Despite COVID-19, auto sector officials cautiously optimistic

Friday, August 28, 2020

The Windsor Star/Dave Waddell

 

https://windsorstar.com/news/despite-covid-19-auto-sector-officials-cautiously-optimistic/wcm/bed2e9e1-2919-4690-b606-4241367344fe/

 

The strong rebound in vehicle sales, as well as automakers moving ahead again with planned programs, make Automotive Parts Manufacturers Association president Flavio Volpe cautiously optimistic about ongoing Detroit 3 contract talks and the industry’s future.

Talks will be challenging, but Volpe feels Unifor’s priority goal of new product is more achievable than saving GM’s Oshawa plant and fighting a two-tiered wage system that dominated the past two negotiations.

“I don’t see as much controversy this time around,” Volpe said. “I think concerns about Ford in Oakville are premature.

“Ford has lots of interesting product in its pipeline. Oakville is a robust piece of it. It’s hard for me to see Oakville being stranded.”

Volpe is equally confident about the future of FCA’s Windsor assembly and Brampton production plants.

“Windsor is a special investment for FCA,” Volpe said. “It’s been there since the 1920s and it’s produced a segment leader for 35 years.

“It also ranks as one of its most efficient and best quality plants every year.

“It has more flexibility than other plants and there is no sister plant. I don’t have any worry about the future of the Windsor plant.”

Volpe expects FCA to find a compatible vehicle for the Pacifica in Windsor, likely a three-row multi-person vehicle/crossover. Once the merger between France’s PSA Group and Fiat/FCA is finalized, he added, new opportunities could also arise from the European market.

He also expects a new version in Brampton in the near future of the Charger and Challenger, which is outselling Ford’s Mustang in the sports class.

Securing new product for Ontario plants isn’t the only source of opportunity for the province’s automotive supply chain.

The effect of the new USMCA trade agreement, said Volpe, will also be increasingly felt over the next three to eight years.

“The domestic parts content rules will result in $6- to $8-billion more in business for our suppliers,” he said. “That’s the equivalent of adding two OEM (original equipment manufacturer) plants.

“That’s the biggest increase in business resulting from a trade agreement in 50 years.”

Volpe added the auto industry’s move towards Industry 4.0 provides big opportunities for Ontario’s rapidly growing automation and technology sectors.

“When it comes to technology and automation, we’ve tended to focus on the end product of the industry,” Volpe said. “I think the future is to look at the manufacturing process, the plant itself.”

Automate Canada chair Shelley Fellows also sees a slow but steady recovery.

“The mold makers are now seeing three or four model years out in terms of the recovery,” Fellows said. “It’s pointing to a slow recovery, but there’s an end in sight.

“From an automation perspective, the timelines are a little closer.”

Fellows said automation companies are seeing demand for projects right now as well as doing quoting on work for next year or 2022.

“If the bottom was falling out of the automotive industry we’d see that in our members, but we’re not,” Fellows said.

“There’s demand for their services and optimism at the Tier 1 and OEM levels. They’re investing their money because their forecasts are showing them they’ll get a return on that investment.”

While the recovery of sales numbers that are “within five to 10 per cent of what you normally expect at this time of year” catches the eye, said Volpe, it’s the behaviour of companies like Toyota and General Motors in which his optimism is rooted.

“We have suppliers at 100-per-cent capacity and have been from the day they re-opened on programs of very serious customers,” Volpe said.

“Toyota programs, General Motors programs — the biggest companies that have the best analysis and best forecasting who aren’t known to spend when they don’t have to.

“We expected OEMs to be very thoughtful and slow on the uptick. The fact they’re quicker on the uptick, to me, that means their analysts are saying, ‘Go hard we have the customers, they’re real, they’re there.’”

Volpe said the sustainability of the industry’s recovery will be tested, however, if there’s a second wave of COVID-19 this fall or winter.

But he feels the industry is better prepared to handle a second wave and avoid another shutdown.

“We re-opened just in time,” Volpe said. “We were running out of working capital. I’m not sure we could’ve lasted much longer.”

The long-term impacts of COVID-19 are still to be determined, but Volpe says short-term planning in the industry will be all about cash flow.

“For the next three to five years any investments by OEMs that don’t have immediate returns will be de-prioritized,” Volpe said.

“Autonomous vehicles, some electric vehicles and alternative propulsion systems, all the things governments are talking about, will be pushed off for the next year.

“Companies were hurt in 2020 and they may be thinking there’s more hurt to come. These are publicly traded companies and they have to show a return on investment.”