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How the Chip Shortage Affects Mexico


The temporary closures have resulted in lost wages for tens of thousands of employees here and throughout Mexico due to leave and layoffs, according to interviews with workers, union leaders and industry executives. (Photo: EFE)

The global semiconductor shortage is hitting Mexico’s auto workers hard as employers have been forced to cut production, reduce shifts and working hours and even to eliminate jobs due to disruption in the supply chain.

The pain is sharp in the central state Aguascalientes, one of the main automotive centers in the country, and its namesake capital, where the crisis of the lack of chips has forced continuous closures in large and small employers.

Temporary closures have resulted in lost wages for tens of thousands of employees here and throughout Mexico due to leave and layoffs, according to interviews with workers, union leaders and industry executives.

Cuitláhuac Pérez is CEO of the Aguascalientes-based auto parts firm Maindsteel and director of one of the entity’s automotive clusters, which promotes the industry.

The executive said his company and other Aguascalientes suppliers have been suspending operations an average of seven to eight days per month, as automakers and other parts companies higher up the supply chain stop production.

How the Chip Shortage Affects Mexico
Semiconductors are an indispensable component for the world’s automobile manufacturers, as they need them for a wide variety of in-vehicle systems, such as security, navigation, and entertainment. (Photo: EFE)

Pérez estimates that about one in five local auto workers have lost their jobs, and the rest have experienced considerable pay cuts since the chip shortage became acute seven or eight months ago. By contract, many inactive workers here receive only half of their wages.

“We are talking that the affectation is direct to their families,” said Pérez.

Semiconductors are an indispensable component for the world’s automobile manufacturers, as they need them for a wide variety of in-vehicle systems, such as security, navigation, and entertainment.

COVID-19 outbreaks in distant Asian semiconductor manufacturing hubs have slowed production. The consequences have spread all over the world, and automakers cannot keep up with the demand for new vehicles.

In Mexico, affected multinationals include Nissan Motor, the country’s second-largest auto producer. The Japanese firm produces March, Versa and Kicks in the Aguascalientes 1 plant, as well as engines in the same complex, in the Powertrain facilities and in Aguascalientes 2 it produces the Sentra.

How the Chip Shortage Affects Mexico
The auto manufacturing sector, which employs about 946,000 workers today, has lost at least 16,000 jobs in the auto industry since late 2019, AMIA data shows.

The firm has done at least five temporary closures at its Mexican facility this year due to chip problems, Reuters reported.

The last occurred earlier this month, the company said, with stoppages ranging from five to seven days at its Aguascalientes plants and an eight-day shutdown at its CIVAC factory in central Morelos state, which manufactures the Versa V-Drive sedan and two trucks: the NP300 and the Frontier.

The chip shortage has also affected an Aguascalientes assembly plant jointly operated by Daimler AG and Renault-Nissan. The so-called COMPAS plant, which produces the Mercedes-Benz GLB SUV, has experienced “Shift reductions or production interruptions”said a Mercedes-Benz spokesperson in emailed comments.

The ravages of the semiconductor crisis are weighing on the Mexican economy. Car production fell 20% to 3.04 million vehicles last year, and is expected to fall to another 5% in 2021, according to the Mexican Association of the Automotive Industry (AMIA).

The auto manufacturing sector, which employs about 946,000 workers today, has lost at least 16,000 jobs in the auto industry since late 2019, AMIA data shows.

Banco de México projected in late August that auto work stoppages as a result of chip shortages could cost Mexico up to 1 percentage point of the expected growth of the Gross domestic product (GDP) by the end of 2021.

How the Chip Shortage Affects Mexico
Preliminary third-quarter GDP data showed the economy contracted between July and September, the first quarter down since the pandemic recovery began, in part due to problems in the sector. (Photo: EFE)

Preliminary third-quarter GDP data showed the economy contracted between July and September, the first quarter down since the pandemic recovery began, in part due to problems in the sector.

The Mexican unit of the Chinese company Minth Group, whose Aguascalientes plant supplies parts to automakers across North America, is among the companies cutting hours and reducing positions.

The company laid off about 20% of its workforce this year, according to Manuel Ando, ​​director of administration and infrastructure at Minth México, which has its Aguascalientes plant. That is in addition to previous cuts, with a template that is now 1,300 people, up from 2,700 before the COVID-19 pandemic, said.

Ando recounted that the situation was triggered by a host of factors, including shortages in the supply of chips, setbacks in the global logistics chain, and a slowdown in production by its US customers, many of whom are dealing with the lack of workers.

“As they are stopped, they stop us”said Ando.

Dalila Gomez, who inspects parts for Minth, considers herself lucky to have a job. But the reduced hours have made her tighten her belt.

Gomez said that when production stops, she receives only 50% of her average weekly paycheck, which is around $ 60. The mother of three said she has cut a number of household expenses, including soft drinks at the lunch and internet service at home.

“It is sad, sad because there are many people. I count myself among them, with family, who are sometimes single mothers who have to support (relatives), who have to pay rent, ”said Gómez. “I think this is general.”

“THE WORST PART IS TO COME”

How the Chip Shortage Affects Mexico
The contraction in semiconductor supply is likely to continue through at least the first half of 2022, according to a recent forecast from rating agency Fitch (Photo: Reuters)

The Mexican auto sector is not suffering in isolation.

Germany, the automotive powerhouse, is struggling to increase production and the situation is hampering their economic recovery. Japan’s automakers have also been forced to cut production.

A bipartisan group of U.S. governors recently warned that due to chip shortages, automakers in North America lost approximately 2.2 million vehicles in 2021 and 575,000 industry jobs have been affected.

The contraction in semiconductor supply is likely to continue through at least the first half of 2022, according to a recent forecast from the Fitch rating agency.

Some industry players see tentative signs that the situation is stabilizing.

Detroit-based General Motors Co, Mexico’s largest automaker, told Reuters this month that it is experiencing a better flow of semiconductors. The first week of November was the first time since February that none of its plants North American assembly it had been idle due to a lack of chips, according to the automaker.

Taiwan Semiconductor Manufacturing Co, the world’s largest contract chip maker, said this month it would build a $ 7 billion semiconductor plant in Japan with Sony Group, to help alleviate shortages.

How the Chip Shortage Affects Mexico
Almost a third of the state’s GDP comes from the automotive industry, according to Manuel Alejandro González, secretary of Economic Development of Aguascalientes. (Photo: Reuters)

Manufacturers of smartphones, laptops, consumer appliances and video games have also been affected.

In September, the United States and Mexico agreed in economic talks in Washington to make their shared supply chains more competitive, especially for semiconductors. Meanwhile, US lawmakers are considering subsidies to boost US chip production.

But that has done little to ease concerns in Aguascalientes, where cars are a mainstay of the economy and their manufacturing employs about 46,000 workers directly and 120,000 indirectly.

Almost a third of the state’s GDP comes from the auto industry, according to Manuel Alejandro Gonzalez, Secretary of Economic Development of Aguascalientes.

Aníbal Llamas, Minth’s quality manager, fears that “the worst part is yet to come.”

Some auto workers are stunned by their change in fortunes. A Nissan employee who spoke to Reuters but declined to give her name said she and her husband work in the industry. He complained that the few hours of work have devastated his monthly income.

She said the couple has fallen behind on mortgage payments and other bills. Worry has replaced the security you once felt working for a global industry.

“Economically you feel that you are going out, but suddenly they already rested you again or they rested it”the woman said, referring to the times they are sent home. “Then (the weekend) comes and no longer, we no longer have even two pesos. The negative balance is already out ”.

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