GM and Chrysler are expanding their production facilities in Mexico -- where labor is $3 an hour -- while reducing production at US plants where labor is $25 an hour, and, while seeking bailout cash from US taxpayers.
According to this article by Bloomberg:
Dec. 17 (Bloomberg) -- General Motors Corp., the biggest automaker in the U.S. and Mexico, increased production of $12,625 Chevrolet Aveos south of the border while seeking a bailout to keep domestic plants from closing.
The Detroit-based company and competitors such as Ford Motor Co. shifted more manufacturing to Mexico this year to capitalize on wages less than an eighth of those in the U.S. and factories that make fuel-efficient models. Through November, Mexican plants turned out 5 percent more vehicles than a year earlier, versus an estimated decline of 30 percent in the U.S.
The article goes on to describe how most of the production at GM, Ford, and Chrysler plants in Mexico is small, fuel-efficient vehicles -- which means that Mexican plants are positioned to produce the vehicles that are more likely to be the big sellers in the future.
Lower labor costs in Mexico are not the only reason US manufacturers are moving there:
Lower labor costs are the biggest advantage. At around $3 an hour, the average Mexican wage is less than one-eighth of those in the U.S.’s $25.34 and one-seventh of Canada’s $21.38, according to Sergio Ornelas, the president of industrial park operator Intermex, which provides real estate services to auto and car-parts producers. Ornelas cited information compiled from the Boston Consulting Group, the U.S. Department of Labor and The Economist Intelligence Unit during a recent conference in San Luis Potosi.
Auto companies contribute to a government-run health system and mandated individual retirement accounts for each worker, which keep health and pension-benefit costs low compared with the U.S., Ornelas said.
Got that? ". . . government-run health system and mandated individual retirement accounts for each worker."
Other important points in the Bloomberg article are:
-- Carmakers from China, South Korea, and India are looking at establishing plants in Mexico while Toyota increased production at its Mexican facilities.
-- Mexican car output is increasing while US output is dropping.
As if that's not enough, check out this comment:
If GM and Chrysler are forced to declare bankruptcy, it may speed up the transfer of production to Mexico as carmakers seek to slash expenses, said Nick Criss, executive director of industrial services in the nation for real estate broker Cushman & Wakefield Inc.
"Mexico tends to be the core manufacturer for many companies because it’s a low-cost center," Criss said.
Perhaps the death of the US automobile manufacturing industry is inevitable -- we cannot compete with $3 an hour labor, smaller benefit costs, and -- I suspect -- lower environment and worker safety expenses found in Mexico.