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Wariness as Auto Industry Eyes Mexico for Growth

Jul 23, 2015

July 22, 2015
By Bill Vlasic

DETROIT — The unlikely comeback of the American auto industry has generated tens of thousands of new jobs at Fiat Chrysler, Ford and General Motors.

But as the United Automobile Workers union enters talks on new contracts with the Detroit car companies, perhaps its biggest worry is losing vehicle production to lower-wage nations like Mexico.

Ford, which starts negotiations with the union on Thursday, stunned U.A.W. leaders this month with its unexpected decision to move small-car production from a Michigan assembly plant in 2018 to an undisclosed location.

The union’s president, Dennis Williams, bristled when asked last week to comment on the possibility that Ford may send the work to Mexico.

“I will save my comments on Ford for when we open up negotiations,” Mr. Williams said. “But it is always concerning to me when any company invests outside the United States.”

The rapid growth of the Mexican auto industry has been a growing source of concern for the union, particularly because many of the products built south of the border are destined to be sold in American showrooms.

Auto plants in Mexico are on track to export about 70 percent of their production this year to the United States, according to the Mexican Automobile Industry Association trade group.

And automakers are stepping up their investments further to take better advantage of cheaper labor costs and Mexico’s attractive trade environment, made possible by pacts like the North American Free Trade Agreement.

Companies like Toyota and Volkswagen are constructing new plants in Mexico, and Ford and G.M. have announced big new investments in existing facilities there. At the same time, the number of unionized manufacturing plants in the United States has remained largely static.

“In the past two years, there has been about $19 billion in new investments announced for Mexico,” said Harley Shaiken, a professor at the University of California, Berkeley who has studied the growth of the Mexican auto industry. “This raises enormous competitive issues for the U.A.W.”

Mr. Williams has consistently criticized decisions by American companies to invest in Mexico, where autoworkers are paid as little as $9 an hour compared with the top U.A.W. wage of $28 in the United States.
“They’re using cheap labor, and they’re shipping products here to sell,” Mr. Williams said at a press briefing last month. “That’s wrong for the United States of America.”

But the union is fighting an uphill battle. Free-trade pacts are expanding to Asia and elsewhere, rather than contracting. And Mexico is an increasingly attractive destination for companies trying to maximize profit margins, particularly on small cars.

Ford has not specified where it will move production of its Focus sedan and C-Max hybrids. But it is already cutting 700 jobs at the plant in Wayne, Mich., where they are built, and plans to ship the remaining production elsewhere in three years.

The company said the future of the plant, which has employed as many as 4,700 workers, would be decided at the bargaining table.

“We actively are pursuing future vehicle alternatives to produce at Michigan Assembly and will discuss this issue with U.A.W. leadership as part of the upcoming negotiations,” Kristina Adamski, a Ford spokeswoman, said of the plant.

By relocating Focus production, Ford is essentially acknowledging that it cannot make a decent profit by manufacturing small cars in the United States.

That’s a major reversal for the company since it invested $550 million in government energy loans to convert the Michigan factory to produce fuel-efficient, compact cars in 2009.

At the time, Ford’s chief executive, Alan Mulally, said the company was committed to “partnering with the U.A.W. to deliver best-in-class global small cars.”

But small-car sales have suffered in recent months because of low gas prices. And Ford’s limitation on hiring lower-paid, entry-level union workers has crimped its ability to trim labor costs at many of its factories in the United States.

Fiat Chrysler and G.M. can hire an unlimited number of entry-level workers paid $16 to $19 an hour under their current U.A.W. contracts. Ford, however, 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 G.M. and Chrysler in the next contract.

Industry analysts suggest that Ford’s decision to pull small-car production from its Michigan factory is a bargaining chip in the coming contract talks.

The factory needs a new product to secure jobs, and Ford may be looking for concessions on entry-level hiring before it agrees to keep the plant open.

“These are very high stakes issues with the union,” Mr. Shaiken said. “How do they keep jobs if the companies can make more money in overseas plants?”

The Ford talks will test Mr. Williams’s ability to determine a pattern agreement that suits all three Detroit automakers.

G.M. and Fiat Chrysler have both benefited from negotiating their current contracts after their bankruptcies and bailouts.

Besides enjoying unlimited freedom to hire entry-level workers, the two automakers have been insulated from strikes because of agreements struck with the U.A.W. and the Obama administration as part of their bailout packages.

Ford, which did not require a government bailout to survive, has been hamstrung with tougher restrictions on entry-level hiring. And the company is intent on closing the gap on overall labor costs with its Detroit rivals in this set of negotiations.

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