When automotive companies began building factories in Mexico more than 20 years ago, the main appeal was a large, and inexpensive labor force. Today, however, due to rapid and continued market growth, those companies are finding that hiring and maintaining a growing labor force is a challenge.

 

Automotive manufacturing in Mexico is booming. The country is the seventh largest car manufacturer in the world—and the second largest automotive exporter to the U.S. Some estimates note that by 2020, one in four cars in the U.S. will have been manufactured in Mexico, because U.S. auto production continues to shift there.

 

For instance, Ford, Toyota, BMW AG and several other auto makers have committed to spend a combined $15.8 billion to build new assembly plants or expand existing factories in Mexico. That, by the way, is in addition to the plants already in operation and billions more being spent by auto-parts suppliers to match demand.

 

As competition for employees—both to find and retain them—grows, one of the consequences is that labor costs likewise increase. Indeed, training and retention programs are becoming common, as are stay-on bonuses—particularly for employees with valued skill sets.

 

“We have a huge supply gap in Mexico that needs to be resolved,” says Stephan Keese, a Chicago-based partner at consulting firm Roland Berger, which works with manufacturers in Mexico, in a recent Wall Street Journal article. “We’ve only seen the tip of the iceberg of this shortage. Labor rates going up will be unavoidable.”

 

At some plants, wages have already risen by double-digit percentages in recent years. In Juárez’s export-focused factories, called maquiladoras, employee turnover hit an average rate of 10 percent in June, which is a level not seen since the first wave of foreign-owned companies moved to Mexico under the North American Free Trade Agreement, according to manufacturers association Amac-Index Juárez, the WSJ article reports.

 

The struggle to find workers is most pronounced in Mexico’s industrial strongholds—cities such as Juárez in the north of Mexico—and in the central, heartland states of Guanajuato, Aguascalientes and San Luis Potosí. In Guanajuato, manufacturers including Honda and Mazda bus workers from as many as two hours way, labor recruiters say, the article notes.

 

In Juárez, home to nearly 300 factories, large banners around the city advertise openings, new shift work and benefits. To avoid bumping pay, employers increasingly offer perks such as English classes, use of soccer fields and $200 referral bonuses (about a month’s pay) for those who recommend new hires, the WSJ article explains. Local officials estimate the city’s manufacturing sector has nearly 15,000 unfilled jobs.

 

Just as has happened in the U.S., Mexico’s state and federal governments are working to address the labor shortage by promoting engineering programs at public universities, expanding enrollment at technical schools and creating new training programs tailored to meet factory demands. One $37 million state-funded facility is even on the grounds of Audi’s plant near Puebla, and was built as an incentive to win the company’s business in 2014.

 

“We obviously have to redouble our efforts to develop human capital,” Ildefonso Guajardo, Mexico’s secretary of the economy, says in the WSJ article. “In the long run, cheap labor isn’t a sustainable advantage.”

 

BMW management also is addressing the challenge. Lourdes Quijas, BMW human-resources director in San Luis Potosí, Mexico, where the company is spending $1 billion to build its first Mexican plant, says in the article that the challenge of finding skilled workers has grown considerably in recent years as other companies continue to expand their operations in Mexico. In response, BMW has opened its own vocational center to train factory machinists, electricians and other skilled tradespeople.

 

What are your thoughts about the growing labor shortage for automotive production in Mexico? Will it influence companies’ decisions to build plants and expand operations there?