Proving ground, jobs will move to Mexico

By Hal Mattern

June 28, 2000 Web posted at: 11:11 AM EDT (1511 GMT)

In this story: Higher heat or lower costs? Mesa caught off guard RELATED STORIES

MESA, Arizona (The Arizona Republic Online) -- After nearly 50 years of testing Chevys, Pontiacs and Oldsmobiles in the brutal desert heat east of Mesa, General Motors has decided it just isn't hot enough in the Valley.

So, the automaker is moving its Desert Proving Ground to someplace even hotter: a remote, dusty valley in Mezcala, Mexico, which experiences blast-furnace conditions all year.

GM officials said Tuesday that they will phase out operations at the Mesa proving ground over the next two years, resulting in the loss of 400 full-time and 600 contract jobs. The full-time employees at the facility will be offered other GM jobs or severance packages.

None of the East Valley GM employees will be transferred to the new facility, which will be staffed by about 100 Mexican workers.

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"This was a tough decision, but it was driven by our need for higher temperatures," said Ian McEwan, GM's executive director of proving ground and test operations. "This is not a cost-cutting measure."

But auto industry analyst David Healy of New York-based Burnham Securities said shifting GM's hot-weather testing to Mexico is probably as much about cutting costs as it is about seeking more consistent warm temperatures.

Healy said the move is in line with the company's belt-tightening under new Chief Executive Officer Richard Wagoner Jr. But he said the shift is a relatively minor move for the global automaking giant that "isn't going to make or break the company."

McEwan said the move will give the automaker more hot days during the year to test its vehicles, allowing it to speed up the development of new models. The Mexican site experiences average daily temperatures above 90 degrees year-round, compared with about five months in the Phoenix area.

He added the move is necessary because the time between designing and producing new car models has accelerated in recent years to 18 to 24 months. Only a few years ago, the development cycle lasted four years.

News of GM's plan to close the 5,000-acre proving ground caught employees by surprise. They were informed of the plan shortly before it was announced publicly.

Mesa officials also were caught off guard by the announcement. The facility, which has been operating a five-mile circular test track since 1953, pumps an estimated $90 million per year into the local economy and is Mesa's eighth-largest employer.

"My first reaction was that I hated to lose such a good corporate citizen," said Mesa Mayor Keno Hawker, who was informed of the closure Tuesday afternoon by McEwan. "You always hate to lose someone who has been with your community for 40 to 50 years."

The proving ground is just east of Mesa in an unincorporated area of Maricopa County, but is included in the city's planning area and is being targeted for annexation.

It is in the path of residential development, and GM officials had expressed concern in recent years about encroaching housing projects.

Hawker said the site probably will remain industrial because of its proximity to the Williams Gateway Airport and the TRW air bag plants. Plans call for eventually adding commercial flights at the airport, with a passenger terminal expected to open on the east side in five or six years.

Residential development is unlikely because of aircraft noise, Hawker said.

"Our master plan shows industrial, and we'll probably stick to that," he said. "I think it opens up a whole new area for industrial use."

McEwan said he expects critics to charge that GM is moving to Mexico to save money, but he denied that is the motivation. He said that only about 10 percent of the work currently conducted at the Mesa proving ground will be moved to Mexico. The rest will be shifted to GM operations in Michigan.

"If we were moving all 1,000 jobs to Mexico, it would be true," he said. "But we're just moving a small percentage."

GM was having trouble keeping up with hot-weather testing of its vehicles at the East Valley facility, so it was forced to look for a winter test site, "but we couldn't find one anywhere," McEwan said.

Then the company discovered Mezcala, which is in the Mexican state of Guerrero, about three hours south of Mexico City and two hours from a GM facility in Toluca.

"It's just a little dusty valley," McEwan said. "There is nothing there. We're going to have to develop the entire site."

McEwan said he expects other automakers to also seek out year-round, hot-weather testing sites because of competitive pressures to speed the car development process. But Jackie Vieh, director of the Arizona Department of Commerce, said the Valley's other test tracks are not likely to fall like dominoes based on GM's decision.

Ford, DaimlerChrysler, Toyota, Nissan, Volkswagen, Jaguar and Volvo all test their cars in Arizona. "The rest of them are finding the climate agreeable here," Vieh said.

Last year, GM reported a record $177 billion in sales, up 14 percent over 1998. But the company has the most expensive and longest product development cycle in the industry. GM's share of the domestic automobile market is running about 28 percent, down from more than 40 percent 15 years ago, the analyst said.

More important to GM's bottom line are workforce cuts of about four to five percent and new models that are far less labor intensive, he said.

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