Shifting Work to Mexico Now Up for UAW Vote
Reposted from Portside
Alisa Priddle and Greg Gardner
Detroit Free Press
Building more cars in Mexico.
It’s a flash point for about 40,000 UAW workers preparing to vote on a tentative agreement with Fiat Chrysler Automobiles, knowing the new four-year pact includes pay increases, profit sharing and bonuses but also shifts car production to plants south of the border.
It raises the question: Is Mexico to be feared as a low-cost producer that steals jobs? Or is it the low-cost producer best-suited to assemble lower-profit vehicles, freeing up money to pay U.S. workers higher wages to build trucks and utility vehicles in the U.S.?
It’s an odd quirk of labor relations that unionized workers at Fiat Chrysler in the U.S. have a say in this aspect of the company’s global corporate strategy.
The UAW and Fiat Chrysler reached a tentative agreement Tuesday night that puts more money in workers’ pockets and invests $5.3 billion to update plants. The investment is part of the automaker’s five-year product plan and involves shifting the geography of where many Chrysler, Dodge, Ram and Fiat vehicles are made.
In broad strokes, pickups and SUVs will be made in retooled plants in the U.S. Cars, including the compact Dodge Dart, the midsize Chrysler 200 and a small Jeep to replace the Compass and Patriot will move to a plant in Mexico.
Fiat Chrysler is not alone. Ford is shifting small-car production out of a Michigan plant, potentially to Mexico, making it a contract issue in talks with the Dearborn-based automaker as well. And the UAW wants to ensure it does not lose any GM jobs to Mexico over the length of its new contract.
The Detroit automakers are not unique. All automakers build vehicles in lower-wage countries; it serves as a counterbalance for a better U.S. wage while remaining globally competitive. It’s a way to have your cake and eat it too with the added benefit of building some cars closer to where they will actually be sold in foreign markets. The difference is companies without unions can make the decision to build in Mexico unilaterally.
Everyone is investing in Mexico
In 2014, automakers announced $18.25 billion in additional investments in North America. The breakdown: almost $10.5 billion for the U.S., $7 billion in new projects for Mexico, and a single $750-million project for Canada, according to the Center for Automotive Research in Ann Arbor.
That’s on top of the 18 plants already in Mexico, and at least five more planned or under construction. Mexico has seen a 40% increase in auto jobs since 2008 to 675,000 last year while the U.S. saw only a 15% increase in the same period to more than 900,000.
Within North America, labor costs in northern U.S. states are close to $60 an hour; the South is closer to $40 an hour, and Mexico is less than $10. Canada is even higher, said Peter Hall, chief economist with Export Development Canada.
The average Mexican will work up to 450 hours more than an American every year, earning less than a fifth of the pay, according to the Organisation for Economic Co-Operation and Development.
Of the vehicles built in North America last year, Mexico produced about one in five, or double the rate from 2004. WardsAuto, which tracks production data, expects the rate to increase to one in four by 2020.
“Moving cars to Mexico makes sense,” said Haig Stoddard, industry analyst for WardsAuto. “It makes sense to build less-profitable vehicles in Mexico and more-profitable ones in the U.S.”
Workers at FCA will have to decide whether shifting work to Mexico is a threat or whether the new products to be built in American plants offer greater job security.
“With the trend to consumers buying crossovers, demand for the 200 and the Dart will be flat at best going forward,” Stoddard said of the cars moving to Mexican plants. U.S. workers will continue to make popular Ram pickups and the most popular Jeeps.
And production shift concerns may be overshadowed in workers’ minds by the monetary gains in the tentative agreement.
Details of UAW agreement with Fiat Chrysler
Upon ratification, every UAW worker receives a $3,000 signing bonus.
And there are wage increases for all. Those hired before 2007 will get 3% raises and lump sums equal to 4% of their annual pay. That will take the base wage of an assembler from $28.05 an hour to $29.76 by the third year.
Second-tier workers with six or more years of service will receive incremental raises that take them to a maximum of $25.35 an hour. The starting wage for new hires and entry-level employees with less than one year of service goes from $15.78 to $17 an hour with annual raises until they reach $22 an hour. They also receive a 6.4% contribution to their 401(k) account.
There is a new profit-sharing formula with extra payments of up to $4,000 for second-tier workers if the company achieves higher profit margins. And there are additional lump sum payments ranging from $4,000 to $13,000 based on the company achieving other performance targets.
A new health care co-op for active workers is designed to stem rising health care costs, allowing benefits to remain largely unchanged, UAW President Dennis Williams said during a news conference on Friday.
As ratification votes are planned for Fiat Chrysler workers this week, Williams will soon choose the next company with which to finalize a formal agreement.
Williams has said he expects more goodies from Ford and General Motors because they have healthier spreadsheets. And he will be looking for plant investments, job guarantees and commitments to keep production in the U.S.
Ford must defend Mexico decisions
At Ford, that means securing something new to build at the Michigan Assembly Plant. The automaker plans to stop making the Ford Focus compact car and the C-Max hybrid and C-Max Energi plug-in hybrid there in 2018.
One idea on the bargaining table is bringing the Ranger back to the U.S. market and producing the compact pickup, as well as the Everest SUV, which could be sold as a reincarnated Bronco, at the Michigan plant.
Ford has also announced plans to spend $2.5 billion on new engine and transmission plants in Chihuahua and Guanajuato, in central Mexico, creating 3,800 jobs.
General Motors resisting trend
So far, General Motors has been the most reluctant of the Detroit Three to move small-car production from the U.S. to Mexico.
Some assembly of the 2016 Chevrolet Cruze will be done at the GM plant in Coahuila, but most Cruzes sold in the U.S. will continue to be built at the Lordstown, Ohio, plant.
GM makes its smallest cars, the Chevrolet Sonic and Buick Verano subcompact sedans, in Lake Orion, largely because the UAW agreed in 2010 that up to 40% of Lake Orion assembly’s workforce can be second-tier workers who are paid less.
But GM is following the trend of building utility vehicles in the U.S., announcing plans last year to bring assembly of the next-generation Cadillac SRX (to be renamed the XT5) north to Spring Hill, Tenn., from Ramos Arizpe, Mexico.
If new vehicle sales in the U.S. continue to skew even more toward pickups, SUVs and larger crossover vehicles, GM could make more changes. The automaker has committed to $5.4 billion in investments across 40 U.S. manufacturing sites of which $3.5 billion, or 65%, is targeted for pickup and large SUV plants in Flint, Ft. Wayne, Ind., and Arlington, Texas.
One of the questions negotiators at GM will have to answer is this: Will the wage increases hammered out by the UAW and Fiat Chrysler change GM’s cost structure so much that producing passenger cars in the U.S. becomes less feasible, especially as GM’s brands sell more sedans and coupes?
GM is investing $5 billion and adding 5,600 jobs from 2013-18 with manufacturing hubs in Toluca, Ramos Arizpe, Silao and San Luis Potosi in Mexico.
Contact Alisa Priddle: 313-222-5394 or firstname.lastname@example.org . Follow her on Twitter @AlisaPriddle. Brent Snavely contributed to this report.
Reposted from Portside