APASEO EL GRANDE, Mexico — Carlos Malagon has followed the construction of a Toyota assembly plant from his taco truck for months.
The 63-year-old sells four soft tacos de canasta for a dollar, moving with the workers around the site in the central state of Guanajuato.
Carlos Malagon expects taco sales to soar when Toyota begins output at the Apaseo El Grande plant whose site workers are preparing. credit: ERICK EMMANUEL ALMANZA FERRER
Malagon, nicknamed “Fair-Skinned Charly,” has served heavy-equipment operators leveling out the 1,500-acre plot and electricians installing the high-tension power line that will feed Toyota and its suppliers when they begin operations in about two years.
“When production begins in the future, there’ll be a lot more workers, and sales will double or triple,” said Malagon, who usually sells 200 to 300 tacos a day. Standing along the side of the road next to a plastic table and chairs, he beams, “This is good for business.”
Apaseo El Grande, population 95,000, is the latest beneficiary of a booming auto industry in the Bajio, or lowlands, region traditionally known for agriculture and the steady migration of its young people to the U.S. Apaseo was once the garlic capital of Mexico.
Over the last two decades, the Bajio (bah-HEE’-yoh) has been transformed by auto plants, their suppliers and the service jobs that follow. There are now more jobs in autos, metals and plastics than workers to fill them, industry officials say.
The plentiful jobs have made it easier for young Mexicans to stay home instead of migrating to the U.S., though they can still earn significantly more money across the border, officials say.
Volkswagen’s engine plant in Silao, Guanajuato, opened in 2013, making it one of the first in a recent wave of auto plants in the Bajio. credit: ERICK EMMANUEL ALMANZA FERRER
In business circles, the Bajio states of Guanajuato, Aguascalientes, San Luis Potosi, Queretaro and Jalisco form the core of Mexico’s Industrial Diamond, because of its rapid industrialization.
- 2013: Terry Taylor sued Michael Petrello, one of his former managers, in September, alleging he violated the noncompete, nonsolicitation and no-hire provisions of his contract.
- 2014: Mazda starts production in Salamanca, Guanajuato, and Honda inaugurates plant in Celaya.
- 2017: Ford expands transmission assembly in Irapuato, Guanajuato, and Infiniti starts a joint venture with Mercedes in Aguascalientes.
- 2019: BMW plans to open a plant in San Luis Potosi, not far from where Ford canceled a factory under construction last year.
But the upbeat announcements of plant openings in the region — Nissan Motor and Volkswagen AG in 2013, Honda Motor and Mazda Motor in 2014 and a major expansion to a Ford Motor Co. transmission factory last year — are being overshadowed by threats to the heart of Mexico’s auto sector by President Donald Trump and his administration’s attempts to curb free trade.
Ford canceled a $1.6 billion car plant in San Luis Potosi just before Trump’s inauguration a year ago, sending shock waves through the region, where it was interpreted at least partially as a political move.
Trump has said that if talks to renegotiate the North American Free Trade Agreement fail, he’s ready to pull the U.S. out of NAFTA. That would allow the U.S. to apply tariffs on Mexican goods such as autos.
Toyota caused another scare in October when it cut a planned investment at the Apaseo factory to $700 million from $1 billion and reduced the plant’s future capacity by half to 100,000 vehicles a year.
The initial panic among some in the auto industry has subsided in recent months. Ford had business reasons beyond politics to cancel its plant, Toyota has renewed its pledge to expand Mexican production and NAFTA negotiations are continuing.
Bafan: Long-term commitment
“I think we’ve been very clear when speaking to our contacts in Mexico, at the local and federal level, that Toyota remains firmly committed to Mexico over the long term,” Mike Bafan, president of Toyota de Mexico, told Automotive News. Bafan also is president of Toyota Motor Manufacturing de Baja California, which just expanded capacity at its Tijuana factory.
Workers prepare the site for Toyota’s Apaseo El Grande plant, which is to build Tacoma pickups starting in about two years. credit: ERICK EMMANUEL ALMANZA FERRER
The Apaseo plant, like the one in Tijuana, will build Toyota’s midsize Tacoma pickup. If the U.S. pulls out of NAFTA, pickups could be hit with a 25 percent tariff, compared with just 2.5 percent for cars.
Still, auto companies are pushing forward in Mexico. A joint venture between Infiniti and Mercedes in Aguascalientes is starting production, and BMW remains on schedule to open its first Mexican auto plant, in San Luis Potosi, in 2019.
Once those factories are up to full production, the Bajio could be making up to half of Mexico’s auto output of 5 million vehicles per year by the end of 2020, compared with about 40 percent today, according to industry estimates.
“I think that all of the auto companies, with the exception of Ford — all the rest of them are continuing with their projects for growth and expansion,” said Alfredo Arzola, director of the Guanajuato Automotive Cluster that includes suppliers and automakers.
“Doing business with the U.S. market, with or without NAFTA, is natural,” Arzola said in an interview. “The need to buy auto parts and vehicles from Mexico is natural. The U.S. has a deficit [in auto goods] that they cannot cover on their own.”
Even before the free-trade agreement took effect 24 years ago, central Mexico was gaining a reputation as an alternative to the established auto clusters near the Mexican capital and along the nation’s northern border with the U.S.
Nissan, for instance, opened its first Bajio plant in 1982 in the capital of Aguascalientes.
Shortly after NAFTA took effect, GM moved pickup production from crowded Mexico City to Silao, Guanajuato, in 1995, and Honda set up in El Salto, Jalisco, to make the popular Accord sedan. GM added another assembly plant in San Luis Potosi in 2008.
Guillermo Romero Pacheco, secretary of economic development for Guanajuato, said GM’s move was a watershed for the state, which went all-in to draw foreign investment in the wake of NAFTA.
Then-Guanajuato Gov. Vicente Fox, a pro-trade businessman who later became Mexico’s president, promoted creation of an automotive cluster to join the shoe industry, mining and agriculture as economic drivers.
In addition to financial incentives to lure foreign manufacturers, Guanajuato and other states offered worker training programs tailored to the needs of individual companies. The Bajio also offered a sizable labor pool relative to northern Mexico, which had already industrialized.
Logistics also favor the region. It lies at the junction of the nation’s two major railroads, with access to ports on the Pacific and Gulf coasts.
As Japanese automakers moved more production to North America to be closer to their customers, the Bajio was ready with land, workers, incentives and training.
Romero said about one quarter of the 250,000 jobs created in Guanajuato from 2012 to late 2017 came from the auto sector. Another quarter came from other industries. And those numbers don’t include indirect jobs from the auto industry, such as the army of food vendors including Malagon in Apaseo who run mom-and-pop operations.
The result, according to official data, has been a lower rate of extreme poverty, rising family incomes and “many, many jobs,” Romero said.
Workers in the area agree, but with a caveat. Automakers, suppliers and related industries such as metalworks are constantly hiring, but it’s because of rock-bottom wages and heavy turnover, they say.
At an auto plant in Silao, a group of mostly young men preparing for their shift were unanimous in decrying the low wages. Most said take-home pay at a variety of automotive jobs in the city rarely broke $70 a week unless they worked overtime, which often leads to burnout. The men asked not to be named for fear of losing job opportunities.
Some expressed resentment that foreign plant owners offer only survival wages in Mexico but much better conditions in their home countries. One suggested that a bump to $100 a week would reduce turnover and significantly improve living conditions for their families.
Romero said workers often don’t account for taxes and the cost of benefits such as employer contributions into a subsidized housing fund, a scholarship fund and a mandatory year-end bonus of up to a month’s wages.
Government figures show that low-level auto workers average around $7,500 a year in wages and benefits, or about $140 per week, he said. Still, officials acknowledge that turnover is a serious problem and expect wages to improve as the industry matures and workers gain more skills.
A statue at Apaseo El Grande credit: ERICK EMMANUEL ALMANZA FERRER
For Apaseo El Grande, the arrival of Toyota represents a step up from the metalworking, plastics and ceramics industries that have settled in the town so far, said Jorge Oliveros, its director of economic development.
“When you install a company that is offering better benefits, better salaries, a better standard of living, it’s positive because it causes the competition to also improve labor conditions,” he said.
But Oliveros has much higher hopes for his community than just an abundance of factory jobs.
The economic activity also creates opportunities for entrepreneurs to open restaurants, hotels and transportation companies. The municipality already connects factories with local services such as cleaning and security, he said.
And even factory workers can move up the company ladder by participating in training programs at technical schools and a university annex setting up shop in the town.
The day may come when Apaseo can pick and choose the companies it invites to be part of its burgeoning future.
“Today we have the pleasure of receiving the companies that want to invest here in Apaseo El Grande,” said Oliveros. “But we’ll also have the privilege to tell companies not to come and invest because we want a sustainable life for our people.”