion small-car assembly factory in San Luis Potosí in 2018 and hire 2,800 workers. People familiar with the matter say Ford will produce its Focus there, which is currently built in Michigan.

 

A contract reviewed by The Wall Street Journal puts factory wages at the facility at about $1.15 to $2.30 per hour, on par with what other auto-assembly plants currently pay in the region. The move to Mexico will yield cost savings of about $1,300 per vehicle, or about $300 million a year, according to manufacturing experts familiar with the Detroit car maker’s finances.

Wage Divide

 

Labor shortages are regional and are most pronounced in large industrial towns like Juarez, Monterrey and San Jose Chiapa. 

The scramble for workers is most pronounced in Mexico’s industrial strongholds—cities such as Juárez in the north of Mexico—and in the central, heartland states of Guanajuato, Aguascalientes and San Luis Potosí. In Guanajuato, manufacturers including Honda and Mazda Motor Corp are busing workers from as many as two hours way, labor recruiters say.

 

In Juárez, home to nearly 300 factories, large banners around the city advertise openings, new shift work and benefits. To avoid bumping pay, employers are increasingly offering perks such as English classes, use of soccer fields and $200 referral bonuses, or about a month’s pay, for those who recommend new hires. Local officials estimate the city’s manufacturing sector has nearly 15,000 unfilled jobs.

Mexico Production Facilities

 

And what better way to close than a short clip from South Park that beautifully portrays the sentiments of all the unemployed UAW workers in Detroit.

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Stu Elsample's picture

That's right, you clueless union stooges....keep on voting for the political party that has fucked you over by shipping your jobs elsewhere (Clinton's NAFTA), and is allowing millions of 'scab' laborers into the states to work the low skill jobs that you think that you're too good to work.

 

LOL...fucking idiots

bamawatson's picture

we dont need no stinking job

mofreedom's picture

Clinton elected, I go full Galt. No more money to another single woman. Jeez, what a rip.

PT's picture

Let's say that again:  In return for replacing $23 per hour workers with $2.30 per hour workers, cars are now $1300 cheaper to reproduce!!!!  Who knows?  Some of that savings might even be passed down to the customer!  Winning???

And the greedy US auto worker could have kept his jawb, if only he woz willing to work for $2.29 per hour!  I'm quite sure if the auto worker had have accepted a 90% pay cut then the price of mortgages and food would have followed so he could still afford to go to work.  NOT!!!  Yeah sure, Detroit would be sooooooooooooooo much richer if it's workers earnt $2.30 per hour instead of $23 per hour.  I can see all the other shops in town, joyfully cutting their prices by 90% and saying, "Well, see!  That is all our customers can afford so that is all we can charge!  Free markets work!  I just got back from the bank where I negotiated the mortgage on my shop 90% lower so that I could afford to drop my prices so the auto workers can afford to buy the stuff I sell and now I can go out and buy a car and it wil be $1300 cheaper!!!"  That's what?  Take a 90% pay cut so what you produce can be sold 5-10% cheaper???  Fucking awesome! 

So did all the shop-owners of Detroit move to Mexico, so they can sell stuff to Mexican car workers instead of selling stuff to Detroit car workers?  I hear wages are going up over there!  Boom times!  Perhaps those who are planning to go Galt are planning on moving to Mexico too!  Sounds like the place to be!  Imagine how much more people are willing to pay for real estate now that wages have gone up 300%.  (Actually, I have no doubt that little factoid has not been lost on the local RE market.)

Don't worry about rich customers.  They just magically appear!  The banksters will provide!!!

Déjà view's picture

Article FAILS to mention Mexican FREE TRADE AGREEMENTS

Mexico’s low wages and improved logistics were part of the draw. But for Audi, which plans to ship the factory’s output all over the world, what tipped the scales was Mexico’s unrivaled trade relationships. “Mexico had more than 40 different free-trade agreements,” said Rupert Stadler, Audi’s chief executive. The pacts give exporters from Mexico duty-free access to markets that contain 60% of the world’s economic output.http://www.wsj.com/articles/why-auto-makers-are-building-new-factories-i...

EU IMPORT DUTIES NOT CHICKEN $hit!

  • 22% for trucks (including pickups, when the cargo area is more than 50% of the length of the wheelbase)
  • 10% for passenger cars (this includes pickup trucks, when the cargo area is less than 50% of the length of the wheelbase)
  • 8% for motorcycles with an engine capacity to 250cc
  • 6% for motorcycles with a engine capacity exceeding 250cc
  • https://www.carfax.eu/article/customs-clearance-and-import-tax-usa.html
benb's picture

Let's not forget either that major GM lines were relocated to China under the guise of a 'bailout' which was underwritten by over 22 billion is taxpayer money. Somehow the major media outlets never reported the scam... they must have overlooked it.

PT's picture

Hooray!  Now that car workers are paid ten times less, the car companies will hire ten times moar people!  Jobs for everywun!  Hooray!

 

 

No?  Errr, ummmm, maybe I shouldn't mix my ZH articles ...

eforce's picture

Regulations/taxes artificially raise prices, if they didn't exist the Mexican cars would be way more expensive.

Antifaschistische's picture

sounds like a perfect place to send 8000 Syrian refugees

CheapBastard's picture

I bet 99% of those jobless Detroiters voted democrat.

RLE's picture

So let me get this right...you still think it matters which way you vote...it doesn.t and it did not, and has not ever...

Déjà view's picture

Mexico is not responsible for MEss, U.S. Democrats/RINO Neo 'Cons' and NATO are culprits...Syrians can kiss Mexican A$$ !

Mexico Tells Bush It Won't Support Iraq Resolution U.S. Favors

http://www.nytimes.com/2002/10/28/international/americas/28MEXI.html

PT's picture

That does it!  I'm moving to Mexico where I can be paid between $1.15 and $2.30 per hour PLUS receive the joyous knowledge that, if Ford so chooses, they CAN sell their Ford Focuses $1300 cheaper!!!  But the biggest bonus of all is that I might get some COWBOY BOOTS!!!!  I REALLY WANT THEM COWBOY BOOTS!!!  HOORAY!!!

 

Errrr, Dear Capitalists.  I put some sarcasm in there somewhere.  I knew I had to tell you or you wouldn't notice.  There's a reason you think the sun only shines when you open your mouth.

Escrava Isaura's picture

Not to worry.

 

President Trump will tax imports, so these jobs that no one wants in Mexico will come back home to employ the illegal Mexicans here, so they can send the money back to Mexico to Los Cumpadres.

 

 

falconer's picture
falconer (not verified) Escrava Isaura Aug 15, 2016 7:40 PM

People that live in open-aired sewers like Brazil shouldn't throw stones

ZD1's picture

"President Trump will tax imports, so these jobs that no one wants in Mexico will come back home to employ the illegal Mexicans here, so they can send the money back to Mexico to Los Cumpadres."

 

El Presidente Trump will tax imports, so those jobs will come back home to employ US citizens and he'll send those illegal Mexican beaners back to their Mexican cumpradres where they belong.

 

Fixed it for ya

zeronetwork's picture

I wonder why trump wants to built a wall. Oh well, I think keep the american in.

falconer's picture
falconer (not verified) Stu Elsample Aug 15, 2016 7:42 PM

You couldn't pay me enough to live in Mexico

Stu Elsample's picture

...you will soon be living in Northern United States of Mexico

ZD1's picture

It's already like the Northern United States of Mexico in many states such as Mexifornia.

new game's picture

new game says new mexico, lol...

Mikeyy's picture

You're implying that the Republicans opposed NAFTA.  I believe you're mistaken.

new game's picture

my fucking chevy will kick your fords ass, lol

red vs blue will never die...

brainwashed and simply can't purge the urge, lol again.

Chuck Walla's picture

"That's right, you clueless union stooges....keep on voting for the political party that has fucked you over by shipping your jobs elsewhere (Clinton's NAFTA)..."

 

All that and a reduced or no pension to boot!

FORWARD BROKE SOVIET!

JRobby's picture

"Giant Sucking Sound"

God wasn't Bill Clinton close to the worst POTUS of all time?

AnngeloJamaica's picture

Well, then an obvious conclusion then would be to migrate the people from Detroit to Mexico under the Nafta Trade Agreement!  

besnook's picture

nafta or the "move all american manufacturing to mexico treaty" depends upon the free trade of everything but labor unless you are an illegal wetback. if there was a free flow of labor none of these treaties would work.

DrNybble's picture

Can't travel to Mexico because all the roads are ONE WAY north.

Normalcy Bias's picture

You haven't been paying attention. The inevitable solution is for the Auto Manufacturers to buy enough Mexican politicians who'll then allow a flood of desperate Central Americans to emigrate to Mexico and replace the higher wage demanding Mexicans. Easy peasy.

Rinse, repeat with more desperate workers, all the way down through Central America into South America!

xythras's picture
xythras (not verified) Normalcy Bias Aug 15, 2016 9:36 PM

That way soon the Escalade will be made by penguins

PT's picture

So who will buy the $70 000 Escalades now that the $23 per hour US workers have been replaced by $2.30 per hour Mexican workers?  Errrr, tell me again, who was buying the $70 000 Escalades???

 

 

 

 

Oh sillly me, I forgot.  The MOBILE workforce.  They probably bought it with a home loan.  Sleep in it.  Gotta go where the jobs are.

ACES FULL's picture

Why work in Mexico when there is a welfare state just across the open border.

SHEEPFUKKER's picture

This is a centrally planned clusterfuck of the highest order. 

stant's picture

If the jobs are going to Mexico and I didn't want to work I would go to the USA, duh

Hi 

besnook's picture

sounds like the solution to illegal immigration.

DrNybble's picture

They can make more money in the US by not working than working in Mexico in an auto plant.

PT's picture

I hear that in the US they can get a $70k Escalade.  Imagine trying to buy one of them in Mexico while working for $1.15 to $2.30 per hour.

I don't know how.  I'm retarded.  I can actually do maths.

lakecity55's picture

"The Mexican Government is fighting a losing war against American Refugees seeking work."

"There is no work in America," said Police Inspector Jose Abregon. "These poor Americans are streaming over the Border for jobs. We cannot keep track of them."

DrNybble's picture

Can't track them because it was PALNNED that way.

falconer's picture
falconer (not verified) Aug 15, 2016 7:38 PM

POS Escalades are $90K- just sayin'

new game's picture

depreciate 25-30 k after one year. nice...

Al Bondiga's picture

NAFTA fucked everyone and benefitted only a few rich fucks. But you dick pinchers blame unions, right then.

Stu Elsample's picture

you dick tasting union turds voted in the Democrats who are responsible for the NAFTA agreement...so suck on it.

JRobby's picture

now, now boys! can't you settle your differences with a little latent 69 session off campus somewhere?

Ms No's picture

Anymore when I hear anything about a supposed labor deficiency I just translate that as wanting to bring some Muslims in from Africa and make the weapons of mass migration look legit.  They have to get ISIS in here somehow.  Of course, this has the added benefit of destroying the target standard of living as well.

ali-ali-al-qomfri's picture

they are all studying to prepare to become bricklayers, to build the wall.

/s (necessary?)

new game's picture

non union mexicans, of course. but from what i've seen it may take a while.

DrNybble's picture

Mexico can't find workers becsuse they are all in the US collecting welfare and other benefits by NOT working.