Why John Deere is Moving Manufacturing to Mexico

In this video, we dive deep into the recent news that John Deere & Co. is relocating some of its manufacturing jobs from the United States to Mexico. This move has sparked significant controversy and negative publicity for the farm equipment manufacturer. We will explore what’s happening behind the scenes with John Deere and other leading farm equipment companies, and break down five key points that illuminate the reasons behind this shift.

First, one of the primary reasons for John Deere’s move to Mexico is to reduce costs. While many consumers express a desire to buy American-made products, the reality is that not all customers are willing to pay the premium prices associated with U.S.-manufactured tractors. The market demands affordable options, and these economy models are difficult to produce at a competitive price point in the U.S. or Europe due to higher production costs. Many consumers, particularly those who don’t use their tractors frequently, might not need the advanced features and durability of premium models. Therefore, producing these more cost-effective models in Mexico helps Deere cater to this segment of the market without compromising on affordability.

Secondly, the COVID-19 pandemic exposed vulnerabilities in the global supply chain, particularly highlighting the inefficiencies of the "Just in Time" production model. When shipping containers were scarce and factories faced unprecedented shortages, companies experienced significant disruptions. To mitigate these risks and improve resilience, manufacturers are rethinking their supply chain strategies. By relocating some production to Mexico, John Deere aims to shorten the distance between component manufacturing and final assembly, reducing the potential for future supply chain disruptions and enhancing overall efficiency.

Third, the labor market in the United States faces significant challenges. The aging baby boomer generation is retiring, leaving fewer workers to fill blue-collar jobs. Additionally, there is a mismatch between the education levels of new job seekers and the needs of the manufacturing sector. As more young people pursue higher education and white-collar careers, there is less emphasis on trade schools and vocational training. This imbalance has led to a smaller and less skilled labor pool for manufacturing jobs. By relocating some operations to Mexico, John Deere is addressing these labor market issues while ensuring that production needs are met.

Next, China, once the global hub for low-cost manufacturing, is facing its own set of challenges. The "One Child" policy has led to a demographic shift, creating a shortage of younger workers. Additionally, the country’s reliance on large pools of cheap labor is becoming unsustainable as economic conditions change. Many companies that have previously relied on Chinese manufacturing are now seeking alternative locations. Mexico’s growing manufacturing capabilities and favorable economic conditions make it an attractive option for companies like John Deere, which are looking to diversify their production bases.

Finally, John Deere’s move to Mexico is part of a larger trend within the agricultural equipment industry. Other major players, including AGCO, CNH, and Bobcat, are also exploring or have already established manufacturing facilities in Mexico. This shift is driven by the country's proximity to the U.S. market, a relatively under-utilized labor pool, and competitive production costs. While the movement of jobs away from the U.S. is disheartening, it could potentially offer benefits such as easing immigration pressures, providing cost-effective products for consumers, and alleviating some of the labor shortages experienced in the U.S.

John Deere’s decision to move some manufacturing jobs to Mexico is a complex issue influenced by various economic and logistical factors. While the move has sparked controversy and concern, understanding the underlying reasons helps to provide a clearer picture of the broader trends impacting the agricultural manufacturing industry. By examining the need for economy tractors, the impact of the COVID-19 pandemic, the U.S. labor market challenges, China’s manufacturing decline, and the overall industry shift, we can better appreciate the strategic decisions made by companies like John Deere.

For more insights and updates on the evolving landscape of equipment manufacturing and its implications for consumers and the industry, make sure to subscribe to our channel, like this video, and leave your thoughts in the comments below.

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[NikeHM]

Many John Deere tractors were made overseas by Yanmar for years and they still charged a premium as if they were made in the U.S.A.

[joerapo]

I have an alternative explanation. What's happening with JD isn't exclusive to JD and not caused by capitalism. It's MBA centric thought that has taken over capitalism. You're seeing very short term strategies due to quarterly profit reports. You're seeing extensive price gauging when they can make it work. Then when things start going downhill literally all they know how to do is cut costs. Reducing prices is frowned upon by shareholders so that's not happening. Innovation isn't a priority because that costs money that shareholders don't like to see spent and it doesn't serve the short term quarterly profit focused strategy.

The other issue is with nearly all businesses being publicly traded nearly all the focus is on profit instead of quality, innovation, durability, loyalty etc. Gone are the days of the owner taking a yearly salary in rough times of 1 dollar to keep people on and put more money into the business. With publicly traded companies they are legally bound to give shareholders the most return possible.

[jimfarmer]

I retired from John Deere. I was talking to a HR manager a while back and he was telling that absenteeism typically exceeded 20%. Another problem was hiring sober workers. Despite giving the new hire getting plenty of time to prepare a large precentage still flunked the drug test.

[jeffreyhornbaker]

Spent my whole life in a factory. It was the best I could do in my area with my High school education. The work was hard, hot, dirty, and dangerous. Not to mention, degrading. Thanks mostly to the latter, my mission in life over that 35 years of service, was to empower my kids to be better than me. Thank God it worked. The advanced degree people ( management/engineers) ALWAYS looked down on us as a control tool. We politely warned them to no avail, so here they are with no new blue collar talent. Arrogance created this problem 25 years ago. BTW, Mike, love what you do. Watch every video!

[johnhelbig]

Mike, I’m like you, worked in and managed Massey, Ford, New Holland, and Kubota dealerships. No particular love for Deere either. But as a businessman (retired), I do admire them.
I watched a video with one of John Deere’s senior management folks explaining a lot of the story behind the jobs news. A lot of what drives the market for John Deere is the commodity prices of corn and soybeans which affects the total farm income. As you are aware, crop prices are down and total farm income is expected to be down about 25% this year, so the farmers are cutting back on purchasing new equipment. This is reflected in Deere’s 2nd quarter sales figures which are also down in the 20+% range. Most of us work and understand that if it takes 100 people to build 10 of your product that you are selling, what happens when you can only sell 7 of them and only have work for 70 of those 100 people. Do you continue paying those other 30 people who are just standing around? What has also been left in the dust has been the expansion of John Deere’s labor force over the last 5 years or so; and now they are cutting “1, 000s of jobs”, which is really about 2% of their worldwide workforce. John Deere is investing in a new production line in Iowa where they will be making a 9R series tractor with up to 800 hp. I wish I could find that video detailing some of this but I cannot at the moment. I appreciate you speaking common sense facts. If I remember correctly, all of my ancestors were immigrants, a lot of whom didn’t speak English when they got here. I bet yours were also, Mike. Immigration over the millennia is what has built this country. Think about it: the ones who were lazy stayed home; the ones who had some spunk and risk-taking ability walked away from their home to somewhere where they could better themselves. I grew up on a small Missouri farm that had been in our family since 1875. I’m currently living on my mother’s family farm which they moved to in 1845. Anyhow, the overall economic picture has so many complicated, interacting relationships that todays 15 second sound bites cannot possibly explain.

[hknyqku]

Also, they are not making $18 an hour in Mexican factories. I can assure you An engineer in Mexico makes $20, 000 a year a skilled mechanic in Mexico makes $8, 000 a year. I know the numbers well.

[bryangill]

The Mexico job move has been happening since the first nafta agreement. I worked for a gm supplier that got moved to Mexico back in 2000

[GenXBiker]

I'm sick of hearing my local JD dealer slam TYM for being built in Korea. I lived in Korea, I have much respect for their work ethic. JD has no room to criticize other manufacturers when they likewise abandon U.S. manufacturing and assembly.

[terryknesek]

We all want American made products including me however with all the regulations and labor unions and lawyers it raises the cost astronomically! I spent
18 years in the car business and we had the same problem! America wants American made but wants to pay Walmart prices for it, then complain about Jin’s moving out of country!!!! Just me view from the deer stand! Great points Mike

[zachlafond]

premium? Nope its about saving money for the corp/stock holders/etc. No different when they send IT positions to India.. Its not saving money for the end users, its saving money for the top guys get big bonuses.

[charlesperry]

I think we need to encourage the trades more. My oldest son has a business degree and works on the assembly line for a car parts manufacturer. My youngest quit college after one year and now has his own business as a professional body builder and coach to body builders and normal fitness. My nephew has a business degree, tried that for a while, and decided to apprentice as a plumber. He is now a licensed plumber and is working on his masters license. Some college degrees make financial sense: engineer, medical, etc. We need less people with soft college degrees and more people with trade skills.

[rpercifieldjr]

I work in the appliance industry, and much of what you state is accurate. I deal with people from all over the planet working in a multinational company. Being an engineer, I was required to get a college degree, but do not see the value of studies that are not STEM. Unfortunately, this type of educational malpractice is being experienced by man whom have degrees that have no application to a vocation. If you can afford a degree in something that has no application to a vocation, fine that is no problem. To most this is not an option, and have been lied to as it pertains to the value of the degree.

As an aside we are tightening up out supply chain to include more readily available suppliers that do not require a boat trip to get here. Nice job.

[RUM]

You're pretty spot on. I don't even talk about stuff like this anymore. People will regurgitate talking points from their favorite news outlet and that's about as far as their minds take them. I've always had a knack for research, doesn't take me long to get through the weeds and find the truth. Looks like you've blown past the weeds.

[kbcson]

Mike, I'll be honest I clicked on this video thinking oh great another person that is against John Deere spreading BS but I was completely surprised when I heard you tell true unbiased facts about what was going on. This is the first video I have ever seen of you and it popped up on my feed. With 100% transparency, I am in the farm equipment industry and have worked for a John Deere Dealership for over 20 years as well as a Kubota dealership that owned both dealerships for 5 of those years. I am now a new subscriber to you and look forward to watching all of your videos. Thank you for your honesty

[johndoe]

Good video as always. I'm Mr USA and it's hard to find made in USA on many things. I've screamed about this for 40 years. I've also paid 3 times the price on many items. It is usually worth it. Many companies have operations in Mexico. It is a lot better than oceans away.

[archaney]

The wage rate factor, as I read it and I will stand corrected if I'm not reading it correctly, is that ~40-45% of a vehicle must be produced in factories that paid at least that much for a vehicle to qualify under the new agreement. That doesn't mean a production worker in Mexico is going to see that rate. Some of the commentaries on the agreement say that is more about keeping as much production in the US as possible. For example, build 50% in the components in US or Canada with their higher wage rates and ship them to Mexico for assembly.

Next I'd like to comment on cost. I spent 31 years in manufacturing plants. Part of that on the factory floor but most in cost accounting. The last 11 were spend in a US plant for a Japanese company. The overwhelming percentage of what we would regard as factory controllable cost was labor. Workers could try as hard as they wanted saving on small things here and there only to have any savings wiped out by having to run production on overtime. Before that I worked for a company making small appliances. Time and time again I did "make vs. buy" calculations of what we could build it for versus buying from China or Turkey. Based on manufacturing cost alone we never had the favorable calculation, hence Walmart is chock full of Chinese made products and the plant I worked has been empty for over a decade. Oh, that for the US side of that calculation this was a low cost area. Before that I worked for a US Electrical Motors plant that shipped all of its jobs in Mexico in the early 2000s.

Labor, and this I will agree in anecdotal. While I was at the car company (rhymes with Rhonda) the old hand line workers would often complain that new workers just didn't want to work. Turn over for new people was high. These were good paying jobs with good benefits. But they are jobs where people are expected to show up everyday on time, put away the cell phone, and do a job as instructed. Senior workers would grow tired of training new people they knew would quit in short order. The company has continued to raise labor rates to try and get/keep enough people to run the plants(s). Next time you have sticker shock that will be part of it. I'll grant that factory work isn't for everyone. But I think the case extends beyond the walls of a factory. Okay, hit me with the "OK, boomer". I do agree with a lot of what you young folk have to say.

I loved working in manufacturing. I hope the laid off workers can land on their feet. They are welcome to come south for better weather and better football. Maybe I should have left that last part out. lol

[danielginther]

I got four boys, 22, 27, 37, and 42. All are gainfully employed w/o a. College degree.

[RobertBrothersJr-dcnr]

We definitely need to encourage our kids to get into some type of a trade. Everyone is encouraged to go to College. If no one can do the work there will not be a need for the College educated. They won’t have anyone to supervise. It’s sad to see John Deere move some of its production to Mexico. Great video Mike. Thanks

[jamesuehling]

I think you might be wrong on wages from what I know. I worked Eaton corp. I worked at the belmond ia. Eaton plant. It started moving equipment down to Mexico around 2018. I know when they started to hire people down in Mexico to train with people from our plant they were only paying those employees from Mexico a $1.38 a hour.

[DLTJR]

Mike, my dad sold Allis back in the day. We never drank the green cool aid either. Only AC orange, Ford blue, and Farmall red was on the farm. Hay equipment was new Holland, a 60 AC combine was replace by several Gleaners, and of course an old Van Brunt grain drill that's still in the shed. Pop did bring home on trade a Case or a Deere here and there, and we used them, but green was not our thing. Your points are well taken. I don't like it but that's the way it is. We all go to Harbor Freight but complain that nothing is made here. Still don't have a Deere here and don't plan on one. The blue 6610 and 1720 are just fine.