Automotive manufacturers are back up and running after months of production shutdowns following widespread outbreaks of COVID-19.
The gradual restart of the industry’s supply chain began sluggishly because of lowered capacity, parts shortages, on-and-off work stoppages caused by lingering cases of the coronavirus and many uncertainties ahead. However, automotive manufacturers are sprinting to replenish inventory and push on with operations.
After a “hard shutdown” in March, Grand Rapids-based Tier 2 automotive supplier Cascade Die Casting Group Inc. has jumped from operating at about 40 percent capacity at the beginning of June to about 75 percent by the end of month, according to company President Pat Greene. Normally, about 80 percent of Cascade’s business is tied to the automotive sector.
“It has been a slower restart than we expected,” Greene told MiBiz.
However, the automotive sales forecast jumped substantially in just the past few days.
“Our world has changed remarkably in the last two weeks,” Greene said. “We are busy and I did not expect that two weeks ago.”
A large concentration of Cascade Die Casting’s automotive business is tied to pickup trucks, which Greene expects to stay at “pre-COVID volumes from now until the end of the year.”
The company began phasing back into operation at the end of April in anticipation of the reopening of Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles US, which temporarily discontinued vehicle manufacturing in late March.
“You don’t just flip on the lights and go back to work,” Greene said. “In our business, you’ve got to start with the furnaces and make sure they’re clean and operating well, and then you better really focus on the equipment that has been sitting idle and make sure that that is all capable of running again and that it’s not going to be shutting you down as soon as you try to start operating.”
However, the biggest challenge for manufacturers has been adhering to new safety guidelines and ensuring that the people returning to work can remain safe from the deadly virus, according to Greene.
Cascade Die Casting is practicing new social distancing norms, employees are wearing protective masks, lunchrooms and communal spaces are closed and everyone’s temperature is checked each morning, Greene said. The company also has hired regular cleaning crews to come through the workstations three times each day, and trained machine operators to thoroughly clean equipment before changing shifts.
“It’s been a lot of work to get ready for getting back into production and our (operation) is simple compared to a 5,000-employee automotive assembly plant,” Greene said.
Indeed, OEMs have faced a bumpy road.
In Michigan, the automakers started to return to production on one or two shifts last month after Gov. Gretchen Whitmer green-lit a phased restart of the industry. However, some employees who came back to work were infected with the virus, and shortly after operations resumed, factories were closed again temporarily for cleaning. A Ford pickup truck factory in Dearborn, which employs about 4,000 people, has already been closed twice in the past few weeks because of COVID-19 cases.
At least 25 people employed by Detroit automakers have died from the virus this year, according to the United Auto Workers.
More inevitable disruptions at the OEMs will ripple through the tiers of the complex automotive supply chain, and vice versa.
“It takes 3,000 parts to make a Ford F-150 and if one of those parts is not available, they don’t make the vehicle,” Greene said. “I think the biggest issue that might be under-recognized right now is the impact of the entire supply chain coming back up after being down for this period of time and any interruptions there.”
Attempting to plan
Planning for many different post-shutdown scenarios seems to be how most of the automotive supply chain is functioning at the moment, according to Jeff Schuster, president of Americas operation and global vehicle forecasting at LMC Automotive US Inc.
“The only way you can really look at all of this is through scenario planning,” Schuster told MiBiz. “It just illustrates the uncertainty that you know that the market faces.”
Last month’s restart actually played out “as well as was expected and maybe a little bit better than it could have gone,” he said. “It was slow with some starts and stops and some general disruptions from not only reported positive (COVID-19) cases, but I suspect there were others as well, but they generally got the lines back up and running fairly quickly.”
Manufacturers wanted to get production running as quickly as possible, especially in light of fears of a reported shortage of light-duty pickup trucks. Some manufacturers had “lofty stretch goals” to get back to pre-coronavirus levels by sometime this month, which Schuster said is “an unrealistic target.”
However, automakers are continuing to add shifts and move forward, which is positive for the industry.
“There are ways to get some of the volume back without stressing the new system and the new environment we’re in,” he said. “By the end of the year, we could see volumes that could be stronger than what we saw a year ago in a given month — which is some indication of what was happening in the previous year — but it’s not going to be a substantial increase or output change.”
Unfortunately, it will be nearly impossible for auto suppliers to plan for any more stops and starts related to positive cases of the virus within workplaces or even a “second wave” outbreak, Schuster said.
“That’s where you shift from a forecast and planning to situation management,” he said. “So far, the starts and stops at Ford haven’t really been that disruptive from an output standpoint, but I think you have to look at these cases as a viable situation given what we know so far about the virus and how it spreads, but I don’t know that you can actually plan for it.”
For several weeks, uncertainty surrounded portions of the supply chain that are tied up in Mexico after the country’s government delayed its own plan to restart factories.
“Our Tier 1 customers are in Mexico and they were saying they were coming back to work on May 18, then they said the government said they can’t, and then they said ‘Yep, the government says we can.’ Well, what’s the right answer?” said Greene of Cascade Die Casting. “We’ve been doing all of this work getting ready and they didn’t even know what to do — and there’s a lot of part supplies that come out of Mexico.”
Most, if not all, Mexico manufacturing locations came back online by June 1.
Greene plans to be operating at greater than 90 percent historic volume levels in July, when automakers will forgo their usual summer break. However, Greene is cautiously planning and preparing for three different production scenarios.
“We have a worst-case plan, middle of the road and a best-case plan,” he said, noting that the pessimistic plan would result from a second wave of the coronavirus.
“You’ve got to be prepared for all three of them because we don’t want to bring people back and then lay them off again, but we’ve got to have that best-case plan in our pocket and be ready to produce,” Greene said. “It’s unprecedented that we’re literally taking it month by month.”
The primary driver of the jump in production over the past couple of weeks is replenishment of inventory that decreased during April and most of May, but the challenge for automakers is predicting the future beyond the next several months.
“All suppliers in our position are having a difficult time concluding on what the future will hold after inventories are replenished,” Greene said. “Then, we are faced with the big question: Will customers buy cars, trucks and appliances? We expect that inventory will be replenished by November or December, and then the customer demand will dictate whether we have a slowdown.”
See the original article at MiBiz.