Anthony Esposito, Sharay Angulo

Mexico, AGUASCALIENTES (Reuters) – Mexico is facing a global shortage of semiconductors. Employers are cutting output and shifting work, while job losses due to supply chain breakdowns force employers to reduce their workforce.

Aguascalientes, a central Mexican state, is experiencing acute pain. Its capital city, Aguascalientes, was one of Mexico’s most important automotive centers. Rolling shutdowns have been forced at large and small employers due to the chip crunch.

Interviews with union leaders and executives in the industry revealed that temporary closings led to lost wages for many thousands of Mexican workers.

Cuitlahuac Perez serves as the general director for Maindsteel’s Aguascalientes-based parts manufacturer Maindsteel and heads one of the state’s auto clusters that supports the sector. According to Perez, his company and those of other Aguascalientes suppliers had been closing down for seven to eight days on an average per month when carmakers and parts companies higher up in the supply chain stopped production.

Perez believes that one fifth of local auto workers has lost their job, while the remainder have seen big pay cut since chip shortages started around seven to eight months back. Many workers are paid half their salary by contract.

Perez explained that the impact of this decision will have a “direct effect on their families.”

For automakers around the globe, semiconductors are a vital component. They’re needed for various systems including navigation, safety, and entertainment. The slowdown in chip production has been caused by COVID-19 epidemics at Asian semiconductor manufacturing centers. Automakers are finding it hard to meet vehicle demand, as a result of the global fallout.

Multinationals in Mexico are affected by Nissan Motor Co. Ltd (OTC:) Motor Co. Ltd., Mexico’s second largest vehicle manufacturer. Japanese manufacturer operates Aguascalientes’ powertrain and assembly plants, which produce its Sentra, March, Versa, Kicks, and Powertrain vehicles. According to Reuters, the company experienced at least five shut downs in Mexico this year because of chip problems.

According to the company, this was the latest stoppage that occurred earlier in the month. It included stops ranging from 5-7 days at Aguascalientes plants and an 8-day shutdown at CIVAC’s Morelos factory, which produces the Versa V-Drive sedan as well as two pickups, the Frontier and NP300.

Aguascalientes Assembly Plant, which is jointly managed between Aguascalientes and Aguascalientes has also been affected by the lack of chips. Daimler AG (DE) and Renault-Nissan. A Mercedes-Benz spokesperson stated in emailed comments that the so-called COMPAS plant which makes the Mercedes-Benz GLB SUV has suffered “shift reductions” or “production breaks”.

Mexico’s economy is being affected by the turmoil. Car production fell by 20% to 3.04 million vehicles last year, and is forecast to drop by as much as another 5% https://www.reuters.com/world/americas/auto-output-dives-brazil-mexico-chip-shortages-bite-2021-10-06 in 2021, according to the Mexican Automotive Industry Association (AMIA). AMIA data show that the auto industry has seen 16,000 job losses since 2019.

In August, the Bank of Mexico https://www.banxico.org.mx/publicaciones-y-prensa/informes-trimestrales/recuadros/%7B11972B0F-38F8-F301-76C5-1AC6C404C0C0%7D.pdf projected that automotive work stoppages resulting from chip shortages could cost Mexico up to 1 percentage point of GDP growth in 2021. Preliminary third-quarter GDP data https://www.reuters.com/world/americas/mexican-economy-shrinks-first-time-since-pandemic-rebound-2021-10-29 showed that the economy shrank between July and September, the first quarterly fall since recovery from the pandemic began, partly due to problems in the auto sector.

Minth Group Mexico, the Mexican arm of China-based Minth Group, supplies parts for automakers in North America through its Aguascalientes factory. This is one of many firms cutting worker hours. According to Manuel Ando (director of Minth Mexico’s administration and infrastructure), the company laid off approximately 20% of its workforce in 2018. This is on top of the previous reductions, as Minth Mexico’s director of administration and infrastructure said that 1,300 employees are now available, which was down from 2,700 before the pandemic.

Ando stated that the problem was due to a variety of factors including tight chip supplies and slow production from its U.S. clients, who are often struggling with workers shortages.

Ando declared, “Since their halted. Well, we also have to stop.”

Dalila Gomez inspects Minth parts in Aguascalientes and considers herself fortunate to still have a job. She has had to cut back on her hours. Gomez stated that when production is stopped, she only receives half of her weekly salary of $60. Gomez, a mother to three children, said she had cut a number of household expenses including lunch soft drinks and home internet.

“It’s sad because there are many people, including myself, with families – some of them single moms – who have to support their families, pay rent,” Gomez said. It has affected all of us.

‘THE WORST IS YET TO COME’

Mexico’s automobile sector isn’t in pain alone.

Automotive powerhouse Germany https://www.reuters.com/world/europe/germanys-next-government-faces-three-big-economic-challenges-2021-10-05 is struggling to ramp up output and the situation is hampering its economic recovery. Carmakers in Japan https://www.reuters.com/business/autos-transportation/honda-posts-fall-q2-operating-profit-2021-11-05 have been forced to cut production.

A bipartisan group of U.S. governors recently warned that https://www.reuters.com/world/us/nine-governors-press-us-lawmakers-pass-semiconductor-funding-bill-2021-11-10, due to the chip shortage, automakers in North America lost an estimated 2.2 million vehicles in 2021 and 575,000 industry jobs have been impacted.

The semiconductor squeeze is likely to continue at least through the first half of 2022, according to a recent forecast by Ratings agency Fitch https://www.reuters.com/article/mexico-fitch-idUSL1N2S821Z.

Some in the industry see some tentative signs of stabilization.

Detroit-based General Motors Co (NYSE:), the largest automaker in Mexico, told Reuters this month it’s seeing a better flow of semiconductors https://www.reuters.com/business/autos-transportation/gm-says-seeing-better-flow-semiconductors-2021-11-10. The company said that the North American assembly plant was idled the week before, for the first time since February.

Taiwan Semiconductor Manufacturing Co https://www.reuters.com/technology/sony-invest-500-mln-tsmcs-new-chip-unit-japan-2021-11-09 , the world’s largest contract chipmaker, said this month it would build a $7-billion semiconductor plant in Japan with Sony (NYSE: ) A group has been formed to ease the crisis that also affects manufacturers of consumer devices, smartphones, and laptops.

At economic talks held in Washington, September saw the United States, Mexico, and Canada agree to improve their supply chains, including for semiconductors. U.S. lawmakers, meanwhile, are mulling subsidies https://www.reuters.com/world/us/dispute-over-china-tech-measure-delays-vote-massive-us-defense-bill-2021-11-17 to bolster U.S. chip production.

It hasn’t helped in Aguascalientes. Autos have become a key pillar of the country, directly employing approximately 46,000 and indirectly 120,000 workers. Manuel Alejandro Gonzalez (the economic development secretary of Aguascalientes) said that almost a third comes from the automobile sector.

Anibal Llamas is the quality manager for Minth parts supplier. He fears “the worst”

Some auto workers were stunned by the turn of events. A Nissan worker spoke with Reuters, but did not want to be identified because she said that her husband and she both worked in the auto industry. According to her, the lack of hours has ruined their monthly income.

She stated that the couple had fallen behind with their mortgage payments, and other bills. The security that they used to feel has been replaced by worry and desire.

She stated, “Financially you feel as if you’re emerging from this. And then they send us home again or we send them home.” We don’t have even two pesos at the end of each week.”