U.S. automakers Chrysler and General Motors are increasingly outsourcing North American production to Mexico while at the same time asking for more taxpayer money to stay afloat. Perhaps that worst part, however, is the government is basically encouraging the outsourcing, according to the Economic Policy Institute.
Both automakers have already received $17.2 billion in federal aid as the demand for new vehicles has plummeted in a deepening recession in which credit remains hard to get. Now the companies are asking for an additional $22 billion to stay afloat and before they receive it, the Obama administration has demanded that the they cut “manufacturing, headcount, brand, nameplate, and retail network[s].”
According to the EPI, those demands will do nothing more than serve as an invitation to outsource more production to Mexico. Moving production south of the border is certainly nothing new. In 1999, U.S. sales of Big Three vehicles had fallen to 67.4 percent of the U.S. market. By 2008, that number had fallen to 54.8 percent.
Overall, one-third of all Ford vehicles built in North America were built in Mexico. Chrysler and GM produced over one-fifth of all their North American-made vehicles in Mexico.
Perhaps the most alarming statistic of all is the fact that the trade deficit with Mexico in finished autos has remained relatively stable over time. The trade deficit in parts, however, has exploded over the past decade. In 1997, the U.S. held a $1.8 billion trade deficit with Mexico. By 2007, that deficit had ballooned to $12.6 billion.
Overall, the EPI estimates that the total trade deficit with Mexico in parts and finished autos resulted in 234,694 American jobs being displaced.
“The recession was not the only cause of this production collapse; it also reflects a shift in corporate strategy. GM, Ford, and Chrysler all opted to permanently close numerous plants in the United States and Canada in recent years while maintaining or increasing production in Mexico and planning further expansion in Mexico and elsewhere,” The EPI writes.
In order to avoid the further deterioration of America’s auto manufacturing base, the EPI is urging the current administration to impose “Invest in America” provisions if the companies are to receive anymore federal aid. Instead of encouraging outsourcing by forcing the companies to cut jobs in America, the government should be providing the needed funds with strings attached - those strings being American jobs brought back to America.
First, the EPI proposes capping Mexican imports of cars and trucks. In exchange for federal aid, the automakers would not be allowed to invest anymore in Mexico than is needed to maintain Mexico’s share of the North American vehicle market at its 2008 level.
“This could take the form of a standstill agreement on the number of cars and trucks imported from Mexico, as a share of actual sales; Mexico could share in the benefits of recovery, but not at the direct expense of autoworkers in the United States or Canada,” the EPI writes.
Secondly, American policymakers must stop the flood of Mexican-made auto parts. This could be done by requiring recipients of federal aid to agree to exceed or equal the 2008 level of domestic content of cars and trucks sold in North American. Not only would this stop the flood of imported vehicle parts from Mexico, it would also provide disincentives to outsource production south of the border.
Finally, labor laws in Mexico must be reformed, allowing Mexican workers the opportunity to organize more freely. According to the EPI, this would allow Mexican workers to raise their wages and would provide less incentive to American automakers to outsource production there.
These reforms should be applied to both parts suppliers and the Big Three automakers,” the EPI writes. “The administration has awarded $5 billion in funding to U.S. auto parts suppliers. Large suppliers could obtain the funds for parts shipped to the automakers but not yet paid for. Any suppliers with parts operations in Mexico should be required to comply with the labor rights standards specified above in return for access to government loans.”
While bankruptcy is not an option for such a vital U.S. industry, neither is aiding and abetting the outsourcing of millions of American manufacturing jobs - which is exactly what the government is doing by forcing more plant closures, more job cuts and less dealerships.
“The bankruptcy of one or more U.S. auto companies would cost between 900,000 and 3.3 million jobs, adding up to 2 percentage points to the national unemployment rate,” they write. “If we stand by while domestic automakers shrink their U.S. footprint to a fraction of its former size, something similar will result, but the process will simply be more drawn out.
“The United States cannot afford to let the industry fail, but neither should it finance the auto industry’s abandonment of its domestic production base. An “Invest in America” requirement is an essential component of any further government assistance for U.S. auto companies.”