Volkswagen de Mexico S.A. de C.V. avoids a strike at its Puebla assembly plant by revising its collective labor agreement to increase worker wages and benefits 5.4%, as well as provide $1,227 in yearly food coupons and an additional day of pay in holiday bonuses.

The 10,000-plus workers at the facility, which builds about 1,800 Bora, Jetta, New Beetle and Golf models annually, threatened to strike Aug. 21 had concessions not been granted.

Yearly modifications in the auto maker’s Mexican labor agreement are commonplace, says VW spokeswoman Consuelo Minutti. Workers originally asked for a 13.03% wage increase, but the agreed-upon 5.4% wage hike is in line with inflation in Mexico.

Minutti also tells Ward’s worker pay varies greatly at the Puebla plant, depending on years of service and level of expertise. Wages can range from 152 pesos ($15) per day for a new employee to MP525 ($52) for a veteran worker.

VW is “one of the highest-paying employers in the country,” she says.

However, while still below wages paid in the U.S. and other developed countries, the annual pay increases demanded by VW’s Mexican workforce eventually could affect the country’s status as a desirable place to assemble vehicles, warns Harley Shaiken, a labor expert at the University of California, Berkeley.

“There’s little question that any wage increase in a global economy throws in real pressures, where companies will explore other areas for production,” Shaiken says in a phone interview.

On the positive side, Mexico’s workforce is well-trained and highly productive, he says, making it unlikely VW, or any other auto makers, would transfer production out of the country unless wages significantly increased.

But that doesn’t stop management from issuing ultimatums to its workers, Shaiken says, despite the fact VW has one of the strongest labor unions in Mexico.

“VW threatened to move to Brazil or somewhere, and the net result is they’ve expanded in Mexico, because all things considered – proximity to the U.S., productivity and quality – it’s a good site,” he says.

“If you started closing plants, (auto makers) could find (themselves) at a major disadvantage with the government that could be expressed in a whole range of things that would make it difficult to sell cars in Mexico. Nobody wants to push it that far.”

Meanwhile, Minutti disputes reports that VW plans to temporarily halt production of the New Beetle for export to the U.S. due to bloated inventories.

There’s “no truth to that,” she says. “We (continue to) produce the Beetle for the U.S. and may other markets.”

U.S. Beetle inventories in July stood at 76 days’ supply for the coupe and 55 for the cabriolet version, Ward’s data shows. Beetle coupe sales for the month fell 1.4% to 1,514 units, while cabriolet sales plummeted 20.7%.