GM’s U.S.–Mexico Challenge
As markets have become more globalized, many companies have created global supply chains, sourcing and manufacturing all across the world. With the passage of the North American Free Trade Agreement, Mexico became a prime target for automobile manufacturers to buildmaquiladoraplants where Mexican workers provide a substantial labor cost advantage over U.S.-based United Automobile Workers (UAW) union members. In addition, the products assembled in Mexico are shipped not just to the United States but all around the world. In fact, GM recorded a record profit in its North American market resulting in UAW workers receiving $12,000 in profit sharing. General Motors assembles about 20% of its highly profitable trucks in Mexico and until recently had plans to move much of its sport-utility vehicle production there, as a way to further reduce costs and increase profits.
However, the election of Donald Trump as president of the United States has put a wrinkle in those plans. In an effort to keep companies from moving production outside the United States, Trump has proposed a border tax of as much as 35% on any products coming to the United States from Mexico. However, even a more modest tax of 20% is estimated to wipe out a quarter of GM’s profit in the region.
GM’s dilemma resembles that of many other companies seeking to compete in a globalized market. To move more production to Mexico would increase profits and benefit U.S. UAW workers with larger profit-sharing checks but would likely reduce the number of workers receiving those checks. Keeping more production in the United States would maintain or grow the number of workers there but would likely reduce the amount of money they would receive in profit sharing.
QUESTIONS
1. What do you think is more important: fewer workers with higher pay, or more workers with lower pay?
2. How might the border tax impact Mexican workers and what responsibility does GM have to them? Should a global company care more about its home-country workers than host-country workers?
3. How do you think GM should handle this decision and why?