Automotive

Get ready for more expensive vehicles as manufacturers triple wages in MX as part of New NAFTA

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  • Jul 6th, 2020 3:02 pm
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Get ready for more expensive vehicles as manufacturers triple wages in MX as part of New NAFTA

So automakers are tripling wages in their Mexican plants rather than relocate (understandable) due to requirements of new NAFTA agreement

NEW YORK/TOKYO -- The new North American free trade agreement that goes into effect Wednesday was touted by U.S. President Donald Trump as an engine of American job creation. But Japan's automakers are largely opting instead to keep operations in place and pay Mexican workers more or even just pay tariffs.

The US-Mexico-Canada Agreement requires 40% or more of parts for each passenger vehicle be manufactured by workers who are paid at least $16 per hour as a condition to make them tariff free in the region. Trump hailed that feature as a way to boost production in the U.S., which has a higher hourly rate than Mexico.

However, this looks to be wishful thinking. The ratio of US-Canada parts among Mexican-assembled vehicles sold in the U.S. was 13.5% in 2018, according to the U.S. Department of Transportation Highway Traffic Safety Administration. Trump's theory was that U.S. production would inevitably increase to meet the 40% requirement, but Japanese automakers, which had already positioned their production bases according to the old NAFTA regime, are not simply willing to pull up stakes and redeploy.

One reason is the cost of moving production. Honda Motor-affiliated parts maker Keihin will raise the hourly wage of employees at a factory in Mexico to $16 by next month -- triple the average rate of a parts factory in Mexico, but still cheaper than making a move. Because the pandemic has hurt earnings, the cost of the moving production will likely be too burdensome over the foreseeable future.

Auto component maker Piolax, will also raise the hourly wage at its Mexican plant to $16 within the year. The company is also installing robots to mitigate rising labor costs, President Yukihiko Shimazu said.

Toyota Motor, which built a new plant in Mexico in 2015, is not finding it easy to change plans either. The new plant started full-scale production of pickup trucks in February. The trucks are popular in the U.S. and would be subject to a 25% tariff if they do not meet the content requirements of the USMCA. But if Toyota does not operate the factory, it cannot recover its investment.

"We don't want to be whipped around by a policy that we don't know how long it will last," said an executive at a Japanese automaker.

Toyota has told the U.S. government that it will invest $13 billion in America over a five-year period beginning in 2017, but most of this commitment was made before Trump became president.

Consumers will ultimately pay the price for inefficient production and increased component flow. U.S. research agency Center for Automotive Research estimates that 13% to 24% of all cars sold in the U.S. will be subject to tariffs. If automakers pass these costs on, prices will rise by $470 to $2,200.

The center also said U.S. car sales will drop by up to 1.3 million units annually due to the Trump administration's trade policy -- including sanctions on China. It estimates that 70,000 to 360,000 jobs will be lost, leading to a $6 billion to $30.4 billion reduction in gross domestic product.

The pandemic is also dragging down demand, setting up a tough road ahead for the auto industry.
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Yeah if companies could have it there way, nothing would be produced domestically.

Kinda sucks that Canada's manufacturing sector is gonna be dead like a door knob by 2030. I'd like my cars produced in the US or Canada. Gives me a sense of pride.
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The real winner is the Mexican worker. Higher wages there will mean better living standards and eventually they will be able to by more, including things made in Canada/USA.
Now CAN/USA union workers need to work better to match their non-union workers and stay competitive.
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engineered wrote: The real winner is the Mexican worker. Higher wages there will mean better living standards and eventually they will be able to by more, including things made in Canada/USA.
Now CAN/USA union workers need to work better to match their non-union workers and stay competitive.
Why would mexican workers buy stuff made in Canada or US? Most of Mexico's imports from the US is auto parts and other inputs. Consumer goods are mostly from China and Europe as china is their second largest import country followed by eu countries.

And while all Canadians/Americans will pay more for each car, it's only the Mexican workers in the factories who will get the higher pay, not like we are lifting wages of others in the supply chain down there

There's very little goods Mexico consumers would buy from Canada/US

Consumers just pay more so mexicans can buy more stuff from China.

I also don't see how any worker in US/Canada can compete with a worker in much lower cost of living place like Mexico. Just like no worker in Canada can be competitive with one in Vietnam, let alone china in terms of productivity/cost
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Donald Trump negotiated a great deal for ... Mexico.

What a shocker haha
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StatsGuy wrote: Why would mexican workers buy stuff made in Canada or US? Most of Mexico's imports from the US is auto parts and other inputs. Consumer goods are mostly from China and Europe as china is their second largest import country followed by eu countries.

And while all Canadians/Americans will pay more for each car, it's only the Mexican workers in the factories who will get the higher pay, not like we are lifting wages of others in the supply chain down there

There's very little goods Mexico consumers would buy from Canada/US

Consumers just pay more so mexicans can buy more stuff from China.

I also don't see how any worker in US/Canada can compete with a worker in much lower cost of living place like Mexico. Just like no worker in Canada can be competitive with one in Vietnam, let alone china in terms of productivity/cost
I didn't say they'd buy it all from CAN/USA, but if they have more money they will buy more stuff, some which will be from CAN/USA, whether it's finished consumer goods or more raw materials, or even consumer services.
Higher wages will also bring up the wages for other unrelated jobs. The same thing happened in CAN/USA with the labour unions.
In general, higher wages anywhere is good for CAN/USA, as exports from here will increase.

Also, at $16/hour, that almost nullifies any advantage Mexico has, as that's about what new hires at CAN/USA manufacturers make. Mexico also has the disadvantage of lower skilled workers, security/safety issues, and being more difficult and less desireable for CAN/USA engineers to travel to. This will highly discourage companies from building new factories in Mexico instead of CAN/USA.

CAN/USA will only be paying more for cars that don't meet the new rules and will be tarriffed, just like any truck made out of NAFTA has always been. This also applies to the sub-component suppliers (40% of them).

Now that said it is only 40% which isn't that much. Most parts are already made in NAFTA, so it would be nice to see the $16 rule be applied to at least 80% of the car. Ethically it should be 100% and should include that the parts are made in factories that meet CAN/USA safety standards. A great way for the rest of the world to punish China and rebalance things would be to require that all products imported into CAN/USA/EU all meet basic health and safety standards as well as minimum wage standards.
The US-Mexico-Canada Agreement requires 40% or more of parts for each passenger vehicle be manufactured by workers who are paid at least $16 per hour as a condition to make them tariff free in the region.
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No way will tripling the MX wages discourage investment in MX auto factories or shift production to USA or Canada. The Mexican worker is much more productive than his/her counterpart north of the border.

The racist stereotype of the lazy unreliable Mexican worker is pure bs.
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George613 wrote: No way will tripling the MX wages discourage investment in MX auto factories or shift production to USA or Canada. The Mexican worker is much more productive than his/her counterpart north of the border.

The racist stereotype of the lazy unreliable Mexican worker is pure bs.
It definitely won't. Especially UAW has negotiated average wage of $69/hr in US for the big 3.

https://www.cnbc.com/2020/01/17/labor-c ... to-1b.html


$16/hr is still damn cheap. And tariff on other materials probably raise the price more as labour only counts for 2-4% cost of typical car. Less for luxury models.

Audi is making it out like a bandit making Q5s in Mexico.
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George613 wrote: No way will tripling the MX wages discourage investment in MX auto factories or shift production to USA or Canada. The Mexican worker is much more productive than his/her counterpart north of the border.

The racist stereotype of the lazy unreliable Mexican worker is pure bs.
I'm sorry but where do you get your info? I work in the industry and there are many more operator hours per vehicle in Mexico. Yes, they do work harder as they're desperate for the job and don't have the same health and safety as we do, but they are certainly less skilled, especially with the trades. They just throw operators as problems because they are so cheap there, whereas here they would optimize the operation to reduce labour, and add automation (which is the primary reason for jobs decline in CAN/USA).
Xtrema wrote: It definitely won't. Especially UAW has negotiated average wage of $69/hr in US for the big 3.
https://www.cnbc.com/2020/01/17/labor-c ... to-1b.html

$16/hr is still damn cheap. And tariff on other materials probably raise the price more as labour only counts for 2-4% cost of typical car. Less for luxury models.

Audi is making it out like a bandit making Q5s in Mexico.
That's including all pension/healthcare costs. Before benefits wage is like $16-18/hr for new hires. I'm not sure what, if any pension/healthcare benefits they get in Mexico.
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engineered wrote: That's including all pension/healthcare costs. Before benefits wage is like $16-18/hr for new hires. I'm not sure what, if any pension/healthcare benefits they get in Mexico.
https://www.bloomberg.com/news/articles ... utoworkers
Alejandra makes about $1.45 an hour working at a factory in Guanajuato state owned by Hirschmann Automotive GmbH, an Austrian parts maker.
Alejandra’s wage is about double the minimum in her state, but she says it’s not enough to support her and her young son.
So from $2 to $16 in just 4 short years is a huge deal. And won't hurt the investment that's already been made there. Just like we can't build any electronics in North America any more.
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StatsGuy wrote: Why would mexican workers buy stuff made in Canada or US? Most of Mexico's imports from the US is auto parts and other inputs. Consumer goods are mostly from China and Europe as china is their second largest import country followed by eu countries.
And while all Canadians/Americans will pay more for each car, it's only the Mexican workers in the factories who will get the higher pay, not like we are lifting wages of others in the supply chain down there
There's very little goods Mexico consumers would buy from Canada/US
Consumers just pay more so mexicans can buy more stuff from China.
I also don't see how any worker in US/Canada can compete with a worker in much lower cost of living place like Mexico. Just like no worker in Canada can be competitive with one in Vietnam, let alone china in terms of productivity/cost
Indeed, Mexico have more trade agreement than any other country in the world, giving their location with port access to both biggest oceans, they can easily buy from anyone else besides Canada and the US.
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Xtrema wrote: https://www.bloomberg.com/news/articles ... utoworkers
So from $2 to $16 in just 4 short years is a huge deal. And won't hurt the investment that's already been made there. Just like we can't build any electronics in North America any more.
I doubt mexico would just increase wage to $16/h, that is like 20x the minimum wage, there would be a huge pile of job applicant trying to apply for that position.
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Xtrema wrote: https://www.bloomberg.com/news/articles ... utoworkers
So from $2 to $16 in just 4 short years is a huge deal. And won't hurt the investment that's already been made there. Just like we can't build any electronics in North America any more.
I know! That's why it's a huge win for Mexican workers. They're gonna be big ballers with that pay. But for sure they will also see improvements to operations to remove workers and add more automation.
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engineered wrote: I know! That's why it's a huge win for Mexican workers. They're gonna be big ballers with that pay. But for sure they will also see improvements to operations to remove workers and add more automation.
That's exactly what happens when your workforce costs more money than what an 'investment' of robots, maintenance and annual service contracts cost. Automate the entire place and all them workers are no longer employed.
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koffey wrote: That's exactly what happens when your workforce costs more money than what an 'investment' of robots, maintenance and annual service contracts cost. Automate the entire place and all them workers are no longer employed.
Exactly one of the plot point of Terminator: Dark Fate.
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koffey wrote: That's exactly what happens when your workforce costs more money than what an 'investment' of robots, maintenance and annual service contracts cost. Automate the entire place and all them workers are no longer employed.
Yep, it will eventually happen. That's what Andrew Yang was campaigning on.
Xtrema wrote: Exactly one of the plot point of Terminator: Dark Fate.
Also Wall-e
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