Some Canadian suppliers are warning that the coming weeks could prove to be “stop-and-go” for auto manufacturing as production ramps back up.
“At the moment, we’re good to start. But what we can’t see is the Tier 3 [suppliers]. We’re relying on our Tier 2’s to tell us if our Tier 3’s are OK,” said Pat D’Eramo, CEO of supplier Martinrea International Inc. “My view is it’s going to take time over the next 2-3 weeks. It’s going to be stop and go. There may or may not be some employee issues if there’s an outbreak of some sort.”
Auto production is resuming in North America this month, about two months after the COVID-19 pandemic forced automakers and suppliers to shut down their factories. Output was expected to be considerably lower than pre-pandemic levels as companies ramp up production, implement new health procedures and adjust to weakened new-vehicle demand.
In an email to Automotive News Canada, Flavio Volpe, the president of the Automotive Parts Manufacturers’ Association (APMA), said the “vast majority” of Canadian supplier facilities have gone back online “in whole or in part.”
“Generally speaking, the return will be staged to match volume expectations of our OEM customers,” Volpe wrote. “Sourcing of materials, sub-component or the newly necessary [personal protective equipment] has been more challenging than usual but not an insurmountable barrier.”
The challenges some companies see in sourcing materials, equipment and parts in the coming weeks underscore just how delicate the automotive supply chain is and how the pandemic figures to remain a risk to it in the coming weeks and months.
Jonathon Azzopardi, president of Laval International in Windsor, Ontario, said the auto industry is particularly susceptible to supply chain risks.
“It’s showing how delicate the automotive space really is,” he said. “The lack of profitability, the lack of forgiveness in time and lead time, the just-in-time deliveries, all of these things have made our industry so delicate and so susceptible. We have so many things that make us strong, but there are certain aspects that make it very delicate.”
Case in point: lines at Ford Motor Co.’s assembly plants in Chicago and Dearborn, Mich., were temporarily halted on Tuesday and Wednesday, respectively, after workers tested positive for COVID-19. Production in Chicago was again halted on Wednesday due to a supplier parts shortage, a spokeswoman told Automotive News.
Azzopardi said some automakers, which he did not name, have allowed suppliers “no leeway” on timing and costs, despite challenges in sourcing certain components. He singled out Japanese automakers as being generally more “cognizant of the fact that there’s a cost related to this pandemic.”
He said it can be difficult to meet their customers’ demands if a critical supplier has to shut down due to the pandemic or another issue.
“It was our holiday this weekend. I had people that should’ve been off that weren’t off. We were paying 2.5 times salary just to try and maintain what we could for the customer,” he said. “To be honest with you, it’s really tough because the supply chain is not there.”
A survey of 44 companies, largely tool-and-die companies, completed on May 12 by the Canadian Association of Mold Makers and Automate Canada found that 70 per cent of respondents had no employees on layoff.
“We asked about how many of their customers had declared bankruptcy or sought creditor protection,” said Shelley Fellows, chair of Automate Canada. “Over two surveys only one customer had done that to them; it didn’t represent a huge portion of their accounts receivable, which is always the concern. So overall, we saw companies who had learned from the recession 10 years ago, built up their balance sheets and were able to manage their costs, take advantage of those government programs and collectively hold their breath, deliver on the projects that they had.”
Martinrea’s D’Eramo said that while the next few weeks could prove to be bumpy as production resumes, he foresees the second half of the year being much smoother for the industry.
“At some point, maybe in June, I hope in June, it’ll be like flipping a switch and some of these guys are going to take off,” D’Eramo said.
Magna International Inc., the largest Canada-based supplier, is going through “a cautious, gradual restart” in the United States and Canada to align with slower output at assembly plants, a company spokeswoman wrote in an email.
Grace Macaluso contributed to this report.