After joining COVID-19 fight, auto industry is returning to normal

Instead of focusing on going from here to there, the auto industry in 2020 stopped to focus on the here and now.

As COVID-19 swept across the globe, OEMs and their suppliers found themselves in precarious positions. Demand for their products plummeted with the implementation of stay-at-home orders designed to keep communities safe and prevent stresses on health care systems.

And as the world fought back against the novel coronavirus, cars and carburetors just were not in demand.

But medical supplies were.

So the auto industry did exactly what it had to do: It shifted gears. It took its resources, materials and know-how and made the medical devices and equipment needed. Within weeks, vehicle makers became ventilator makers and auto parts suppliers turned into personal protective equipment manufacturers. Unlikely alliances were forged and partnerships were solidified, all in an effort to ensure that the lives were saved.

Ford teamed up with 3M Co., combining the automaker's air conditioning expertise with the medical device manufacturer's insights to produce powered air-purifying respirators at the height of demand.

Within a matter of 40 days, Ford transitioned its aims, realigned its automotive supply chain and began producing PAPRs instead of cars.

"Ford could not stand by while health care workers in this country placed their lives on the line to help others without even having proper protection," Jim Baumbick, vice president of Ford Enterprise Product Line Management, said in May. "That's why we kicked off an all-out sprint to protect those who are so selflessly helping patients afflicted with this terrible virus."

More than 90 paid United Auto Workers union members volunteered to make the PAPRs at Ford's Flat Rock, Mich., facility. By May 6, more than 10,000 respirators had been assembled and a goal of 100,000 units remained in focus.

At the same time Ford revved up production of medical devices, General Motors Co. forged a similar path.

Through a partnership with Ventec Life Systems, GM took the lead in an effort to mass-produce ventilators just when the country was experiencing a critical shortage of the machines. The partnership with GM allowed Ventec to quickly scale-up ventilator production, increasing output of the medical devices by 80 times, according to a GM statement.

"Our drive to put critical care ventilators into production was fueled by thousands of people at GM, Ventec and our suppliers, who all wanted to do their part to help save lives during the pandemic," Mary Barra, GM chairman and CEO, said in a statement. "It was inspiring to see so many people achieve so much so quickly."

Together, the GM-Ventec team produced tens of thousands of ventilators, delivering the milestone 30,000th unit to the U.S. Department of Health and Human Services on Sept. 1, according to the automaker.

With the Sept. 1 delivery, GM turned over operational control of medical device manufacturing to Ventec, which will continue to manufacture VOCSN multifunctional critical care ventilators at the GM site in Kokomo, Ind., as well as its home base of Bothell, Wash.

"Our hope continues to be that mitigation efforts stop the spread of this virus. Ventec Life Systems is committed to maintaining increased production capacity for as long as it is needed to ensure front-line health care workers have the tools necessary to save lives," Ventec Life Systems CEO Chris Kiple said in a statement when his company gained control of the Indiana site.

Ventec is a much smaller company than GM, and before the pandemic, it made just a small fraction of the output produced through the partnership this year. During the pandemic, output surged.

"Ventec's monthly production capacity increased 80 times across our Bothell, Wash., and Kokomo, Ind., production facilities, making Ventec one of the largest manufacturers of critical care ventilators in the world," Chris Brooks, chief strategy officer with Ventec, said. "Expanded production continues to support customers in their ongoing response to COVID-19. We will continue increased production of VOCSN to fulfill existing back orders and accommodate new orders."

To make the GM-Ventec ventilator project a success, dozens of companies came together for the single cause.

One of the first to heed the call from GM was BRC Rubber & Plastics Inc. The Fort Wayne, Ind.-based maker of rubber, silicone and plastic parts ended up supplying six different parts from its Churubusco, Ind., facility, company officials said earlier this year.

Because BRC's main business involves manufacturing parts for the auto industry, the company had a close relationship with GM. BRC also was convinced it needed to step up and do whatever was needed to help with the ventilator effort.

But the number of ventilators GM built wasn't nearly what GM thought it might build in the early days of the pandemic, according to Michael Meyer, BRC executive vice president. He added that "is really a good thing," as that meant not as many ventilators were needed to treat patients.

"We later made some parts for Ventec, but only in small quantities," BRC's Meyer said.

The firm's overall business is back to about 90-95 percent of what was expected before the pandemic hit.

Then there was PTI Engineered Plastics of Macomb, Mich. It doesn't supply a lot of goods to the automotive market, but it knows a thing or two about ventilator parts. The company does about 70 percent of its business in medical and works with several larger names in the ventilator business, but it wasn't familiar with Ventec, owner and CEO Mark Rathbone said.

When GM asked early on for PTI's help with the Ventec ventilator project, the company jumped at the chance.

"We obviously bellied up to the bar with what we could do there," Rathbone said. "We had our design team, program management team, took on five part numbers, and we turned things out pretty remarkably in six weeks; we had products in hand and started shipping parts to Kokomo, Ind., at their assembly plant."

He also said the volume wasn't as high as GM first anticipated, but he added that PTI continues to supply Ventec in Kokomo and has orders for about 30,000 ventilator components.

Cascadia Custom Molding is based out of Seattle, only a couple of miles from Ventec's home location. Cascadia Chairman Dale Meyer said his firm is a major supplier to Ventec for all of its defibrillator injection molded plastics parts.

So while the plastics goods supplier doesn't supply automotive, its relationship with Ventec led to it supplying the GM-Ventec project early in the process.

"We keep excess capacity so when this kind of emergency occurs, we have no problem making sufficient parts for our customers," Dale Meyer said.

He, too, didn't think the project resulted in the type of volume GM had projected.

"It was a month and a half where we went gangbusters, and it was a lot of help," Cascadia's Meyer said. "And that was March and half of April. And there was very little buying after that, but I know they were buying parts from a large number of injection molders in the Midwest for ventilators."

Cascadia's traditional business with Ventec is still strong, he said. "We actually deliver to their door here in Seattle. In fact, they upped their quantities quite a bit over the last few months."

For many automakers and suppliers, the COVID-19 response was personal. In addition to building respirators and ventilators, the automakers led efforts to increase the amount of personal protective equipment, with particular focus on getting the PPE to front-line health care workers.

Using materials at its disposal, Ford re-envisioned the use of airbag materials, creating washable gowns for medical workers who were facing critical shortages of supplies just like these.

GM's Warren, Mich., manufacturing facility began producing the face masks for nonfront-line workers. A partnership with SAIC-GM-Wuling allowed GM to plan and execute the production of the face masks at facilities in both Michigan and China.

The automaker then shared those manufacturing plans with the Original Equipment Suppliers Association and the Michigan Manufacturers Association, so others could join the fight.

"Our ultimate goal is to get more masks to the people who desperately need them," Shilpan Amin, GM's vice president of global purchasing and supply chain, said in April. "By making GM's production processes available to the OESA and the MMA, we hope to facilitate other companies' efforts to bring more materials, more equipment and, ultimately, more face masks to the community."

With North America more than six months into the COVID-19 crisis, there has been some return to normalcy. For automakers, that means a shift back into vehicle production — welcome news for many suppliers.

That's because the auto industry felt the full weight of the COVID-19 pandemic in April. OEM and supplier manufacturing operations around the globe slowed and stopped. In North America, vehicle production fell to near-zero, according to Bernard Swiecki of the Center for Automotive Research.

Sales, meanwhile, didn't drop as dramatically because vehicle sales throughout North America continued, at least in part.

"So, production fell by nearly 100 percent, while for the same month, sales only dropped about 50 percent," Swiecki said during a presentation at the International Tire Exhibition & Conference. "So what that means also is that we have a lot of spent, used inventory that must also be replenished."

This need to balance inventory is, at this point, the main driver of the auto industry's recovery, according to economist Bill Wood, founder of Mountaintop Economics & Research Inc. of Greenfield, Mass.

"Nearly everything shut down in March and April," Wood said, "and now we have entered this space where we are trying to catch back up."

To help make up lost ground, many North American automakers skipped the traditional summer shutdowns, helping production get closer to more normal levels.

Production should continue to climb rapidly in the months and years ahead, a direct result of an investment boom from the previous decade, Swiecki said. From 2009-19, automakers invested $148 billion in North America, and roughly 77 percent of that — $114 billion — went to upgrading and updating existing U.S. facilities.

Canada received just less than 9 percent of the total North American investment during that 10-year period, while Mexico received $24.7 billion in that time — most of which was invested in new plants.

These investments now are playing key roles in helping automotive production bounce back in the wake of the pandemic.

This year, CAR estimates that North America will build 10.6 million vehicles. The group expects production numbers to increase to 16 million in 2021 and 17.2 million in 2022 — just shy of the 17.4 million vehicles produced in 2018.

A major reason for the rebound? All of those investments, particularly in Mexico, where the newest plants finally are coming online.

IMG05

The return of more typical production levels is welcome news for automotive suppliers who are learning to navigate the choppy waters the pandemic left in its wake. They have a clearer picture of the horizon and are able to better respond to changing demands. The OESA's Automotive Supplier Barometer indicates as much.

Suppliers participating in OESA's quarterly survey indicated that the ongoing COVID-19 crisis and a weakness in the U.S. economy are the biggest threats to the industry. These two issues held the Nos. 1 and 2 spots in both the second- and third-quarter surveys. Slow vehicle sales also were among the greatest concerns in both the second and third quarters.

Even with these and other ongoing challenges, suppliers' optimism is growing. In the third quarter, roughly 47 percent indicated they were more optimistic than they were just three months earlier.

Meanwhile, 36 percent of respondents indicated they were more pessimistic than they were the previous quarter. That was a drastic improvement over the second quarter of the year, however, when the outlook hit its lowest level ever.

This recovery, like all financial recoveries, will have some bumps in the road along the way, and there likely will be changes to the industry landscape.

Moving forward, suppliers will need to align to the financial realities they face as a result of the pandemic, and that likely will result in layoffs, plant closures, mergers and acquisitions.

"What we typically tend to hear about most are the most dramatic, the companies that go under or the bankruptcies," Wood said. "Any time there is very serious stress on a marketplace or industry — and I am going to say what happened [with COVID-19] is a very serious stress — there is a very dynamic shift in market share or ownership."

Wood said companies that entered 2020 with strong financial grounding and a supply chain that managed risk as well as profit likely will be in the best positions to weather the COVID-19 storm and gain more market share as a result.