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The Mexican Auto Industry: Prospects and Tendencies

July 4, 2014

On July 4, 2014, the McMaster Automotive Policy Research Centre (APRC) hosted a presentation by Dr. Alex Covarrubias from the College of Sonora in. Dr. Covarrubias’ research focuses on the current growth of the Mexican automotive industry, with a particular emphasis on labour costs and labour relations. His presentation invoked a great deal of discussion from the audience members during the question period.

Dr. Covarrubias began with an overview of Mexico’s growing participation in the automotive industry. He noted that Mexico is currently the world’s eighth largest automotive producer, the fourth largest exporter, and the fifth largest parts and components producer and exporter. Furthermore, he emphasized that the Detroit 3 historically had the largest investments in Mexico, but that leading international carmakers – particularly Volkswagen and Nissan – are expanding their production footprint by investing in Mexico.

He then described the large shift in North American auto industry investment patterns, and rapid relative growth of Mexico since the 1990s. Somewhat ironically, he discussed that at the urging of the US government to locate production facilities close to home, the Detroit 3 have relocated a great deal of their footprint in Mexico in a process he refers to as near-shoring. Additionally, 27% of respondents are expected to offshore within the next three years with Mexico again being the top choice.  This illustrates what will be a continuation in the growth of Mexico’s automotive industry.

However, Dr. Covarrubias noted that as the industry within Mexico grows, we are not seeing a growth of the middle class which is typically what results in countries with a growing automotive industry. This led to a very thought provoking aspect of Dr. Covarrubias’ presentation which was his research on the state of the Mexican auto workers and labour relations.  Mexico is the largest manufacturing employer, approaching one million employees and three million individuals relying on the Mexican automotive sector.  The wages of these workers in the Mexican auto industry are drastically lower than other countries wages.  The wages of auto workers in Mexico average at $3.95 an hour in comparison to $33.23 in the US and $40.38 in Canada.  Dr. Covarrubias also discussed the state of union activity in the Mexican Auto Industry.  With the introduction of a tiered wage system, hourly wages continue to be pushed down for new employees, undermining unions and fragmenting negotiation rules.

Dr. Covarrubias concluded by indicated that the previously mentioned factors are used to raise competitiveness through reducing cost, increasing technological development  and the move from structuration to de-structuring through a no pay increase clause, AIF & COLA being suspended and a two-tiered wage system.

The presentation evoked a very interesting conversation afterward regarding the state of the labour market and unions in the Mexican automotive industry and provided valuable insight into the future of the auto industry in countries such as Mexico.

For a copy of Dr. Covarrubias’ presentation click here.


July 4, 2014