Irony Abound: New Mexican Auto Plants Unable to Find Enough Labor

Try this one on for size, OEMs, especially of the Detroit flavor, have been racing to shift production across the Mexican border, taking advantage of cheaper labor and trade agreements–only now they can’t find enough labor.

In order to attract workers OEMs have been forced to sweeten the deal with things like retention bonuses, new cowboy boots and wages 300 percent more than minimum wage.

The WSJ reports:

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.”

It’s not at the point where labor costs are jeopardizing the Mexican manufacturing movement, but it’s getting closer and leaves the manufacturers–who have traditionally banked on being able to control and set fixed labor costs– in a slightly uncomfortable predicament.

At some plants wages have risen by double-digit percentages with employee turnover hovering close to 10 percent. All this while protests pockmark the summer, in Juárez several of the city’s largest plants have played host to demonstrations calling for higher wages and better working conditions.

Mexico Wage Divide_1

Unfortunately, $3 an hour, despite being well above the Mexican minimum wage is still far too low to attract high quality employees. There’s more money to be made hocking newspapers at intersections or selling street food.

We already know manufacturers have shuffled production off to Mexico in search of fattening the thin margins from smaller, economy vehicles, but much of this was predicated on having a low fixed cost labor force.

The Grey Lady asserts factory wages between $1.15 to $2.30 yield manufacturers cost savings of nearly $1,300 per vehicle or $300 million per annum–but what happens at $3.00 or $4.00 or more?

With employees getting restless could we see the advent of a Mexican Auto Workers Union, or still worse for the manufacturers, picking up and moving even further south, abandoning their collective $16 billion investment in the country?

Ironic isn’t it, the very catalyst of the Mexican pilgrimage could end up being its undoing.

 

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