Mexico under pressure to resume US auto supplies

Sergio Mendoza’s auto parts factory in northern Mexico has been shut for more than a month because of coronavirus and he says there is no way he can pay his 240 workers in May unless he reopens soon.

“We’re in limbo,” he complains. “Mine isn’t a giant company. We have very limited capacity . . . If we don’t open [soon], we can’t go on.”

His firm makes components for dashboard instruments in Ford and General Motors cars. Until now, however, the auto industry has been declared non-essential.

But pressure on governments from manufacturers on both sides of the border could lead to a staggered reopening within days. This would apply not only to the auto sector, but of most of Mexico’s strategic maquiladora industry, which assembles manufactured goods for export and includes electronics and aerospace industries, business leaders and officials say.

Mexico said on Friday night that it was working with the US and Canada, its allies in the USMCA free-trade pact, on an “orderly, gradual and cautious” plan to reopen the auto sector and vital allied cross-border supply chains, which employ nearly a million workers in Mexico.

“In the coming days, the governments of Mexico, Canada and the US will provide more information about a reopening plan,” Mexico’s economy, foreign relations, finance, labour and health ministries said in a joint statement. The co-operation would also help establish the return of other activities declared non-essential in Mexico when the government imposed a health emergency at the end of March.

The move comes days after the US National Association of Manufacturers sent a letter to President Andrés Manuel López Obrador, signed by 327 chief executives with operations in Mexico, urging the US’ top trading partner to harmonise its definition of strategic industries with that used in the US in order to minimise disruptions to North American supply chains. “This is a pivotal moment,” the letter said.

Gerardo Vázquez, president of Index, the association of the maquiladora industry in the northern state of Sonora, and co-ordinator of a nationwide working group, said the reopening would happen “in days”.

“Production won’t return at 100 per cent — we think 30 to 40 per cent,” he said. “It’s very important to do this in a co-ordinated fashion so we don’t lose jobs in Mexico, the US and Canada.”

Even a partial reopening of Mexico’s industrial heartlands would come before the peak of the pandemic is forecast to hit Latin America’s second-biggest economy. Mexico confirmed 12,872 cases of Covid-19 as of Friday night and 1,221 deaths, but there has been little testing and health officials say the true number is at least eight times higher.

Mexico is forecasting infections will peak by mid-May and has extended an unenforced lockdown until the end of that month. Pedro Chaviria, Index president in the border town of Ciudad Juárez, said workers had been paid in full for April, “but it’s simply not feasible next month — companies have lost liquidity”.

Mexico’s economy was already contracting even before coronavirus struck. It is forecast to crash by as much as 12 per cent this year in a worst-case scenario, potentially destroying more than a million jobs. The populist Mr López Obrador, seeking to balance health and economic concerns, has said Mexico is working on an accord with its partners but cautioned that the pandemic was still raging in the US.

He has refused to take on debt for a major stimulus package and is offering social programmes and 3m small loans — typically around $1,000 — to help the small businesses that make up the bulk of Mexico’s companies survive.

But Mr Mendoza said the sums on offer were “laughable . . . we’re not all owners of small shops and restaurants,” he said. “And banks aren’t lending at the moment because there’s so much uncertainty.”

The government has demanded that companies pay wages for April, despite being shuttered, but has not yet said anything about May. If Mexico were to declare a health contingency, not just a health emergency, employers could legally reduce wages. Mario Jorge Yañez, a partner at law firm Hogan Lovells, said this might be enough to ensure “employees have a place to go back to work” when the crisis is over.

Mr Vázquez said industry and officials were working on a “Plan A, Plan B and Plan C” including the strict use of personal protective equipment and cameras to monitor workers’ temperatures while on the job.

“The canteens look like they’ve got ping-pong tables in them — they all have acrylic divisions for when workers go to eat and have to take off their masks,” he said.

Mr López Obrador insists the coronavirus crisis is a temporary blip and Mexico is well placed to bounce back because of the new USMCA deal, which replaces Nafta, and is due to enter into force in July.

But Mr Yañez worries that the president’s business-unfriendly measures in recent months — including the cancellation of a $13bn airport and a $1.4bn brewery project, both already partially built — could discourage investment.

“The government has to shift gears if they want Mexico to stay as a competitive option for international companies,” he said.

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