In Mexico’s auto heartland, workers struggle as chip shortages bite

A global semiconductor shortage is hitting Mexico’s auto workers hard as employers slash production, reduce shift work and cut jobs due to supply-chain breakdowns. The pain is intense in the central Mexican state of Aguascalientes and its namesake capital, one of the country’s top automotive hubs, where chip shortages have forced rolling shutdowns at employers large and small. According to interviews with workers, union leaders and industry executives, the temporary shutdown has translated into lost wages due to layoffs and layoffs for thousands of workers here and across Mexico.

Cuitlahuac Perez is the general director of Aguascalientes-based auto parts firm Maindsteel, and head of one of the state’s automotive clusters, which promotes the industry. He said his firm and other Aguascalientes suppliers are suspending operations for an average of seven to eight days per month as carmakers and other parts companies are clogging up the supply chain. Perez estimates that one in five local automotive workers have lost their jobs since the chip shortage began about seven or eight months ago, with the rest taking major pay cuts. Many contract workers here get half their salary. “We’re talking about a direct impact on their families,” Perez said.

Semiconductors are an essential component for the world’s automakers, who need them for a wide variety of systems such as security, navigation and entertainment. The outbreak of COVID-19 in Asian semiconductor manufacturing centers has slowed chip production. The fallout has spread around the world, with automakers unable to keep production pace with the demand for the vehicle. In Mexico, affected multinationals include Nissan Motor Co Ltd, the country’s second largest automaker.

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In Mexico, affected multinationals include the country’s second largest automaker Nissan Motor Co.

The Japanese firm operates a powertrain facility and an assembly plant in Aguascalientes producing its March, Versa, Kicks and Sentra vehicles. The company has seen at least five shutdowns at Mexican facilities this year due to chip issues, Reuters has reported. The latest came earlier this month, the company said, with a halt of five to seven days at its Aguascalientes plants, and a shutdown for eight days at its CIVAC factory in Morelos state, which sells the Versa V-drive sedan and two Manufactures Pickups: NP300 and Frontier.

The shortage of chips has also affected an Aguascalientes assembly plant that is jointly operated between Daimler AG and Renault-Nissan. A Mercedes-Benz spokesperson said in emailed comments, the so-called COMPAS plant, which produces the Mercedes-Benz GLB SUV, has experienced “shift reduction or production brakes”. The turmoil is having an effect on Mexico’s economy. According to the Mexican Automotive Industry Association (AMIA), car production fell 20% last year to 3.04 million vehicles, and is projected to fall 5% in 2021. The auto industry, which currently employs 946,000 workers, has lost 16,000 auto jobs since the end of 2019, AMIA figures show.

In August, the Bank of Mexico estimated that a halt to automotive operations as a result of chip shortages could cost Mexico up to 1 percentage point of GDP growth in 2021. Early third-quarter GDP data showed the economy shrank between July and September, the first quarterly decline since the pandemic began to recover, partly due to problems in the auto sector. The Mexican unit of China-based Minth Group, whose Aguascalientes plant supplies parts to automakers across North America, is one of the firms cutting labor hours and cutting jobs. According to Manuel Ando, ​​Minth Mexico’s director of administration and infrastructure, the company has laid off about 20% of its workforce this year. On top of the previous cuts, staffing now stands at 1,300, down from about 2,700 before the pandemic, he said. Ando said the situation was triggered by a number of factors, including tight chip supplies, hiccups in the global logistics chain and a slowdown in production by its US customers, many of whom are grappling with labor shortages. “Since they’ve stayed, well, we’ll have to stop too,” Ando said.

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The auto industry, which currently employs 946,000 workers, has lost 16,000 auto jobs since the end of 2019, AMIA figures show.

Dalila Gomez, who inspects parts for the Minth in Aguascalientes, considers herself lucky that she still has a job. But as the hours are short, he has tightened his belt. Gomez said she gets only 50% of her average weekly paycheck, about $60, when production stops. The mother of three said she had cut back on household expenses, including soft drinks and home internet service at lunch. “It’s sad because there are many people, myself included, with families — some of them single moms — who have to support their families, pay the rent,” Gomez said. “It has affected everyone, everyone.”

‘The worst is yet to come’

Mexico’s automotive sector does not suffer in isolation. Automotive powerhouse Germany is struggling to ramp up production and the situation is hindering its economic recovery. Car makers in Japan have been forced to cut production. A bipartisan group of US governors recently warned that due to chip shortages, automakers in North America will lose an estimated 2.2 million vehicles in 2021 and 575,000 industry jobs have been affected. According to a recent forecast from ratings agency Fitch, the semiconductor squeeze is likely to continue until at least the first half of 2022. 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 was seeing an improved flow of semiconductors. It said the first week of November was the first time since February that none of its North American assembly plants went to waste for lack of chips. 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 ease shortages that have hit smartphones, laptops and consumer electronics. Equipment manufacturers have also been affected.

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

But it has done little to ease concerns in Aguascalientes, where autos are a pillar of the economy, employing some 46,000 workers directly and 120,000 indirectly. According to Aguascalientes Economic Development Secretary Manuel Alejandro González, about a third of the state’s GDP comes from the auto sector.

Anibal Llamas, quality manager at Minth, which supplies parts, fears “the worst is yet to come.”

Some auto workers are surprised by their turn of luck. A Nissan employee, who spoke to Reuters but did not wish to be named, said she and her husband both work in the industry. She said the shorter hours have devastated her monthly income.

She said the couple has lagged behind on mortgage payments and other bills. Anxiety and longing have replaced the security they once felt.

“Financially you feel like you’re coming out of this and then they send me home again, or they send him home,” she said. “It’s the end of the week and we don’t even have two pesos.”

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