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DE RUEHTG #1043/01 2862205
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O 132205Z OCT 09
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0868
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE IMMEDIATE
RUEHME/AMEMBASSY MEXICO IMMEDIATE 8162
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UNCLAS TEGUCIGALPA 001043 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON BBSR BEXP EINV ETRD KDEM HO
SUBJECT: TFHO1: POLITICAL CRISIS PROMPTS PLANT'S CLOSURE 
 
REF: TEGUCIGALPA 996 
 
¶1.  (SBU) SUMMARY: Judco Manufacturing Inc., a U.S.-based 
automotive industry supplier, is in the process of closing 
its manufacturing facility in San Pedro Sula as a direct 
result of the political crisis.  The company located its 
plant in Honduras in 2005 for reasons including the country's 
political stability, historic ties to the U.S., abundance of 
skilled labor, and short shipping times.  As recently as 
December 2008, Judco was considering expanding its operations 
in Honduras.  The June 28 coup d'etat, with its ensuing 
curfews, border closures, and sometimes violent 
demonstrations, prompted Judco instead to terminate its 
operations in Honduras.  The company is in the final stages 
of shifting the plant to Mexico but it is facing some 
obstacles from the GOH.  Though this is the first case that 
has come to our attention of a U.S. company closing its 
operations because of the political situation in Honduras, it 
is likely that many companies that were thinking of opening 
operations or expanding may be looking elsewhere instead. 
END SUMMARY. 
 
¶2.  (SBU) Judco Manufacturing Inc., a U.S.-based automotive 
industry supplier, is in the process of closing its 
manufacturing facility in San Pedro Sula as a direct result 
of the political crisis.  EconOff discussed the reasons for 
the decision with Judco's Honduras-based director of 
operations on October 9. 
 
----------------------------- 
Judco Happy To Be in Honduras 
----------------------------- 
 
¶3.  (SBU) Judco opened its first offshore manufacturing plant 
in 2005.  It initially considered locating the plant in 
China, but finally selected Honduras despite the higher cost 
of labor.  Reasons for the decision included Honduras's 
political stability and historic ties to the U.S.  Additional 
factors included the abundance of skilled labor, reduced 
shipping times, and the fact that the factory would be in the 
same time zone as offices in the U.S. 
 
¶4.  (SBU) Judco located the plant in San Pedro Sula and hired 
275 workers to complete the final assembly of 
electro-mechanical custom switches and wire automobile 
harnesses for export.  The Judco executive said that the 
plant was so profitable that in December 2008 Judco was 
considering expanding its operations in Honduras.  It 
developed plans to open a second facility and increase its 
local workforce to 500 people. 
 
------------------ 
Judco Gets Nervous 
------------------ 
 
¶5.  (SBU) Judco began reconsidering its operations in 
Honduras after President Manuel "Mel" Zelaya raised the 
minimum wage by 60% in January 2009.  The Judco executive 
said that when Zelaya proposed adding a fifteenth month's 
salary and his rhetoric shifted left, Judco decided to 
suspend its expansion plans because "the horizon did not look 
favorable".  (Note: In addition to their regular salaries, 
all Honduran employees receive mandatory bonuses equivalent 
to a month of salary in June and in December - the 13th and 
14th month.  Zelaya was considering adding a third bonus, a 
"15th month."  End note.) 
 
-------------------- 
Judco Calls It Quits 
-------------------- 
 
¶6.  (SBU) The June 28 coup, with its ensuing curfews, border 
closures, and sometimes violent demonstrations, prompted 
Judco to terminate its operations in Honduras.  The company's 
executives were concerned that a prolonged political crisis 
would interrupt shipping operations and that Judco would no 
longer be a reliable "just-in-time" supplier.  The Judco 
executive said that the company contacted the Overseas 
Private Investment Corporation (OPIC) regarding political 
risk insurance but was told that it was only available for 
new factories, not existing facilities. 
 
¶7.  (SBU) The Judco executive said that Judco found it much 
easier to open its plant in Honduras than to close it.  When 
they arrived, the GOH "laid out the red carpet" and assisted 
Judco through the regulatory process for establishing a 
business in Honduras.  Judco is currently in the final stages 
of shifting the plant to Mexico but it is still facing some 
obstacles from the GOH.  Numerous government offices each 
want Judco to complete a form and pay a fee prior to issuing 
the paperwork required for Judco to transfer its equipment to 
Mexico.  The Judco executive complained that "there is no 
clear path to what is required to ship material." 
 
------- 
Comment 
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¶8.  (SBU) Honduran business leaders have in recent weeks 
expressed concern to us that, after years of hard work on 
their part promoting Honduras as a place to open a factory, 
the political crisis would taint the country's reputation 
overnight (reftel).  This is the first case that has come to 
our attention of a U.S. company closing its operations solely 
because of the political situation.  Certainly, the negative 
impacts of the global economic crisis have badly hurt 
Honduras's apparel and automotive based assembly industry. 
Local estimates are that 30,000 of the 150,000 maquila jobs 
have been lost due to the crisis.  This case is especially 
salient since its operations were profitable and it 
previously had expansion plans.  One of the intangible 
economic costs of the political crisis is the number of jobs 
that will never be created because companies either suspended 
expansion plans or no longer consider Honduras an attractive 
place to establish a base of operations. 
LLORENS