Production

Katelyn Drake, Analyst, Americas Production

11 June 2020

A stuttering restart to production in North America

Automotive manufacturing is finally whirring back to life in North America. The extended pandemic-related shutdowns wiped out an estimated 2.8 million units of planned production in the first half of the year. Factoring in slower line speeds and reduced demand, full-year 2020 output is likely to be 3.4 million units lower than in 2019, a reduction of nearly 21%.

However, the obstacles stemming from COVID-19 have not yet disappeared. Key amongst them for many automakers is the delayed resumption of operations in Mexico. While most plants in the US and Canada restarted on 18 May, the bulk of those in Mexico did not reopen until the end of May, with Volkswagen’s Puebla and San José Chiapa facilities shuttered until 15 June. Mexico’s response to the virus lagged behind that of its northern neighbours, with cases continuing to rise into late May, resulting in federal and local measures limiting manufacturing activity throughout the month.

But the issues do not end at the US-Mexican border. Given the interconnected nature of the automotive supply chain, most vehicles produced in the US and Canada depend on parts assembled in Mexico. As suppliers were also limited by the moratorium on manufacturing, reopened plants in the US faced parts shortages, forcing them to suspend production for a second time. Notably, the Mercedes-Benz Vance plant closed on 18 May, after reopening on 27 April, with no restart date yet announced. Volvo’s Ridgeville plant faced a similar fate, closing from 19 May to 5 June.

Supply chain issues are also liable to occur at a local level. New safety protocols at plants of all sizes require facilities to immediately suspend operations and undergo deep sanitisation procedures if employees test positive for the virus. These stoppages typically only last a matter of hours, but for plants operating on a just-in-time basis, the assembly facilities that they supply may also have to close their doors. This was the case at Ford’s Chicago assembly plant, which was suspended for part of 20 May, after an employee at Lear’s Hammond, Indiana plant tested positive for the virus. Likewise, any positive employee tests at a vehicle assembly plant can result in lines being shut for a least a full shift while the plant undergoes a deep cleaning.

As the tempo at factories increases in the weeks ahead and a greater sense of normality returns, the impact of the virus will linger. Until a vaccine is developed, further disruptions are likely – both at the plant and supply-chain level. Meanwhile, contract negotiations with Unifor in Canada could introduce a further stumbling block in the fall. We can only hope that a second wave of the virus will not lead to a repeat of the recent shutdowns.