Home > The Outsiders, Unions > Government Motors is expanding …in Mexico

Government Motors is expanding …in Mexico

According the Wall Street Journal, GM is plowing more money into Mexico:

U.S. automobile giant General Motors Co. said Tuesday it plans to invest close to $500 million in its Ramos Arizpe plant in northern Mexico to produce a new line of engines as well as a new vehicle.Of that amount, the company is investing $284 million to manufacture eight-cylinder engines with spark-ignition direct-injection technology, known as SIDI, Grace Lieblein, chief executive of GM de Mexico, said at an event.

“We estimate that these technologies allow for a 9% improvement in fuel efficiency from current engines,” Lieblein said, adding that the investment will directly create 390 jobs in Coahuila state, where Ramos Arizpe is located.

Another $215 million will go toward upgrading the factory’s production lines to build a new vehicle for the domestic and international markets, she said, noting that the investment will be key to maintaining 400 jobs.

Assembly of the vehicle, which wasn’t named, is set to begin in the last quarter of 2011. GM plans for it to “give long-term viability to this plant by gradually substituting some production volumes.”

Lieblein said General Motors has invested $4.1 billion in Mexico over the last four years.

Apparently some people have a problem with this.  Why, they ask, is a company that is de facto nationalized and operating with funds obtained through taxpayer bailouts expanding in Mexico and not in the United States, where it could provide domestic jobs?  Appealing on the surface; light on actual substance.

A better initial question would be why should we want GM to invest more money into American factories and unionized labor when their doing that in the past led to disastrous results, including unsustainable legacy costs, post-industrial rust belt wastelands, greedy and entitled unions, and ultimately bankruptcy and a taxpayer bailout?  The fact that GM was given a bailout in the first place was a clear indication that its business practices were broken, but ironically giving it a bailout allowed it continue them indefinitely.  Pushing for more of the same doesn’t make any sense. 

What does make sense for GM is the attractive labor costs available in Mexico.  But why should a big corporation get to avail itself of this advantage at the expense of its employees?  Again, an attractive question of the surface; sorely lacking in substance.  First of all, GM is under no obligation to give anyone, Mexican, American or otherwise a job.  It could pack up shop and cease business operations right now with shareholder approval.  That’s telling – companies are run for the benefit of their owners, and labor is just another beneficiary of capital investment.

But not as big a beneficiary as the consumer.  According to Fortune Magazine, GM has a bloated workforce of 335,000 people.  But this pales in comparison to the 8,356,000 customers GM had worldwide (2008 figure from GM securities filing; let me know in comments if you find updated figures).  Why should GM go out of its way to offer unsustainable deals to its labor force when its customer base ultimately suffers for it?  As there are more than 8 million more customers who want an effective car at a competitive price than there are workers willing to build it.

GM has a choice.  It can reform its business model and seek cost-effective production, which brings products to market that improve the standard of living for millions the world over, or it can bend over backwards for its union and continue to make substandard cars until it’s sent hat in hand back to Uncle Sugar for another bailout.  And given how deeply unpopular the last bailout was, we might not be so generous next time GM comes knocking on Treasury’s door.  And if there’s no second bailout, there won’t be any more jobs and pensions at all.  Talk about killing the golden goose.

Here’s a better plan for the domestic auto industry.  Become competitive.

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