Movin' To Mexico
By INVESTOR'S BUSINESS DAILY | Posted Monday, June 02, 2008 4:20 PM PT
Autos: Word that Ford will build its new fuel-efficient Fiesta "global car" in Mexico City is bad news for American auto unions. U.S. companies still want to build cars; they just don't want to build them with union labor.
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Ford's investment of $3 billion in two auto plants near Mexico City is the largest foreign company investment ever in Mexico. As oil prices soar and new climate-change rules are readied in Washington, Ford must shift from its reliance on trucks and SUVs to lighter, more energy-efficient vehicles.
This should be something that workers in Michigan and other Midwestern states with decades of automaking experience should excel at doing. Instead, Ford and other automakers are pushing more and more investment abroad — especially to Mexico.
It's tempting to blame automakers for this. Indeed, they do deserve a big chunk of the blame for poor management decisions. And by far, their worst decisions yet came when they agreed to company-destroying labor pacts with the United Auto Workers union that practically guaranteed Big Auto's demise.
We don't fault workers for trying to get more in labor negotiations. But the fact is, past UAW deals have saddled U.S. companies with such high costs that they can no longer make cars here and compete on a global market. So they make cars elsewhere.
Like a coyote caught in a trap, U.S. automakers have been desperately gnawing off a leg to escape certain death. They're closing plants and slashing jobs in Michigan, Ohio and other U.S. union havens, in favor of non-union, foreign places. Like Mexico and China.
Meanwhile, foreign companies have no problem making cars here. They do it in the non-union South, where the UAW is weak.
Though little noted, last year was a watershed for U.S. carmakers. For the first time, foreign producers in the U.S. made more cars — 54% of the total — than the former Big Three. As recently as the 1980s, Ford, Chrysler and GM made 73% of all cars here.
Why is this? U.S. carmakers pay their workers an average of about $73 an hour in wages and benefits — way more than others.
According to the Center for Automotive Research, there's a $16.15 per hour gap between what Detroit's Big 3 pay workers and what Toyota pays workers in the U.S. Add to that a $5 billion a year difference in health care and other retirement costs, totaling thousands of dollars in extra costs on every car sold, and U.S. automakers operate at about a $12 billion a year disadvantage.
It doesn't take an MBA to understand this is an industry in peril.
We've witnessed one of the most dramatic losses of competitiveness of any major industry in American history. From 1999 to 2007 alone, the U.S. lost 281,500 auto-related jobs, or 25% of the total.
Like others, Ford is saddled with enormous legacy health-care costs, labor rules and high wages that make it virtually uneconomic to produce cars in the U.S. And with a Democratic Congress now in a regulating mood, who knows what other hits await ?
Ironically, Ford's move to Mexico may be more a response to GM's labor woes than its own. Last year, GM struck a landmark deal basically giving the UAW a pile of cash to take over its health care liabilities. Many predicted a new era in labor relations.
But a bitter recent UAW strike against key GM parts supplier American Axle & Manufacturing will sock GM with $2.6 billion in losses in the first half of 2008. Last week, GM announced it was laying off 19,000 workers to cut costs. No one, least of all not the UAW, should be surprised.
Ford's move to Mexico should be a warning to the UAW, which has seen its membership shrink from 1.5 million in 1979 to about 500,000 today. The UAW may "win" every negotiation they enter from now until doomsday, but to what end? The decline of Ford, GM or Chrysler is bad news for the U.S. — but it may be a death-knell for the UAW.
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