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Delphi says zai jian, not adios, to Limestone

Delphi’s in a huge hurry to leave the United States, but it’s not saying adios. The farewell of choice is zai jian.

The planned closure of Limestone County’s Delphi Corp. plants has everything to do with globalization, but not much to do with Mexico. China is the manufacturing destination of choice.

Delphi has 15 plants operating or under construction in China. It had 29 in the United States before declaring bankruptcy in 2005.

By the time it exits bankruptcy, it plans to have four.

Increasingly, said David Cole, chairman of the Ann Arbor, Mich.-based Center for Automotive Research, plants that migrated to Mexico from the United States are seeking pastures in China.

Reasons

Cole mentioned three reasons for the increasing attractiveness of China to manufacturers.

One, of course, is wages. Wages in Mexico have crept up since the passage of the North American Free Trade Agreement.

The southbound exodus of U.S. companies has created upward wage pressures in Mexico, especially for skilled laborers.

Availability of skilled labor is another bonus. As U.S. baby boomers leave the work force, they take their skills with them.

He sees this issue as more significant than wages in the manufacture of many automobile components. China has plenty of skilled labor, while demographics destine that the U.S. supply will shrink during the next two decades.

Another reason manufacturers of auto parts find China attractive is its growing consumer market.

Auto sale boom

While domestic auto sales dip, China’s boom. In decades past, a plant in China made sense only if labor costs were so low they offset the cost of shipping parts to the major world market — the United States.

That equation changes as auto sales in China increase. Delphi contemplates much of its half-shaft production in Chinese plants ending up in automobiles produced in Asia for Asians.

Auto industry analyst George Magliano of Global Insight points out that some of China’s appeal may be hype-driven.

He’s convinced U.S. automakers use the threat of outsourcing to China as a method of forcing suppliers in the U.S. and Mexico to cut prices.

“They’ve used China as a club: ‘If you don’t meet our price, we’re going to source more from China.’ But there are a lot of stumbling blocks to bringing parts here from China,” Magliano said.

“They are not above using any sort of club they can get their hands on to beat the hell out of people, though.”

And a threat that once was idle, Magliano said, is becoming real as China modernizes its production facilities.

For Limestone County and Mexico, at least in the short term, China’s economic makeover is a disaster. Whether free-trade proponents are correct in anticipating that the long-term result will benefit all three is a question that will not be answered soon enough to help the 1,175 Delphi employees.

Contact Eric Fleischauer at eric@decaturdaily.com.

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