GM Strike Is Hitting Workers in Mexico Hard
More than one-third of General Motors’ 84,000 workers in Mexico have been laid off or had their hours cut because of the U.S. strike which, if prolonged, threatens to upset the flood of auto exports that is helping to lift this country out of its economic malaise.
GM’s pain is compounded by the fact that production cutbacks loom just as the Mexican car market is roaring back to the pre-1994 peso crisis days. GM could miss out on a seller’s market here if it can’t get cars and trucks to showrooms.
Although the strike doesn’t compare with other economic shocks suffered by Mexico of late, it has negative ramifications beyond lost wages. An increasing percentage of cars made here are being shipped north to dealers in the United States, generating badly needed foreign exchange.
GM is Mexico’s largest private employer and accounts for at least one-quarter of those automotive exports. A lengthy strike and resulting production stoppage would reduce that dollar flow. Auto exports now bring in $20 billion worth of foreign exchange annually--twice as much as oil.
However, most of GM’s Mexico operations produce auto components, many of which are sold to auto makers other than GM. So the company is maintaining enough production to meet those customers’ demands.
The company on Monday closed its first Mexican assembly plant since the strike was called earlier this month, laying off 1,200 workers, or 50% of the rank and file at its Complejo Silao facility in Guanajuato. A lack of metal components from U.S. suppliers was blamed.
Nearly 5,000 more workers at GM’s only other Mexican assembly facility, in Complejo Ramos Arizpe in the state of Coahuila, will be idled Thursday for the day. GM did not rule out longer-term cutbacks if the strike persists.
The strike has been felt more keenly at GM’s Delphi auto parts division. A Delphi spokesman said Monday that 22,900 of its 72,000 parts workers in Mexico have been sent home for at least part of the workweek.
Delphi makes about $7.5 billion worth of auto parts at 53 plants spread around Mexico, making it the parts division’s biggest non-U.S. operation.
There is little chance Delphi will come to a complete halt in Mexico because of its sales to non-GM manufacturers around the globe. For all of 1997, Delphi’s sales to non-GM customers was 38% of total revenue.
With its relatively cheap labor, solid work force and tumbling trade barriers, Mexico has become increasingly important to GM and other U.S., Japanese and German auto manufacturers in recent years. In turn, critics complain about the loss of U.S. auto jobs to Mexico.
The auto industry has also gained in importance to Mexico. Although it represented 3% of Mexico’s economic output last year, it generated $20 billion, or one-fifth, of Mexico’s $100 billion in exports, said Jonathan Heath, an economist with LatinSource of Mexico City.
Last year, three-fourths of the 1,339,276 cars and trucks made in Mexico were exported, mainly to the United States. That’s up from exports of 52.4% of total automotive production of 1.1 million units in 1994.
For the first four months of 1998, GM exported roughly 57% of the 100,000 vehicles it assembled in Mexico, according to the Mexican Automotive Industry Assn.
All those cars heading north are also a big reason why Mexico ran a $1.2-billion trade surplus with the United States in April--and helped produce the United States’ fourth-largest trading deficit with any country after Japan, China and Germany.
Rising auto production is a key component in Mexico’s improving economy, which is expected to grow 4.5% to 5% in 1998. Still, analysts here downplayed the strike’s long-term impact.
As Merrill Lynch’s Latin America specialist Gray Newman noted, an auto strike pales in comparison with other economic blows Mexico has suffered recently, including the steep decline in oil prices that cost the government $2.6 billion in budgeted revenue and caused it to twice cut the budget this year.
Another blow is the Asian currency devaluations that have made manufacturers in the Far East much tougher competitors, hurting the global markets for Mexican exports such as steel and glass.
“While it’s unfortunate for the workers, it’s hard to worry about [the strike’s] effect on the macro economy. It’s certainly nothing that investors have to be concerned about,” Newman said.
Meanwhile, pent-up demand and a more optimistic economic outlook are causing Mexican consumers to reenter the car market. Retail sales are expected to grow 40% this year over 1997 to nearly 900,000 units, according to Deutsche Bank economist Oscar Vera in Mexico City.
GM’s biggest competitors in Mexico, Chrysler and Volkswagen, which each have a Mexican market share roughly equal to GM’s 25%, would only be too happy to see the Detroit giant miss out on the sales boom, Vera said.
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Times researcher Brinley Bruton in Mexico City contributed to this report.
