As COVID-19 cases show signs of flattening even as deaths continue to rise, pressure is intensifying to restart the economy in Michigan and across the country.
Michigan CEOs, medical professionals and labor leaders are consulting Gov. Gretchen Whitmer, she said Wednesday. And President Donald Trump hosted a call with top executives of the nation’s four automakers and other industrial firms to push preparations to reopen the economy as early as next month.
The moves come as stay-at-home orders have grown to cover most Americans and as revenue-starved businesses cut back, forcing millions to lose their jobs. In few places is the pain more acute than Michigan, an industrial and politically vital state that is among the nation’s leaders in jobs lost so far.
“This is an unprecedented event in modern automotive times, even if you look back to World War II,” said Stephanie Brinley, principal analyst at IHS Markit Ltd. “The plants still operated and things still came out of it. Your workforce wasn’t sidelined.”
The urgency to return to work is rising as the threat from COVID-19 eases. Protesters crowded Lansing streets in vehicles and stood outside the state Capitol on Wednesday to protest Whitmer’s latest order aiming to protect public health being too restrictive. Meanwhile, Whitmer says she is in talks with the governors of neighboring Indiana, Illinois and Ohio over when and how to restart their economies in the major auto-producing states.
“The automotive industry is important to the U.S. economy, but it is also quite different than many other businesses,” said Doug Betts, president of J.D. Power’s automotive division, during a webinar this week. “The combination of high capital investment, heavy involvement of regulations, and the franchise model for going to the retail market makes it very different and somewhat non-intuitive versus other businesses.”
The industry also has a global supply base. Companies must navigate a patchwork quilt of rules determined by each country and state for which industries are “essential” during the outbreak. Some say auto manufacturing is essential, while others do not.
The bottom line, experts say, is that restarting vast chunks of the U.S. economy is neither easy nor uncomplicated. Sprawling supply chains, partisan political concerns and varying arcs of COVID-19 infections can influence the real-world balancing of prudent public-health policy with deepening economic concerns.
“There are larger partners that are at play, including federal guidelines, state guidelines, and as we’ve gotten into this, there’s county-wide rules that are baking into our process all the time,” said Jim Glynn, General Motors Co.’s vice president and global head of workplace safety. “The question about restarting for us, for me and our time is when we do get the green light to start up we want to make sure we are prepared — whenever that date comes.”
Ideally, Ford Motor Co. CEO Jim Hackett previously has said, there would be a nationally coordinated approach to restarting the economy around a certain date. With that established, Ford would declare a new date for when it will build vehicles again.
GM and Ford have suspended production indefinitely after beginning to shut down North American operations on March 19. Fiat Chrysler Automobiles NV has said it hopes to ramp up progressively starting May 4 after Whitmer’s stay-at-home order expires May 1. Some state orders, however, extend into June.
If a supplier in one state doesn’t think it can operate under another state’s rules, it could prevent production from restarting in another — a tiny glimpse into the just-in-time, integrated supply chains of the global auto industry and other manufacturers.
“In a typical, well-run assembly plant, there may be only 20 minutes of on-hand inventory for any significant Tier 1 part,” Betts said. “Twenty minutes after a Tier 1 ships, the factory would be shut down for lack of parts.”
Production shutdowns are costly. FCA’s 47-day shutdown is longer than the United Auto Workers’ 40-day national strike against GM last fall during which the company estimates it lost $3.6 billion. And it is not just Detroit that’s sitting idle.
Honda Motor Co. Ltd.’s 12 plants, Toyota Motor Corp.’s 10 plants and Hyundai Motor Co.’s one U.S. plant are closed through May 1. Nissan Motor Co. Ltd.’s three plants will remain shut down through late April. Subaru Corp. will resume production May 11 in Indiana. Volkswagen AG does not expect the shutdown of its Tennessee plant to last more than four weeks — a deadline of Saturday.
Collectively, 53 U.S. auto plants produce $11 billion of vehicles per week, according to J.D. Power. Add the complex web of suppliers, and an estimated 10 million Americans depend on the industry.
Ford already has said it expects a $600 million adjusted earnings loss for the first three months of the year. The companies have taken out billions in loans, and some are deferring 20% of salaried employees’ pay in addition to executive compensation cuts. Companies are itching to get back to work as soon as possible.
But for the most part, it is up to government to decide when a lot of America can go back to work — and not even just the U.S. government. Mexico is the country from which the U.S. auto industry imports the most parts and vehicles. A Mexican executive order, however, has restricted that manufacturing through April 30.
Mexico President Andrés Manuel López Obrador said earlier this month auto plants in Mexico might be able to reopen a few days prior to restart of production in the U.S., though no order has yet to appear in the Mexico Official Gazette. And if they don’t, a restart north of the border could be delayed.
“He basically acknowledged the interdependency of the supply chains and the need for Mexican inputs in the assembly process of the U.S.,” said Raul Rangel, co-chair of the Butzel Long law firm’s Mexico team.
Mahindra Group, an India-based automaker, has a small manufacturing operation in Auburn Hills. It has parts on hand for several weeks, CEO Rick Haas said, but it continues to be in contact with its critical suppliers over restart plans.
“It’s like cooking a meal,” Haas said. “All of the dishes go out at one time. You can’t have everything done except the turkey.”
All of this necessitates constant communication with suppliers. Canada-based Magna International Inc. speaks with its automaker customers daily, said Jim Tobin, company executive vice president and president of Magna Asia.
“We’re talking to the OEMs No. 1 to make sure we have a realistic start-up plan,” said Tobin during a recent webinar with the Center for Automotive Research in Ann Arbor. “The start-stop does not help liquidity because we start buying materials, employing people, then if they say we’re going to push it out another two weeks? We need a realistic start date that is in line with the containment of this virus.”
In mid-March, direct Tier 1 suppliers and their automakers kicked off efforts to develop a common “playbook” for the supply base, Tobin said. The Original Equipment Suppliers Association and Alliance for Automotive Innovation published guidelines on health and safety protocols for COVID-19. Southfield-based Lear Corp. published its own playbook online that outlines what disinfectant and protection materials to have on hand, social distancing measures and employee training.
The last thing a company wants is to be the source of a secondary outbreak, said Dave Andrea, a principal of the accounting firm Plante Moran and member of its automotive strategy team: “All of that safety apparatus that we built into the hard process of building an automobile, now we have to build the same kind of safety apparatus into a public health solution, and that’s a different animal.”
Some of the biggest concerns are ensuring workers feel comfortable returning to work. The companies are taking what they learned from China, which has restarted production. The ramp-up there, however, has been slow, taking about two months to return to a normal operating level.
The UAW has said the return-to-work must center on the contagion curve, not economic factors, and that employees should feel comfortable self-reporting symptoms without penalty. And the union leadership is pushing to be included in talks about how and when to restart the Detroit Three plants.
“The only litmus test that matters is whether you would send your own family, your own son or daughter, into the plant and be certain they will return home safely,” UAW President Rory Gamble said in a statement.
Protocols from China have been adapted for U.S. auto facilities making ventilators and face masks, GM’s Glynn said. They include no-contact temperature checks, questionnaires, masks, disinfectants at each work station, additional cleaning of common areas and distancing workers where possible. The company also is seeking out a potential partner for testing employees who see its medical team with possible symptoms.
“There have been no cases that we are aware of in China or Korea where we have these protocols,” Glynn said. “So far, it’s been very effective.”
Ford and Fiat Chrysler said they are communicating similar measures to their workers.
Meantime, automakers are relying on the data available to them and emphasizing the need to remain flexible and agile, said Chris Reynolds, chief administrator for manufacturing for Toyota’s U.S. division.
“In the course of a day, the assumptions tend to change,” Reynolds said in a statement. “Health of supplier network, day-by-day basis, might change. … We have to be agile and able to say what I’ve decided yesterday, may not work today or this week.”
Staff writer Keith Laing contributed.
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