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Recession hurting maquila industry

REYNOSA - Mexican auto suppliers mull an uncertain future with vehicle sales at record lows and two automakers in bankruptcy.

The world's sputtering car industry is already choking maquiladoras in Reynosa and across Mexico's northern border, contributing to a 5.3 percent decline in employment in the Mexican state of Tamaulipas, according to a report from the Federal Reserve Bank of Dallas released Wednesday.

Orders for parts have fallen abruptly, forcing factories to halt production an average of 40 percent, said Alberto Murga Garcia, a Monterrey-based lawyer specializing in maquiladora law with the U.S. law firm of Miller Canfield who is familiar with the situation in Reynosa.

"The effect has been very dramatic among all parts of the industry, even those that are specialized with European or Japanese manufacturers," Murga said. "It was one big wave that happened within three months."

Job loss in Mexico's northern states has been dramatic, and on pace with the level of loss in the 2001 recession, according to the Federal Reserve report. In Chihuahua employment fell by 10.4 percent while in Baja California it fell by 7 percent. Job loss among maquiladoras could have been worse here too, but employers struck deals with unions to retain workers, but cut hours, said Otto H. Sampogna, a Monterrey-based attorney, specializing in maquiladora law.

The decline in maquiladora employment could still ripple across the border, with managers and others who live in the U.S. losing jobs. And with factories shipping fewer goods, it could result in a decline in the logistics and shipping industry on this side of the border. But so far, jobs in transportation and manufacturing on the American side have remained steady through much of the recession, according to data from the Texas Workforce Commission.

Until recently, the situation in Reynosa was similar as the city continued adding jobs through the early parts of the recession, said Pat Townsend, president and chief executive officer of the Mission Economic Development Corp. But the diversified manufacturing base could only weather the onslaught for so long.

"Reynosa has done an exceptional job in the balance (of the manufacturers) that have been attracted," he said. "(But) it doesn't really matter anymore."

Of the close to 170 maquiladoras in Reynosa, more than 50 supply some segment of the automotive industry. Most companies are subsidiaries of American conglomerates, but many are from around the world.

With manufacturers producing fewer automobiles, they need fewer parts to make those automobiles: brakes, air conditioning systems and steering wheels among a litany of other parts produced in Reynosa. Separately, the collapse of U.S. manufacturing during the recession caused further job loss among consumer electronic manufacturers, researchers found.

Troubled auto supplier Delphi Automotive Systems runs six maquiladoras in the border town. Takata Mexico, a Japanese airbag and seatbelt manufacturer that analysts said has performed well this recession, has one.

However, factories in Mexico are better poised to weather the recession than their American counterparts, said Jim Gillette, an analyst and consultant with CSM Worldwide, a firm specializing in auto market forecasting and advising. American factories generally have higher fixed capital costs that can not be easily reduced while Mexican factories can quickly reduce their overhead by cutting back on labor hours, Gillette said.

It's a grim assessment, Gillette said. The factory might survive, but by shedding jobs.

"Of all the suppliers in North America, about half of them are still in pretty good shape financially," he said. "Probably ... 12.5 percent (of suppliers) will be liquidated or bought by someone else or be a much different company then they are today."

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