Auto suppliers reopen to meet demand amid unknown challenges

As automakers return to production after global shutdowns, concerns remain over the health of the supply chain.

Three out of four auto suppliers surveyed in Europe by CLEPA, the European Association of Automotive Suppliers, think it will take more than a year to recuperate.

More than 90 percent of suppliers surveyed said they expect a sales drop of at least 20 percent in 2020. Some 35 percent expect a drop of more than 30 percent.

How reopening in the U.S. will play out is still unknown, Edgar Faler, senior industry analyst at the Center for Automotive Research, told Plastics News.

"There's a lot we don't know yet about how this industry will recover," he said. "So far, some early indications around retail sales have been encouraging. Although in the last week there's some indication of perhaps a plateau."

The numbers he's seeing, Faler said, are "just wonky."

"You have this gradual restart of the economy on a state-by-state basis," he said. "There's still a lot of staying at home and it's going to recover unevenly."

Suppliers have noted varying degrees of ramp-up progress in North America, Plastics News' sister publication Automotive News reported.

Carol Stewart, executive vice president at ADAC Automotive Inc., the Cascade Township, Mich. maker of vehicle door handles and exterior mirrors, said that while some ADAC plants have been running during the past two months to produce aftermarket parts, most are just beginning to ramp back up.

ADAC was operating at about 10 percent of capacity as of the week of May 11 and expected to be at only about 20 percent as of the week of May 18.

The supplier's primary roadblock has been state-level restrictions on manufacturing.

"Our biggest issue really was getting the OK for the OEMs to start manufacturing in Michigan," Stewart said.

A spokesman for ZF North America Inc. said only about half of its U.S. plants were in operation at the end of last week. ZF's North American plants would not return to operations until the end of May, the spokesman said.

"Financial assistance very well could be needed for the supply chain, and we're watching this closely," the spokesman said.

"By and large," Faler said, the automotive supply base ahead of the pandemic was "very healthy." But new challenges from the pandemic have the potential to hit every level of the system.

"You're relying on healthy employees, so that's an entire set of challenges," he said. "You're also hoping for healthy demand in the marketplace as well as a healthy consumer."

Faler said instances such as Ford Motor Co. halting production at two assembly plants in Dearborn, Mich., and Chicago after workers tested positive for COVID-19 "are probably to be expected."

Ford Chief Operating Officer Jim Farley told analysts May 14 that, while new factory protocols are critical to the ramp-up, much still depends on the supply base.

"All of our production manufacturing operations rely on healthy suppliers, and their ability to start up is really critical," Farley said.

Ford halted production again at the same Chicago plant following a supplier parts shortage, a spokeswoman told Automotive News. A Lear spokesman confirmed one of its parts plants, which supplies Ford, closed May 20 for cleaning after a worker there tested positive for the virus.

"We just don't know exactly what form those [challenges] will come in and who it will affect yet," Faler said. "Some of those things haven't played through."

"The financial liquidity of the industry is severely hampered right now," Julie Fream, CEO of the Original Equipment Suppliers Association trade group, said during an Automotive News Congress Conversations webcast.

"Some suppliers, particularly the Tier 2s and Tier 3s we're hearing from, are really starting to have some difficulty," she said.

Ford executives told Reuters it is arranging early payments to suppliers to help them stabilize cash flow.

"We see just over 20 percent [of suppliers] having less than eight weeks of liquidity — meaning if the industry were not to run at all for eight weeks, they would be in dire straits," Fream added. "It is a difficult time, and it's all the more reason why we as an industry have to get started again."

"There's a lot of complexity and not a lot of visibility here," Faler said. "We've got to keep a close eye. ... There's a lot that rides on the assumption that demand will come back in a relatively healthy way, and if there's some hiccup there, that will ripple through the supply chain."