Thousands of Ontario auto workers are returning to work this month, resuming their positions in the supply chain, as the North American industry ecosystem slowly wakes up from its COVID-19 coma.
The way forward will not be easy. Assembly lines face new health and safety concerns. The market they serve is choking. And a huge regulatory change is ahead, with the new US trade agreement scheduled to take effect on July 1.
Cars made in North America are products of various jurisdictions. While the Ontario government fired shots at the return of other workplaces, the timing of that restart was decided in Detroit and Tokyo – and then complicated at the last minute by some confusion in Mexico City.
"In North America, there was a patchwork of orders about what was essential and what wasn't," said Kristen Dziczek, vice president of industry, work and economics at the Center for Automotive Research in Ann Arbor, Michigan.
Ontario had automotive manufacturing on its list of "essential" workplaces, so that it could respond whenever the rest of the supply chain was ready. (This was also what allowed some manufacturers to focus on producing shields, masks and fans.)
The Toyota and Honda Ontario facilities started calling workers back during the week of May 12. Last week, thousands more joined them at the premises of Fiat Chrysler, Ford and General Motors. The Unifor union reports that 5,560 union members are back at work this week at Ontario's five "Detroit 3" factories, and more will return for additional shifts later in the restart process.
Detroit automakers originally wanted to bring their plants back on May 4, but the severity of the pandemic in key states like Michigan called for a two-week delay at US facilities.
At first, the president of Mexico agreed to reopen according to American automakers. But then his health ministry wanted a delay until June 1 – which triggered the switch again, as most American cars have Mexican components. In the end, exemptions were granted to Mexican plants with safety protocols in place.
"The supply chain is everywhere, so if there is an outbreak of disease or an outbreak in one area, it will hurt production elsewhere," said Dziczek. "I think we will see hotspots appearing and that will be one of the factors that interrupt automotive production".
More buffers are needed
There are up to 30,000 parts in a vehicle. If only one assembly plant is missing, that vehicle cannot be completed.
This industry, built with the efficiency of "just-in-time" inventory management, may need to reconsider how it operates.
"This efficiency does not have much resilience," said Dziczek. "Do they build slightly larger buffers to help balance out those interruptions that may continue to occur?"
Automation has never looked so attractive. But robots cannot do everything, even in a period of physical distance; therefore, human buffer zones will be the key to this restart.
A handful of Toyota employees had tested positive for COVID-19 by the time the corporation's Ontario factories closed in March. When employees return, no facility will want to experience the type of mass surges on the assembly lines that affect meat processors.
Ontario's automakers and unions worked with the provincial labor ministry on safety protocols to regulate their return.
Plexiglass was installed. Ventilation was adjusted. Distances were measured. At some Ford facilities, employees wear wristbands that vibrate when they get too close.
Where employees must work in groups, gloves, masks and face shields – including the inventory they have made themselves – will be used.
Employees are being tracked on arrival for symptoms and their movements within some factories are being tracked with cell phone apps or wristbands, so management quickly knows who needs to isolate if someone gets sick.
Will sales recover?
As assembly lines are restarted, auto parts manufacturers in Ontario are also back in production, "somewhere between 50 and 75%," said Flavio Volpe, president and CEO of the Automotive Parts Manufacturers Association. "This is just a function of the volumes that your customers are ordering from them."
The plants may not reach 100% by fall, he said, because manufacturers will be careful not to stress the system.
Carmakers are also not returning to full production, he said, because "we are probably out of stock for an extra month."
"There are only a finite amount of cars that you can play long before you start discounting them to a point where it is not profitable to operate," said Volpe.
"The whole system really starts with the sale," said David Worts, executive director of the Japanese Association of Automobile Manufacturers in Canada. "You don't want to produce if there is no market".
The original decision to close Toyota and Honda factories for a few days in March was about adjusting inventories. With the exception of essential repair facilities, dealerships in major markets like Ontario and Quebec close.
As things reopen, everyone is watching the numbers – in the load of COVID-19 cases and in consumer confidence.
"Particularly if they were fired and are having financial problems and are concerned about their own health and safety, they will not have the kind of humor that allows the sale of new vehicles," said Worts. .
Bad time for a NAFTA review
Then there is another source of uncertainty on the horizon: the entry into force of the new Canada-US-Mexico Agreement (CUSMA) – a substantial revision of NAFTA's regional content rules for which uniform regulations have not yet been released, even though the wake up set for Canada Day implementation.
Given what they already face with COVID-19, automakers in the three countries have called for a six-month delay in implementation.
"We are in total agreement that makes sense," said Worts, representing Japanese companies.
Uniform regulations for CUSMA were promised until June 1. But Volpe said there was not enough time to adjust. "You are dreaming if you think you can do it in a month," he said.
"My bet is that Washington will eventually back down on law enforcement. But it is a sensitive area … If they resort to a decision, this White House usually makes the wrong decision."
From his perspective as someone researching the industry in Michigan, Dziczek likens the uncertainty that NAFTA changes bring to baking a cake: companies read the text of the agreement to learn how its ingredients need to change, but have not received the exact information. prescription to ensure they are certified as compatible.
"There are computer systems that need to be overhauled, and there has never been a commercial agreement that has a content rule on labor value or a steel purchase rule," she said, referring to the new minimum wage and regional material requirements. of the agreement. "The compliance side of this is going to be heavy work, in the middle of trying to get production up and running again and making sure that all parts show up on time."
"We already have government evaluations of the trade agreement that show that it would increase costs and volumes a little lower ".
"I know it is the position of some that this will help the recovery," added Dziczek, referring to claims that demanding more parts and materials in North America will boost regional economies. "I don't see how it happens."