Wage contracts are inked years before plants open and workers never get a say.
At a ceremony at Mexico’s Los Pinos presidential residence in July 2014, BMW Chief Executive Officer Harald Krüger pledged to spend $1 billion to build a factory in the northern state of San Luis Potosí that will employ 1,500 workers. To mark the occasion, he presented President Enrique Peña Nieto with a model of a silver BMW race car.
[David Welch & Nacha Cattana] May 5, 2017 [Bloomberg Business Week]
The German automaker had unwrapped its own gift two days earlier, a labor contract signed by a representative from the state chapter of the Confederación de Trabajadores de México (CTM), the country’s largest union confederation, and notarized by a Labor Ministry official. The document, which Bloomberg reviewed, sets a starting wage of about $1.10 per hour and a top wage of $2.53 for assembly-line workers. The starting rate is only a bit more than half the $2.04 an hour that is the average at Mexican auto plants, says Alex Covarrubias, a lecturer at the University of Sonora in Hermosillo.
The paperwork was filed two years before BMW broke ground on the new plant, which will turn out $45,000 3 Series sedans. When workers begin to stream into the factory sometime next year, there’s a good chance most won’t know they belong to a union.
So-called protection contracts— agreements negotiated between a company and a union that doesn’t legitimately represent workers—are illegal in the U.S. and Germany. But Lance Compa, a senior lecturer at Cornell’s School of Industrial and Labor Relations, says they’re standard operating procedure in Mexico, where deals are cut factory by factory rather than collectively across a company or industry. Experts say this is a primary reason that wages in the auto sector have stagnated in recent years, despite a fresh wave of investments by foreign carmakers, most recently by German and Japanese manufacturers. Mexico’s union bosses and politicians are more interested in keeping corporations happy than in raising the living standards of workers, Covarrubias argues. “Protection contracts are a way to keep wages artificially low,” he says.
Since 2010, automakers have announced $24 billion in investments through 2019, while parts makers have committed another $3 billion, according to the Center for Automotive Research in Ann Arbor, Mich. Companies often cite the trade agreements Mexico has signed with 45 countries as a key reason they want to locate their plants there. Auto executives will rarely say they chose Mexico because its workers are among the cheapest in the world.
Mexican assembly-line workers earn about one-tenth of what their U.S. counterparts make. Adjusted for productivity, base wages for workers in plants that make transportation equipment rose 20 percent in Mexico between 2006 and 2016, according to calculations by Boston Consulting Group Inc.; in China, they climbed 157 percent over the same period.
Alejandra makes about $1.45 an hour working at a factory in Guanajuato state owned by Hirschmann Automotive GmbH, an Austrian parts maker. The machine operator, who asked that her last name not be used for fear of retaliation, says she has no idea if she and her co-workers are represented by a union. A public records search revealed that a CTM affiliate registered a contract in July 2015, almost two years before the factory was formally inaugurated. Perhaps Alejandra is in the dark because the union collects dues from Hirschmann, rather than employees—a common practice in Mexico.
Alejandra’s wage is about double the minimum in her state, but she says it’s not enough to support her and her young son. She can’t afford to buy shoes or fish and rarely eats out. “As long as the authorities are lining their own pockets, the rest of us can all drown,” she says. Hirschmann did not comment.
On the campaign trail, Donald Trump vowed to renegotiate the North American Free Trade Agreement, to keep American carmakers and other manufacturers from shifting production to Mexico. Yet tweaking tariffs and rejiggering local-content rules may not do much to stop the sucking sounds of auto jobs moving to Mexico. “Protection contracts are at the heart of the pressure on factory wages in the U.S. and beyond,” says Harley Shaiken, a labor professor at the University of California at Berkeley.
The contracts trace their roots to the 1930s, when labor laws allowed unions to initiate a strike at a factory whether it had employee membership at the plant or not, says Héctor Barba, a labor lawyer for the National Workers Union, a CTM rival. This allowed unions to extort money from companies looking to prevent crippling work stoppages, he says. To protect investors, Mexico introduced laws in the 1980s allowing employers to register with one union, thus barring other syndicates from organizing strikes at their plants.
That established a pattern that continues in which a company signs a contract with a union of its choosing as soon as it announces a new project. Ford Motor Co. unveiled plans to build a $1.6 billion plant in San Luis Potosí in April 2016; a collective contract was signed in July. It scaled back the investment after Trump called out the company for exporting jobs to Mexico.
Ludwig Willisch, president and CEO of BMW of North America, says his company chose to build its newest plant in San Luis Potosí because auto exports from Mexico have low-tariff or duty-free access to twice as many countries as those from the U.S. When asked if BMW’s German union had expressed concerns about wages in Mexico, he answered, “IG Metall worries about what happens in Germany.”
That’s not what Angélica Jiménez-Romo, an IG Metall board member, says. Her organization “has significant concerns,” she says. “Unions in Mexico and the CTM, too, often have mafia-like structures and many are directly linked to the Mexican ruling party. In those unions, workers don’t get a say in their wage deals and don’t get asked to participate either.”
Founded in 1936, with the support of then-President Lázaro Cárdenas, the CTM had a stranglehold on organized labor in Mexico during the more than 70 years the country was ruled by the Partido Revolutionario Institucional (PRI). Although its influence has waned somewhat with Mexico’s transition to multiparty rule, the confederation, along with its affiliates, remains a force, with some 4 million members; the National Workers Union claims just 600,000 members. The CTM’s current leader, Carlos Aceves del Olmo, is a member of the PRI who’s served terms in both houses of Congress. Critics who accuse the CTM of signing protection contracts “don’t take into account the fact that workers in Mexico are mature and highly skilled, and when they don’t receive the salaries they deserve, they quit,” the CTM said in a statement.
BMW spokesman Jochen Frey says, “We checked closely which unions that are present in the San Luis Potosí area, and it was clear very quickly that CTM was the most common one.” Frey said the automaker “strives to pay wages that are in the top third level of what’s typical for an area,” and that Mexico is no exception.
The International Labour Organization, a United Nations agency that monitors labor rights worldwide, called on the Mexican government in 2012 to address the issue of protection contracts. A constitutional reform signed into law in February requires unions to prove they legitimately represent workers and shifts responsibility for arbitrating labor disputes from the executive branch to the courts. In an interview, Deputy Labor Minister Rafael Avante acknowledges that the old system “opened the door to vices,” which is why the government has for more than a year now been inspecting plants to ensure that workers are aware of their contractual rights. Yet he says allowing employees to vote on contracts isn’t desirable, as it could embroil companies in bitter negotiations. “We have to bring order,” Avante says.
His boss, President Peña Nieto, has on several occasions boasted that labor tensions have diminished under his watch. “There hasn’t been a single strike in a year and a half under federal jurisdiction,” Peña Nieto said during a ceremony in 2015 to mark International Workers’ Day. He added: “I express my highest regard to unions and worker confederations in the country for this constructive spirit, that without a doubt signals certainty and stability for investors, both national and international.”
The bottom line: Wages in Mexico’s auto sector have stagnated because of contracts that give workers no input on pay.