Carmakers say adios to Canada as Mexico shifts into higher gear

Part of the parking lot at the former Freightliner truck factory in St. Thomas, a small town about a 30-minute drive south of London, Ont. is weeded over these days. Not long ago, the site was a hive of busy autoworkers. 

But in 2008, German automaker Daimler closed the shop and moved production offshore, part of a $600-million cost-cutting plan that saw 1,400 people thrown out of work. A plumbing component maker has since taken over part of the old Freightliner space, but together with the shuttering of the nearby Ford plant and its 1,100 jobs, St. Thomas's days as a major hub of Canada's automotive industry seem over as carmakers move production to greener pastures elsewhere.

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More often than not of late, the elsewhere in question is Monterrey, the third-largest city in Mexico. About an hour-and-a-half flight from Houston, it's fast becoming a hub of global car manufacturing.

New Freightliner transport trucks roll out of there three at a time nowadays, made by Mexican shop floor workers who work for as little as one-fifth of what a Canadian made doing the same work.

The fact is, Mexico now makes twice as many cars as it did a decade ago, and has leapfrogged Canada in the process.

Investment is flowing

Freightliner aren't the only ones to have moved to Monterrey. A stone's throw west of the Freightliner plant is a Chrysler facility. Just north of the city, ground has broken on a massive Kia plant, the biggest construction project in a part of Mexico that's already booming.

While Mexico was once a bottom feeder on the car industry food chain known mainly for cheap labour, the country is moving up in the world.

"At the beginning, we were just doing assembly," says Diba Iluna, who runs Canadian component maker Magna's powertrain plant in Ramos, about 40 kilometres west of Monterrery. "Now we do assembly and machining of components. We do some very complex components here that seven years ago we thought we would never [do]."

Cellina Villareal, the economic development officer for the state of Nuevo Leon, bristles at the suggestion that Mexico is little more than a bargain bin for workers. 

​"Mexico is not cheap labour anymore. We're giving added value to the processes," says Villareal.

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One company that sees that value is Magna. In many ways the face of Canada's component industry, Magna now has 30 plants in Mexico, employing some 24,000 people. That's a mere toehold for the company, but the shape of Magna's global footprint is changing — and fast.

Car manufacturing output is expected to rise another 50 per cent over the next five years, and all that activity is bringing jobs.

Employment is up 35 per cent in Mexico's auto sector in the past eight years, as international companies have poured $7 billion worth of investment into the country. Contrast that with Canada, which is struggling to find commitments to replace expiring assembly lines at GM, Toyota and others.

The quality levels are as good as they are out of the United States or Canada- Bill Hammond

Companies are rushing to set up shop in part because of labour costs as much as 10 times less than those in Canada, but also because the country's workforce is being trained to do more and more. Productivity at plants there is skyrocketing, which means higher profits for companies — even as wages march higher.

"On average in productivity we gain between six and eight per cent per year," Iluna says. "Due to the attitude of the people, the flexibility of the people, they accept [trying] new things and we can do this... and then gain productivity."

Quality improvements

The quality is improving, too. Bill Hammond of Hammond Power, who have been making electrical transformers in Guelph, Ont., for about a century, says Mexico has made great strides in addressing its quality problem.

"There was a time when Mexico had a reputation of building shoddy product," he says. "We're finding now that global manufacturers are more than willing to accept products coming out of Mexico because the quality levels are as good as they are out of the United States or Canada."

Hammond is among the Canadian companies to have set up shop down south, with three plants in and around Monterrey. Workers like Crisanto San Martin came to the plant with no experience eight years ago, but have slowly risen through the ranks thanks to their diligence, hard work and eagerness to move up.

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"They gave me good training," San Martin says. "When I got here, I didn`t know anything, I didn`t even know what an electrical transformer was. I didn't know any of that and they told me, 'Don`t worry, don't be afraid, you will contribute your part, you will do this,'" he says.

Hammond says his Mexican workers make about 10 per cent of what corresponding workers in Canada would. Although San Martin says it's not enough to live on — his wife still has to work, he laments — he's grateful for his job, and notes that Hammond pays better than most other factories in the area.

Gateway to the world

Beyond keeping costs low, there are more advantages to setting up shop in Mexico. Thanks to more than 44 free trade deals with countries around the world, automakers can save up to 10 per cent per vehicle when shipping a car from there to various export markets. Contrast that with Canada, where businesses lament the red tape involved in even shipping goods between provinces.

With advantages like that, Mexico is fast becoming a triple threat for Canadian manufacturers: a low-cost jurisdiction full of educated, eager workers, in a place that makes it very easy to sell to the world.

Canadian workers like Dwight Hoffman, who worked the line at the Freightliner plant in Ontario for five years, think policymakers need to do something — and fast. 

"We talk to our kids that are older and out in the work field or trying to [find a job], 'Educate yourself for something more than just going into a factory. Because there's no guarantees, none.'"

With files from Amanda Lang