Mexico’s once roaring auto sector falls on hard times

Once a magnet for billions of dollars in investment and rapid job creation, Mexico’s monthly car production and sales are at its lowest level in 10 years as the industry is hit by a pandemic and a shortage of semiconductor chips. It is sluggish.

The chip problem felt around the world has hit North America particularly hard, with Mexico being heavily affected as it relies on cars for more than 3% of its GDP. Data released on Monday showed that car production in Latin America’s second-largest economy in October was the lowest of the month since 2011.

The Bank of Mexico’s August estimate suggests that car supply chain problems could hit GDP by 1% this year, and the problems will probably continue until next year. Future uncertainties have been exacerbated by changing US consumer tastes, the shift to electric vehicles, and the Mexican government’s energy policy, analysts said.

Adrian de la Garza, Chief Economist of Mexico in the city, said: “It is not clear if foreign investment will recover significantly in the future.”

This could be a drag on Mexico’s already fragile economic recovery.Suddenly drawn in In the third quarter. The sector has long benefited from North American free trade agreements, but the long-awaited boom from factories approaching the United States from Asia has yet to materialize.

This year, automakers wanted a complete recovery from the 2020 Covid-19 shutdown. However, supply chain bottlenecks due to persistent waves of viruses, shortages of raw materials, and other factors severely constrained chip supplies.It is connected to Suspension and production cuts Across many factories.

Guido Vildozo, Senior Market Analyst at IHS Markit, said: “We are in the following stages … If something derails, the domino effect is very serious.”

Nearly one million Mexicans work in the automotive industry. Regions across the country rely on factories and their suppliers owned by well-known companies such as General Motors and Nissan. Over 80% of production is primarily for export to the United States.

Chip issues have hit 0.1-0.2% of GDP in many emerging markets where cars are manufactured, according to capital economics analysts. However, in Mexico, the Czech Republic and Hungary, where this sector occupies the majority of the economy, the overall impact, including spillover, is likely to exceed 1% of GDP, they added.

Mexico’s Minister of Economy, Tatiana Clouthier, warned that chip issues are affecting the wider economy, and her team has joined forces with the US-Mexico High-Level Economic Dialogue (HLED) to strengthen the chip component supply chain. ) Said he was working in.

“We’re at HLED working on this, from the training and re-skilling issues of people needed for the new chip model to defining what parts each side does,” she said. I told the Financial Times. “That is one of our priorities.”

Another reason Mexico has been hit hard is that it still manufactures many small cars, which are a lower priority in terms of chips ordered by companies. There is also a clear trend from light passenger cars to light trucks among US consumers, Mexico’s main car market. Mexico is rebalancing, but it can’t go as fast as changing trends.

“You have double pain in nature,” said Vildozo. “You have constraints on semiconductor availability, but the industry is also looking at what makes money.”

Local car sales also plummeted, and the industry suffered the worst October sales in the last decade, reflecting inventory shortages. Jorge Vallejo, President and Chief Executive Officer of Mitsubishi Motors Mexico, said:

The short-term tip problem is now painful, but some long-term trends have also converged on the horizon.

Recent suggestions Nationalize future lithium According to analysts, producing and prioritizing cleaner, more expensive state energy is unlikely to help Mexico’s case in the global battle for electric vehicle investment.

Clouthier said her team is working with the private sector and academia on the transition to electric vehicles, especially with regard to battery production.

“We are doing what we have to do to move forward with a mixed system,” she said.

This change could change the geography of automobile manufacturing around the world, said Josezo Zayaderano, executive president of the country’s automotive industry group AMIA.

“Mexico … Over the years, we have shown that we have the ability and talent to manufacture highly-skilled vehicles,” he said. “We are ready, but we need to do a better job to attract investment and give it confidence.”

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