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by Noelle Stapinsky

In the face of a global pandemic, the questions facing Canada’s automotive supply sector will shape the industry for years to come


The last few years may not have been the most extraordinary in terms of growth for Canada’s automotive sector, but it has been steady and fairly predictable. In 2019, the term ‘uncertainty’ pretty much summed up what the auto sector experienced as it faced disruptive tariffs, regulatory burdens and, of course, the pending USMCA trade agreement. And while this year’s growth was already forecast to be lower than it was in 2019—below 1.5 per cent—that outlook certainly worsened as the world came to a grinding halt due to COVID-19. 

Countries around the world closed borders. Governments ordered people to quarantine in their homes, and only essential businesses were allowed to remain open. “When you think of the auto sector and manufacturing in Canada, you can’t overstate how important it is and how many Tier one and Tier two suppliers there are in that sector,” says Dennis Darby, President and CEO of Canadian Manufacturers and Exporters (CME).  “But we are not an island. Canada is integrated in the North American supply chain. And even in normal times, if there’s any form of work stoppage or a rail blockade, which we had [in January], any time there’s an impact on the movement of the supply chain it certainly has an impact on the manufacturing sector.”

Of course, COVID-19 has been an incredible strain on the system. “Many manufacturers have gone on temporary shutdowns or reduced shifts, and a lot of small to medium enterprises (SME) are struggling right now,” says Darby. “The biggest issue is liquidity. How do you keep your employees and stay open when sales have dropped because of the slowdown of the North American economy?”

Secondly, many manufacturers have been deemed an essential service. But for those that are able to stay open, there are new considerations regarding more stringent health and safety procedures to protect the employees. 

For Magna International Inc., one of Canada’s largest auto parts manufacturers, production is extremely dependent on the automakers. In its January 16, 2020 outlook, the company identifies as a risk that its sales are concentrated with six customers.  “If they’re running, we will be as well,” says Scott Worden, senior manager of corporate communications and public relations for Magna.  “At the end of March, when things here in North America were really heating up and social restrictions were being put in place, General Motors, Ford and Chrysler were all stopping production and shutting their plants down. The BMW plant in South Carolina kept running for an additional week, so our local plants in that area had to keep going to support it. But we are completely shut down in North America right now.” 

Magna has actually withdrawn its annual outlook it issues every January that outlines production and financial forecasts. “It’s interesting right now. There’s sort of an east to west flow of how the market restart is going. China went through this first and we had a lot of plant closures there. So what we’re going through now is what they went through in January,” says Worden. “Now, China is pretty much back online and that market is starting to bounce back. Europe is a few weeks ahead of us, and we’re looking at maybe starting to bring people back. Our schedule is always going to be determined by the automakers.”

What has been a large focus for Magna is communication and transparency. “We’re in daily communication with our employees, customers and stakeholders,” says Worden. “It’s about helping people understand how to be safe. We’ve been sending memos and videos from the CEO to help people stay positive and working together. We’ve been providing updates on what’s happening across the company, and helping everybody feel confident in the company’s ability to weather the storm and still come out as a strong player.” 

To help manufacturers navigate these unprecedented times, CME has added a COVID-19 resources section to its website that’s populated with everything from health and safety best practices and how to guides to links for wage subsidies and relief programs.

“It’s probably been our most visited web page ever,” says CME’s Darby. “Companies have a huge appetite for information that will help them. Whether it’s to get a short-term loan through BDC/EDC or how to access emergency wage benefits. A real concern among manufacturers has been on occupational health and safety. What do you do when an employee tests positive? What are the procedures and protocols you have to undergo to ensure the safety of your employees? Through our occupational health and safety group, we’ve put together guidelines and best practices for manufacturers because we really don’t know how long these measures will have to be in place.”

War effort focus
Interestingly, there is sort of a silver lining amid this global pandemic. Darby says, “The degree to which manufacturers are able to pivot, retool and help provide materials or parts [to help with medical supplies] has been one of those few positive stories out of this crisis. Companies that normally make tools are making face shields, for example. And some parts companies have
been working with some of the major manufacturers of N95 masks and ventilators.” 

In March, Magna, Linamar Corp. and Martinrea International Inc. teamed up with the Automotive Parts Manufacturers Association (APMA) to help build ventilators with three Ontario based medical companies. 

“There’s a lot going on in that [medical] space,” says Worden. “Along with the Ontario government, Magna, Linamar and Martinrea have agreed to focus on ventilator activities with GM’s Venteck Life Systems, Thornhill Medical and O-Two. Magna will support the initiative with components, logistics and purchasing.”

The parts manufacturer is also stepping up in other ways. Its Karmax manufacturing division in Milton, Ont. donated 150 N95 masks and 4,000 medical grade gloves to the Milton District Hospital. Cam-Slide in Newmarket, Ont., collected masks and gloves to donate to a local PPE drive, and Formet Industries in St. Thomas donated 320 N95 masks to the St. Thomas General Hospital. And some of Magna’s plastic moulding factories are making face shields. “We also have seating facilities that do a lot of cutting and sewing for seat trim covers, and they’re cranking out masks,” adds Worden.

“Magna has an existing consumer product called Puro—a virus killing, sanitizing technology—that could be helpful to healthcare workers and others plagued by the shortage of personal protective equipment,” says Worden. “It proved effective against the Methicillin-resistant Staphylococcus aureus bacteria in 2012 and we think it could potentially help health care providers by disinfecting masks and other protective equipment that’s in short supply. We are testing its performance against the Coronavirus.” 

Idle Times
While there’s no good time for a global pandemic, hitting Canada when it did has absolutely decimated vehicle sales, according to Dennis DesRosiers of DesRosiers Automotive Consultants. “At this point it appears sales are somewhere between 35,000 to 45,000 units per week. This time last year, it was at 50,000 to 60,000 units per week. Some provinces will not allow dealers to open for anything other than service. And most dealerships that we’ve talked to are only dealing in digital sales and have closed their showrooms.” 

DesRosiers says that in a time like this there are only two groups of consumers that might be in the market—those that have leases that are going to expire and those that have been in collisions. “This year we forecasted between 1.5 and 1.6 million vehicles that consumers were going to take off the road due to wear and tear, accidents, etc. March, April, May and June are the biggest periods for this,” he says. “In a typical downturn, there is always going to be some pent up demand. The biggest difference now, compared to other downturns, is that people just aren’t driving. Those potential vehicle sales are not lost, they’re gone. They’re not being put on the back shelf for better economic times. If you’re not driving your vehicle, you’re not wearing it out.” 

To add even more financial strain, over the past decade many dealerships have poured millions of dollars into re-designing showrooms with the latest in marketing paraphernalia or moving to brand new state-of-the-art facilities. 

“You need a generous market place to pay those mortgages,” adds DesRosiers. “And if you start looking at vehicle manufacturers struggling with the need for billions of dollars to invest in new technologies such as autonomous vehicles, electrification and the long list of advanced technologies coming into play, they’re now losing billions in bottom-line revenue because of this global downturn. If they couldn’t afford technology investments when times were good, they definitely can’t afford it now.”

Darby agrees. “As we come out of this, there’s going to be a need to focus on providing support to “upskill” and reskill workers. The labour shortage was pinching the manufacturing sector before and those workforce issues are still going to be there. And despite the fact that the government has invested so much in supporting Canadians, we will need to attract our fair share of investment and push the government to incentivize that growth.” 

If Canada does start to rebound, the automotive manufacturing sector will still be facing a very large pinch point—our neighbours south of the border. DesRosiers says about 85 per cent of automotive manufacturing in Canada is completely dependent on the U.S market. 

Canada’s auto sector was already predicting a slow growth for 2020, and it’s going to be even tougher competition in its attempt to recover from this downturn. The truth is that, with all or any economic forecasts or outlooks currently out-of-date, there’s no way of knowing how fast the recovery is going to be. 

“If you have to find a positive, our healthcare workers have been incredible,” says Darby. “But I’ve been really pleased with the way manufacturers have stepped up and answered the call during a time like this.” SMT

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