Mexico Labor Reform May not be Enough for Auto Logistics Workers

The new labor law seeks to end subcontracting, which robs workers of their legal entitlements and defunds public institutions. But logistics workers employed in auto-parts distribution may not benefit from the law.

July 1, 2021

Employees at Chrysler Group LLC’s Toluca (Mexico) Assembly Plant hook up the electrical wiring on a Fiat 500 in 2011. (Flickr, Fiat Chrysler Automobiles)

An eagerly awaited bill to explicitly prohibit subcontracting was published April 23, 2021 in Mexico’s Official Gazette. For members of Coordinadora Sindical Poblana (Puebla Syndical Coordinator), an independent organization that groups current and retired workers from different unions across diverse economic sectors, the bill was the culmination of efforts to end practices that dispossess workers of their legal entitlements in Mexico’s Federal Labor Law.

A retired autoworker and an active member of Coordinadora Sindical Poblana, whom I will call Andrés, had hoped the bill would end subcontracting at Volkswagen Mexico (VWM), the German transnational car corporation located in Puebla. Before retiring, Andrés was a unionized autoworker at VWM for 42 years. For over three decades, Andrés had experienced how VWM gradually subcontracted services and processes related to car production.

When the subcontracting bill was made public, Andrés, along with his compañeras and compañeros in diverse groups that keep a close eye on Mexico’s ongoing labor reforms, was greatly disappointed. An exception in the bill permits subcontracting for specialized services and types of work that are not part of the company’s main economic activity.

The specialized services exception worries labor activists. For the group Jubiladas(os) en lucha (Retired Workers in Struggle), the problem has to do with the ambiguous and open-ended meaning of “specialized services.” In its May 2021 bulletin posted on Facebook, the group uses the example of janitorial services in the context of government or company offices: Are janitorial services “specialized” or integral to a company’s main economic activity?

Andrés concedes that the bill may end subcontracting practices in the auto-part manufacturing sector where VWM suppliers subcontract a third company to do the manufacturing. This practice is known as sub-subcontracting. 

However, the bill’s impacts on logistics workers employed in auto-parts distribution is ambiguous. The auto-parts distribution process is a form of subcontracting. Yet, logistics companies do not provide VWM with workers. Instead, they handle the whole distribution process in a context where car production for exportation has become a set of specialized fields managed by expert companies. As such, car factories can continue subcontracting processes directly and indirectly connected to car production.

The exception allowing subcontracting for specialized services could be interpreted as an oversight of the current administration. But more broadly, this exception shows the complexities of state regulation in economic sectors that are deeply connected to commodity export production in the era of free trade agreements.

Subcontracting in Mexico

Subcontracting, a mechanism through which a company hires a third-party to provide it with personnel, has become a common form of employment. Private and public sector use subcontracting, often referred to as ‘outsourcing’ in Mexico, to circumvent social security contributions to employees and fiscal obligations to the state.

For decades, subcontracting has dispossessed workers of their legal entitlements while also defunding public institutions such as the Instituto Mexicano del Seguro Social (Mexican Social Security Institute, IMSS), Mexico’s largest public healthcare system. Companies don’t register their personnel in the IMSS system. By not registering workers, companies avoid having to pay their share of social security contributions. These include accident, injury, and sickness benefits as well as old-age, disability, and survivors’ pensions.

The exception allowing subcontracting is a reworked version of an earlier attempt to regulate this form of employment. In 2012, an amendment to the Labor Law introduced the figure of intermediary to allow companies to provide personnel to another firm. The company providing personnel was responsible for fulfilling the social security contributions. The attempt failed in part because there were no mechanisms to enforce the regulation and to hold companies accountable for not complying with labor rights.

To close the loopholes in the 2012 intermediation bill, companies that used to provide personnel, known as pagadoras, are now forbidden. Subcontracting is explicitly prohibited. In the cases allowing subcontracting, the 2021 subcontracting bill modified several provisions in the different bodies of law regulating workers’ legal entitlements and fiscal contributions. The bill stipulates that such workers must be registered in the databases of the IMSS and the Instituto del Fondo Nacional de la Vivienda para los Trabajadores (National Workers’ Housing Fund Institute, Infonavit), Mexico’s federal housing program. If legal entitlements are not fulfilled, companies are liable for labor rights violations and subject to fines.

In this light, the 2021 subcontracting bill is radically different from its 2012 predecessor. The bill promises significant changes for the 8 million Mexicans currently hired under the subcontracting scheme. Companies that previously benefitted from subcontracting will henceforth have to recognize as employees those who perform work related to the company’s main economic activity. The bill has the potential to force companies to comply with their fiscal obligations to the state and their legal obligations to workers, both of which directly impact workers’ labor and living conditions.

Auto-Parts Distribution at Volkswagen Mexico

Holding a hand-held scanner, a woman in her fifties whom I call Amelia makes her way through a pile of Styrofoam boxes and containers filled with thousands of newly arrived auto-parts. Amelia is employed by Schnellecke Logistics (or SEGLO), the logistics company subcontracted by VWM, to handle a segment of the auto-parts’ distribution process. She is employed as a “general helper,” the lowest paid position in logistics services.

For six days a week, Amelia works in the first shift (6:30 A.M. to 3: 00 P.M.) in warehouse 29A at the VWM car factory. Known among logistics workers as el mercado (the market), warehouse 29A is a distribution center where auto-parts arrive every hour, manufactured by a number of factories supplying VWM located in its vicinity and across Mexico.

After their arrival, auto-parts are registered and sent to the assembly lines. Amelia’s job is to scan labels, empty containers, and place auto-parts in different organizational bins. Amelia must do her job fast. A delay in 29A can create a backlog on the lines, thereby disrupting the seamless production of 1,500 cars of six different models in a 24-hour work shift.

Logistics companies subcontracted by VWM employ thousands of logistics workers like Amelia. Logistics companies manage auto-parts distribution along the supply chain of car production: from the moment auto-parts leave the manufacturing sites to the assembly lines. After their assembling, cars are handed over to logistics workers and transported on car carriers to concessionaries elsewhere in Mexico, or to freight trains and ports to be shipped abroad.

Subcontracting at VWM is part of the larger reconfigurations of production and labor to implement just-in-time production (JIT). Proposed as a way to make car production technologically efficient, faster, and more specialized, while simultaneously reducing production costs, JIT recast the car production process. The method fragmented car production into three sharply differentiated processes—auto-parts manufacturing, part distribution, and car assembling—transforming each process into a site of capital accumulation.

Fragmenting production drastically reconfigured car factories. When VWM began car production in Puebla in 1967, the company and its direct employees handled most of the production process. It had only 20 suppliers. By implementing JIT production, VWM subcontracted auto-parts’ manufacturing and the distribution process as well as cafeteria and janitorial services to about 450 small-sized companies (Mexican and foreign) and multinational corporations. In Mexico’s car factories, JIT production is tied to the transformations required to implement the North American Free Trade Agreement (NAFTA), which went into effect in 1994. Subcontracting at VWM is the result of the large-scale fragmentation of production to implement JIT.

As an autoworker, Andrés was committed to creating relationships of solidarity with workers employed by VWM suppliers such as Amelia. He organized secret meetings bringing together workers employed in auto-parts manufacturing, logistics workers employed in auto-parts’ distribution, and VWM autoworkers. The meetings supported dissident workers employed by VWM suppliers in their efforts to independently organize and break away from company unions. For many of these workers, Andrés was the go-to person for advice when labor rights were violated.

Andrés and his network of active and retired workers have long supported Movimiento de Regeneración Nacional (National Regeneration Movement, MORENA), when it formed as a social movement and later became a political party, now led by President Andrés Manuel López Obrador. Among the group’s top reasons for supporting MORENA was its commitment to rectifying labor rights in Mexico.

Circumventing Labor Entitlements

Echoing registers of social responsibility currently shaping corporate practices around the globe, VWM requires all its suppliers to comply with entitlements established in Mexico’s labor code. Regardless of corporate discourses of benevolence, the logic of reducing costs continues to be imperative in industrial capitalism. As earlier global reconfigurations of labor and production show, reducing production costs means making labor cheaper. At VWM, that means choosing the cheapest suppliers.

The most common way for VWM suppliers to cheapen labor and to infringe labor rights is to register workers in IMSS with a lower wage that excludes bonuses for punctuality, assistance, or responsibility—all regular components of logistics workers’ wages.

Other ways of circumventing labor rights and cheapening labor are more subtle. “If you miss a workday,” a logistics worker explained to me, “you lose the bonuses for punctuality, assistance, and responsibility.” Hence, he occasionally goes to work when not feeling well. When another logistics worker hurt her foot while walking between metal containers, she couldn’t claim compensation from IMSS: Servimsa’s medic filled out the required form incorrectly, not once but twice. The company paid her wages during the six days she needed to recover, but later, when she wanted to use her vacation days, she learned that the company had transformed the recovery days into her vacation time.

In 2019, logistics workers were threatened with losing their jobs after they held a four-hour work stoppage to demand the payment of their weekly wages. When Ana, in her thirties, received the share she was entitled to of company’s profits, she felt like throwing the 100 pesos ($5) back at them: “What am I going to do with this money?”

Similar to workers employed in non-traditional agriculture, Mexico’s 2018 labor legislation does not explicitly refer to logistics workers in the automotive sector. Yet, together with the amendment to the subcontracting bill, the 2018 labor reform promised changes. Assuming that regulations are fulfilled and enforced, logistics workers will be registered with IMSS for the total amount they earn combining daily quota and bonuses which would have a significant impact on workers and their dependents. Profit sharing will be capped at the equivalent of three months’ salary or the average profit received in the last three years, whichever is greater. This measurement potentially offers a significantly higher profit share than the 100 pesos logistics workers like Ana received in the past.

Logistics Workers in Mexico’s Automotive Sector

Over the past 25 years, Mexico has become one of the largest car producers globally. Transnational car production has created a high number of jobs in the automotive sector. Even though many of these jobs qualify as formal employment, they are precarious. Workers employed in auto-parts manufacturing and in the auto-parts distribution process face the well-documented conditions Mexican workers have been subject to since NAFTA: low wages, weak or null labor provisions, and no unions or unions endorsing protection contracts.

High turnover rates are common among logistics workers. Every day, a single logistics company supplying to VWM recruits between 30 to 60 new workers. In times of high demand, logistics companies’ employees hand out flyers at malls, corner stores, or main intersections in the many working-class neighborhoods—that once were rural towns—surrounding VWM.

While the jobs of autoworkers, logistics workers, and workers manufacturing auto-parts depend on global economic cycles, autoworkers are not downsized. By contrast, logistics workers are downsized every time production slows. Logistics workers’ most recent downsizing occurred during Mexico’s Covid-19 lockdown in 2020.

In Mexico’s car production statistics, the distribution process (unlike auto-part manufacturing and car assembling) does not appear as a separate category. It is subsumed within manufacturing, or under the broader category of transportation. As such, the place of the distribution process and of logistics workers in Mexico’s automotive sector is not clearly specified. While literally moving the supply chain of car production, logistics workers, as a workforce, are absent in the statistics of car production.

A recruiting flyer from Schnellecke Logistics, seeking workers in Puebla for the auto sector. (Alejandra González Jiménez)

Labor Regulation in the Era of Free Trade

The 2021 subcontracting bill is part of broader efforts to address the harsh labor and living conditions proliferating in Mexico, aggravated by NAFTA. It remains to be seen how these efforts will interact with NAFTA’s successor, the United States-Mexico-Canada Agreement (USMCA).

Mexico’s labor legislation is in line with USMCA’s Chapter 23. USMCA includes a new mechanism for the enforcement of individual and collective rights. So far, the Labor Response Mechanism has been used twice to ask Mexico to review whether workers’ labor rights were violated in a General Motors’s factory in Silao (Central Mexico) and in an auto-parts’ factory in the northern border city of Matamoros.

USMCA has a clause to improve wages. The rules of origin for automotive goods require that “40–45 percent of auto content be made by workers earning at least $16 per hour.” This clause raised hopes of finally improving the wages of workers employed in export car production. However, according to Jesús Seade Kuri, Mexico’s chief negotiator on the USMCA, the $16-per-hour requirement is met in Mexico through the salaries of engineers and administrative staff. Wages on the shop floors will not rise.

While the USMCA includes mechanisms to enforce labor rights and improve wages, it also creates mechanisms to discipline sovereign states that attempt to improve working and living conditions. The investor-state dispute settlement allows corporations to sue sovereign states when government decisions threaten or affect their investments. USMCA’s investor-state dispute settlement only applies to the United States and Mexico. In the past, corporations have deployed international arbitration when constrained by environmental laws, public health concerns, or even increased minimum wages. The most recent arbitration case is that of the Canadian mining company First Majestic against Mexico to resolve a dispute over how silver is taxed in the country.

To date, labor rights and labor regulation in North American have not been a cause for arbitration. Could efforts to reverse the trend of cheapening labor give rise to the next arbitration frontier? Time will tell. Meanwhile, Mexico’s automotive sector is slowly emerging from the Covid-19 downturn, and logistics workers continue moving the supply chain of transnational car production.

Alejandra González Jiménez, Ph.D., is a socio-cultural anthropologist and an independent researcher. Her research focuses on the reconfigurations of inequalities generated by car production in post-NAFTA Mexico.

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