| | |  News Around the Republic of Mexico 
Mexico's Maquiladoras Show Some Light
 Sean Gaffney - The Monitor
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January 24, 2010
 |  | Most factories are trying to find ways to produce the same or more with fewer workers. Consequently, the climb back on the U.S. side will be slow.
- Nathaniel Karp |  | | |
Donna — Victor Garcia couldn’t afford the payments on his wife’s car or his mortgage when maquiladoras in Mexico slowed production and the plastics firm he worked for suddenly shut down.
The car was repossessed. His son in the U.S. Army Reserves put up money so the family wouldn’t lose its home.
Each year the factory Garcia worked at, Progressive Molded Plastics, would stop production for two weeks during the
summer while auto companies to which they supplied plastics also shut down their factories. But on a Friday in July 2008, Garcia and the other 225 employees were called back to work. They were told the plant would never re-open.
Garcia said he had sensed trouble months earlier when the company’s suppliers began demanding money up front, but at the time his bosses told him, "Everything’s OK. Everything’s OK."
"They were hiding it from me, until everything hit rock bottom," he said. "Working with the automotive industry is a (pain)."
When the downturn in U.S. auto sales hit Reynosa’s automotive suppliers, they cut production and employees and bought less plastic from U.S. factories. That same year, in Alamo, 123 employees of Atlantis Plastics, another U.S. company with ties to the automotive industry, were told their factory was being shut down.
Garcia is one of 1,700 people who lost their jobs at factories in Hidalgo County in the last two years. The losses weren’t just in the plastics industry, nor were they confined to the manufacturing sector. On the backs of Mexican laborers, the McAllen area has had runaway economic success for more than a decade, but it, too, has felt the downfall.
As thousands in Reynosa have lost jobs in the last two years, so, too, have people in Alamo, McAllen and likely all cities in Hidalgo County. In 2005 Reynosa’s maquilas and factories on this side of the border supported about 37,400 jobs in Hidalgo County, according to the most recent estimates from the McAllen Economic Development Corp.
As with much of life in South Texas, manufacturing, and its footprint on the area’s economy, is not bound by borders.
SURVIVING THE DOWNTURN
Victor Garcia’s brother, Abel Garcia, lost 90 percent of his business at McAllen-based 3gm Extrusion in 2009, when factories stopped having the firm recycle their plastics. He had to sell some equipment to pay his employees and cover his expenses, because it wasn’t being used.
"‘Just hold on,’" Abel Garcia recalled a friend telling him at the time. "‘If you’re one of the last companies standing in 2009, they’ll start coming to you.’"
He began going to the companies that own Mexican factories in fall 2009 with a novel pitch to save them money and generate some revenue for his company. He tapped his address book from his 18 years as a plastics salesman, called an old friend at Norwegian-based Kongsberg Automotive and said the company could save $750,000 a year if he recycled its scrap plastic and gave it back to Kongsberg so it could be reused.
Kongsberg, like other maquiladoras, had been trashing some of the bits of plastics left over from making armrests and other car parts. Now, the company will pay Abel Garcia to take the scrap, combine it with "virgin," or new, plastic and turn it into usable pellets.
Abel Garcia is cautiously optimistic. He has found it tricky to replicate the success with Kongsberg, because it is difficult for a small firm like 3gm to grab the attention of top corporate executives, who often have offices in countries far from the United States. He doesn’t have the money to advertise or market, either.
Still, "there’s money in recycling," he said.
THE DOWNTURN RIPPLES OUTWARD
The manufacturing downturn in Mexico coincided with the fall in the U.S. economy. In 2007, maquilas across Mexico began slowing production and laid off thousands of employees. By July 2009, an estimated 340,000 factory workers in Mexico had lost their jobs, according to Mexico’s National Institute of Statistics and Geography, known by its Spanish initials INEGI.
In 2005, there were more than 200 factories in Reynosa employing close to 88,691 people, according to institute. As of July 2009, there were 142 factories with 72,916 employees.
The downfall in maquilas coincided with a downturn in retail sales in the Valley that shopkeepers have attributed to a decline in shoppers from Mexico. Some of those shoppers include maquila employees, who in 2005 spent $123 million at retail stores in the McAllen area, according to the MEDC.
Fewer managers who live on this side of the border crossed to work at those factories, which led to a decline in the number of people crossing the area’s international bridges, bridge directors have said. Commercial truck traffic also declined, as maquiladoras shipped fewer goods across the border, according to data from the Texas Center for Border Economic and Enterprise Development.
Retailers sold less, home sales declined, less toll revenue was collected at the area’s bridges, and consequently area cities’ tax revenues also fell.
While it is nearly impossible to say just how many people directly lost jobs in the United States. or to put a dollar figure on the maquilas’ contribution to falling tax revenues, given maquilas’ impact before the recession, it’s clear the slump has contributed to Hidalgo County’s economic woes.
As of 2005, maquiladoras in Mexico helped support manufacturing jobs for 17,576 people in Hidalgo County, according to the latest figures from the MEDC. And with their work and the money they spent, those people supported jobs for an additional 14,729 others in retail, legal, accounting, travel and dozens of other industries.
A SLOWER RECOVERY
Recently, factories in Reynosa have added jobs and boosted production, but with sales of the products those factories make still in the doldrums, the factories are employing fewer people than they did two years ago. Most factories are trying to find ways to produce the same or more with fewer workers. Consequently, the climb back on the U.S. side will be slow, said Nathaniel Karp, the chief economist for Alabama-based bank BBVA Compass, in an interview after the bank’s release of its quarterly report on the regional economy.
At Esselte’s maquila in Reynosa recently, a young woman grabbed a thick paper divider spit from a machine near her waist and packed it into an accordion folder. She repeats that movement every shift for eight hours. On average, workers at maquilas make more than $8,000 a year, said Dan McGrew, the plant’s manager.
Esselte, which makes office supplies with familiar names such as Pendaflex and Oxford, once had four maquiladoras. At the company’s one remaining maquila, McGrew showed how on an older machine, two workers were needed to complete the work the young woman did on a newer one.
Esselte is in the process of shifting production of some products from a factory in the United States to the Reynosa plant, but McGrew, who is also the president of the Reynosa Maquiladoras and Manufacturers Association, declined to say if jobs were going to be added. Other companies that made similar moves in 2009 didn’t always create new jobs.
Kohler Co. created none when it shifted production of stainless steel sinks from a U.S. plant to Reynosa, the company announced in November. LG Electronics, on the other hand, added 1,200 employees in a similar shift in July. While economic development officials and manufacturing insiders point to the shifts as an indication of Reynosa’s strength in attracting manufacturers, the uptick has not led to lower unemployment in the United States.
AN UNEASY FUTURE
Victor Garcia couldn’t find another job in the plastics industry, with orders from maquilas still low and with the industry on this side of the border trimmed to a few remaining firms. He now works as a supervisor for Rio Valley Switching Co. in Donna. The freight transporter’s Donna location had lost business with the downturn in maquilas and plastics but survived on contracts with a Mexican magazine publisher and a furniture builder in the United States, Victor Garcia said.
In warehouses near his office, 3-ton rolls of paper were stacked 20 feet high, sharing space with neatly arranged piles of wood for furniture. In February the furniture company plans to expand its contract and ship more goods. With U.S. economic indicators, such as retail sales, continuing to disappoint, Rio Valley’s, and the furniture builder’s, expansion are an exception.
"I’m going to need two more people once (the new contract) starts up," Victor Garcia said.
A few blocks west of Rio Valley along Business 83, abandoned trucks sit alongside the old Atlantis Plastics building. While the city of Alamo is searching for a buyer, it is unlikely Alamo will find a manufacturer to replace Atlantis even if factories in Reynosa are on the path to recovery, said Luciano Ozuna, Alamo’s city manager.
The "bedroom community" has staked its future on retail, another industry whose fortunes are entangled with those of the maquiladoras. The city doesn’t have the money for improvements to wastewater treatment that manufacturers would need to build factories, Ozuna said.
"Until we have it, it’s going to be hard for us," he said. "It hurts. It really does."
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