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OM in the News: It’s Getting More Expensive to Make Cars in Mexico

August 17, 2016

mexico 2mexico 1When car companies began flocking to Mexico more than two decades ago, the big lure was labor, which was plentiful and inexpensive. “Today,” writes The Wall Street Journal (Aug.15, 2016), “with an auto-production boom in high gear, those advantages are being chipped away.” Toyota, BMW, Ford, and several other auto makers have committed to spend a combined $15.8 billion to build new assembly plants or expand existing factories. That is on top of the more than a dozen plants already in operation and billions more being spent by auto-parts suppliers to keep pace.

The competition for employees—both finding and retaining them—is nudging up labor costs. The going rate ranges from under $1 an hour at some parts factories to nearly $3 an hour at the large assembly facilities. That is well above Mexico’s minimum wage of 73 pesos, or $4 a day. Still, it is too low to attract the quantity and quality of workers needed to fill the surging number of openings. 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.

Auto-industry investment in the country accelerated in the 1990s after the signing of Nafta. In the lead were Detroit car makers and parts suppliers looking to avoid high labor costs at their unionized plants in the U.S.

Classroom discussion questions:

1.Why did so many auto manufacturers select Mexico?

2. What can OM managers do to retain employees?

 

 

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