Converting Production for Public Health: The Case of The Mexican Auto Industry

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The automobile industry, one of Mexico’s most modern and dynamic, has been hard hit by Covid-19, resulting in layoffs and shutdowns. The industry in the United States and Canada is facing the same situation, as well as in China, which is a leading parts supplier. This article explores the background of the crisis and offers a perspective in the framework of the pandemic.

Pedro Pardo/AFP/Getty Images

A Substantial Value Chain

The Mexican automobile and auto parts industry is part of one of the world’s most important global value chains. It developed through the production and trade integration that resulted from the North American Free Trade Agreement (NAFTA), now superseded by the soon-to-be-implemented United States–Mexico–Canada Agreement (USMCA). Mexico became a platform for exports to the United States, which reflected the country’s extreme subordination, in every respect, to the White House and U.S. multinationals.

Mexico’s integration into this value chain also resulted from a relocation process in which automakers moved production to Mexico to capitalize on certain “advantages” discussed herein. After the 2008 global economic crisis, this process deepened and was the basis for Mexico maintaining and even increasing its flow of manufacturing exports during the early 2010s.

This coordination of production and trade extends across the Pacific Ocean and integrates China, which supplies a large percentage of the parts and components used in auto factories. In turn, the automobile industry is based on a highly complex, coordinated network that includes links with other intermediate goods industries, particularly communications technologies, glass, and steel.

Mexico ranks sixth in the world in automobile production, just below South Korea and Germany, and the industry accounts for nearly 4 percent of GNP. Of the close to 4 million vehicles that Mexico produces each year, about 75 percent are for the external market, giving the automotive sector a central position in manufacturing exports overall. Most of the exports, some 79 percent, cross the Rio Grande to be sold to U.S. consumers.

Mexico has factories belonging to Hyundai, Toyota, BMW, Mazda, Fiat Chrysler, Honda, Audi, Ford, Volkswagen, General Motors, and Nissan — some 43 in all. These plants are located in the central and northern parts of the country, in the states of as Aguascalientes, Jalisco, Baja California, Nuevo León, Morelos, Guanajuato, San Luis Potosí, Coahuila, Puebla, and Sonora, as well as the State of Mexico. The locations of these companies is a living testament to Mexico’s unequal and combined development: while capitalism develops industrial parks and plants with high technology oriented primarily toward exports, it maintains entire areas of the republic without industrial development, immersed in the greatest poverty and lacking access to basic resources such as water.

Again, the automobile industry is closely linked to China. According to the Mexican auto parts industry association INA, auto parts coming from China in 2019 were valued at “$8 billion, which represented 14.5 percent of total imports. … Up to 95 percent of the components that go into a headlight or seatbelt produced in Mexico is imported from Asia, according to INA data.”1

Sector specialists claim that Mexico’s automotive production and assembly are, in terms of quality, “competitive” with those of China, South Korea, and Brazil. Mexican automobiles are the paradigm of the capitalist modernization that was promoted through the opening of trade in the 1990s and that deepened over the following six years. This so-called modernization benefited from being near the long border that Mexico shares with the United States — across which billions of dollars in goods pass every day — along with low tariff rates and, most of all, from the low cost of the Mexican labor force compared to the imperialist countries, China, and the most important of the semicolonial countries.

About 2 million people work in Mexico’s automotive industry, which includes the vast auto parts sector. This workforce includes a significant number of women: between 20 and 40 percent in the auto factories, and from 40 to 70 percent in the auto parts maquiladoras.2

The workers in this sector are part of a reconfiguration of the Mexican proletariat that has occurred in the heat of production integration resulting from NAFTA and a massive injection of foreign investment. This new, highly precarious part of the working class is spread out across industrial parks, working in multinational companies and their subsidiaries, and is at the center of the maquiladora and export industry. Of Mexico’s 42 million wage earners, more than 11 million are working in industrial production. This component of the working class is largely invisible to many, but in recent years it has engaged in various actions of resistance and organization, particularly in Ciudad Juárez, Matamoros, and in states such as Guanajuato.

The Dynamics of the Covid-19 Crisis and the Automobile Industry

As the Covid-19 pandemic has expanded globally, there have been immediate economic and financial consequences: huge production and trade cutbacks in the world’s major economies, as well as a general fall in the stock markets. This has created a dynamic that could lead, as a number of analysts have suggested, to a worldwide depression of the capitalist economy. The auto parts value chain felt the effects from the very beginning of the pandemic, and it has since been paralyzed.

It turns out that the city of Wuhan is one of the main centers of China’s automotive sector, along with Shanghai and other cities. It is home to manufacturing facilities for hundreds of parts suppliers, including Bosch, ZF Friedrichshafen, and Valeo. First the supply of parts came to a halt, which — as the pandemic and the accompanying financial debacle widened — led to the shutdown of plants in the United States, Canada, and finally Mexico. This directly affected the production of components, parts, and inputs, leading, for instance, to the temporary closures of Vitro, Pirelli, Michelin, Bridgestone, and other automotive glass and tire producers.

Some of the large automobile companies suspended their activities in Mexico in the last two weeks of March. This was an initial response to the strong slowdown in sales during the month and the forecast that it would deepen in months to come, as well as to the paralysis of the supply chain. As a result of plant closures, the number of customers fell by 85 percent, visits to automotive maintenance centers fell by 60 percent, and production fell by 25 percent. When the government’s “Healthy Distance” program began on April 1 — establishing a halt to so-called nonessential activities — it initially included the automotive sector.

Several business analysts greeted this closure by saying that it wasn’t wholly inappropriate for the industry, given that for the past two years sales of small and medium-size cars — the most accessible purchases for Mexicans — have been falling in the country. Sales in 2019 in these two market segments fell 8 percent from the previous years. To these figures we can add the forecasts for the international market.

Mexico’s economic stagnation — in the context of growth that has largely been near zero globally in recent years — underlies this retrenchment. But the dynamics created by the pandemic have accelerated the rhythms of that crisis and pushed it into the automotive sector, which had until now been vibrant. In the broader dark forecast for the international economy we must now include a possible cutback in Mexican exports and domestic sales of cars, which is already expected for 2020.

Given that even the most optimistic forecasts include a deep recession, it is likely that the automotive companies will reduce their workforces. Various employers are already taking measures to prepare for this.

During the shutdowns, the automobile factories reduced payment of workers’ wages by as much as 50 percent. La Izquierda Diario has reported on wage reductions, the lack of basic protections, cases of contagion, and layoffs at Volkswagen, Nissan, General Motors, Toyota, Mazda, and other companies. In every case, the wage reduction resulted from negotiations between the company directors and trade union representatives as a “cost sharing” mechanism. The union at Volkswagen — affiliated with the National Union of Workers (UNT), a trade union confederation that claims to be democratic — reached an agreement similar to one signed by the unions in the Confederation of Mexican Workers (CTM). In the case of the auto parts sector, they are practically identical.

Again, automobile and auto parts companies are taking advantage of the health crisis to reduce their labor costs and keep any slowdown in sales and exports from affecting their profits. At the same time, they seek to create a favorable relationship of forces with respect to the workers, taking advantage of the role played by collaborationist union leaderships, to impose a de facto situation on the industry: lower wages and layoffs. We must take them on so that we can use the industry’s multimillion-dollar profits to help address the pandemic.

Are Automakers an “Essential” Industry?

On the horizon looms the implementation, in the coming months, of the USMCA. For the automobile industry, this means adjusting standards and meeting the requirements of the “rules of origin” that establish the percentage of inputs from each member country of the trade agreement each exported commodity must contain.

At the same time, since automotive production is part of a global value chain, suspending Mexico’s manufacturing will interrupt the flow of goods to the United States and Canada. That is why business leaders such as the Group of 10 of Monterrey, as well as the sector’s own employers’ associations, pressured the government of Andrés Manuel López Obrador to declare their activities “essential.”

In the current health crisis, though, in which the aim is to protect the life and health of millions of people, there is no way that the automobile industry is essential — unless it is really about accumulating profit for the multinationals.

Obviously, the highly advanced automobile industry could play a social role in the current crisis. That would mean converting automobile and parts factories to produce ventilators and other goods needed to confront the pandemic. Undoubtedly, this would require some adaptations, but the industry’s high technological level, highly skilled workforce, and the work of its specialized technicians and engineers would all facilitate the conversion of many of the sector’s factories. Moreover, it is clear that producing ventilators is much more important for humanity right now than manufacturing highly polluting automobiles that in their production processes consume hundreds of thousands of liters of virtual water3

In fact, governments in several capitalist countries have ordered auto companies to produce critical medical equipment. That is the case in the United Kingdom, and in others, such as the Spanish State, it is being discussed in the media. Companies do not want to do this, though, because prioritizing social needs will affect their profits and lead to “losses” as they abandon the markets they dominate. And governments in the service of the capitalists will not force them to do so.

In the nonessential companies that remain open, as well as in those that claim to be essential but are not, it is the workers who should take control and manage production. Workers should decide which companies should close and which should remain in operation, with adequate safety and hygiene protections, to begin this conversion and put production at the service of confronting the virus. This is how to confront the capitalists’ thirst for profit, which only paves the way for the coronavirus to wreak even more havoc on workers and our families.

It is clear that if the impact of the coronavirus is evidence of the dismantling of public health perpetrated under neoliberalism, the practice of big business is evidence of how, in the face of a crisis of such magnitude, the primary interest is to guarantee profits and the best possible conditions for greater extortion of surplus value.

The main virus we face is, actually, capitalism — an absolutely regressive and reactionary system that in the 21st century cannot guarantee even the most elementary things, such as work and decent health, for the majority of the population. That is what unites these immediate demands: that workers, and not a handful of CEOs and their boards of directors, should decide whether production continues; that there be no wage cuts and no layoffs; and that the automobile industry produce medical equipment under workers’ control.

These demands flow from a political perspective that challenges the status quo enshrined and defended by big business and the political class at its service. From this perspective, we see that the only way out of the current situation, fully and effectively, is to put an end to capitalism through the revolutionary action of the working class and all the oppressed and exploited, and to set up a society without exploiters or exploited people. This is what the Covid-19 crisis puts on the table, and given the historical urgency, it is a matter of organizing ourselves politically with a socialist strategy to fight for an alternative to the black clouds on the horizon that the bourgeoisie’s domination creates.

Translated by Scott Cooper 

 

Notes   [ + ]

1. Ivet Rodriguez, “¿México puede producir los componentes automotrices que importa de China?” (Can Mexico produce the automotive components it imports from China?), Expansión, March 6, 2020, https://expansion.mx/empresas/2020/03/06/mexico-producir-autopartes-china-oportunidad-coronavirus.
2. Translator’s notes: These are the duty- and tariff-free factories — with extremely low wages and dangerous working conditions — that are largely near the U.S. border and sprang up with the introduction of NAFTA, when northern Mexico became an export processing zone.
3. Translator’s note: “Virtual water” refers to the “hidden” water cost embedded in producing consumer products, including not only water used directly in production of a particular good but also any water required in the packaging, shipping, and other associated processes.

About author

Pablo Oprinari

Pablo Oprinari

Pablo is a sociologist from Mexico City and a leader of the Socialist Workers Movement (MTS).