Ontario's auto sector returns to work under a COVID-19 cloud of doubt

Thousands of Ontario auto workers are returning to work this month, resuming their places in the supply chain as the North American industry's ecosystem slowly wakes from its COVID-19 coma.

Their road ahead won't be easy. Assembly lines face new health and safety concerns. The market they serve is sputtering. Anda massive regulatory shift lies ahead, with the new North American trade agreement set to take effect on July 1.

North American-built cars are products of multiple jurisdictions. While the Ontario government called the shots on the return of other workplaces, the timing of this restart was decided in Detroit and Tokyo and then complicated at the last minute by some confusion in Mexico City.

"Across North America, there were a patchwork of orders about what was essential and what wasn't," said Kristen Dziczek, vice-president of industry, labour and economics at the Center for Automotive Research in Ann Arbor, Michigan.

Ontario had automotive manufacturing on its list of "essential" workplaces, so it was able to respond whenever the rest of the supply chain was ready. (That's also what enabled some manufacturers to pivot to producing face shields, masks and ventilators.)

Ontario's Toyota and Honda facilities started calling workers back during the week of May 12. Last week, thousands more joined them at Fiat Chrysler, Ford and General Motors facilities. The unionUnifor reports5,560 union members areback on the job this week at Ontario's five "Detroit 3" plants, and more will be returning for additional shifts later in the restart process.

Detroit automakers originally wanted to bring their plants back on May 4, but the severity of the pandemic in key states like Michigan required a two-week delay at the U.S. facilities.

At first,Mexico's president was agreeing to reopen in line with American automakers. But then its health ministry wanted a delay until June 1 whichthrew a wrench into the restart again, as most North American cars have Mexican components. In the end, exemptions were granted to Mexican plants with safety protocols in place.

"The supply chain is everywhere, so if there's a disease outbreak or surge in an area, that's going to cripple manufacturing elsewhere," Dziczek said. "I think we're going to see hotspots keep popping up and that's going to be one of the disruption factors in automotive production."

More buffers required

There are up to 30,000 parts in a vehicle. If an assembly plant is missing just one, that vehicle can't be finished.

This industry that was built on the efficiency of "just-in-time" inventory management might have to reconsider how it operates.

"That efficiency does not come with much resiliency," Dziczek said. "Do they build in a little bit bigger buffers to help balance these outages that may continue to occur?"

Automation has never looked so attractive. Butrobots can't do everything, even in a timeof physical distancing, so human buffer zones will be key to this restart.

A handful of Toyota employees had tested positive for COVID-19 around the time the corporation's Ontario plants shut down in March. As employees return, no facility will want to experience the kind of mass outbreaks in assembly lines afflicting meat processors.

Ontario's carmakers and unions worked with the provincial ministry of labour on safety protocols to regulate their return.

Plexiglass has been installed. Ventilation has been adjusted. Distances have been measured. At some Ford facilities, employees are wearing wristbands that vibrate if they come too close to each other.

Where employees must work in clusters, gloves, masks and face shields including inventory those employees havemanufactured themselves will be worn.

Employees are being screened on arrival for symptoms, and their movements inside some plants are being traced with cellphone apps or wristbands, so that managementknows quickly who needs to isolate if someone gets sick.

Will sales recover?

As assembly lines restart, automotive parts manufacturers across Ontario are also back in production, "somewhere between 50 and 75 per cent," said Flavio Volpe, president and CEO of the Automotive Parts Manufacturers Association. "That's just a function of the volumes that their customers are ordering for them."

Plants may not be at 100 per cent until the fall, he said, becausemanufacturers are going to take carenot to stress the system.

Assemblers are also not returning to full production, he said, because "we're probably sitting on an extra month's worth of inventory."

"There's only a finite amount of cars you can throw in a lot before you have to start to discount them to the point where it's unprofitable to operate," Volpe said.

"The whole system really begins from the sale," said David Worts,executive director of the Japan Automobile Manufacturers Association of Canada. "You don't want to be producing if there's basically no market."

The original decision to shut Toyota and Honda plants for a few days back in March was about adjusting for inventories.With the exception of essential repair facilities, dealerships in key markets like Ontario and Quebec shut down.

As things reopen, everyone's watching the numbers on theCOVID-19 caseload and onconsumer confidence.

"Particularly if they've been laid off and they're having financial issues and are concerned about their own health and safety, they're not going to be in the kind of mood that allows for new vehicles to be sold," Worts said.

Poor timing for aNAFTA overhaul

Then there's the other source of uncertainty on the horizon: the coming into force of the new Canada-U.S.-Mexico Agreement (CUSMA) a substantial revision of NAFTA's regional content rules for which the uniform regulations haven't even been released yet, even though the deal's set for implementation on Canada Day.

Given what they're up against alreadywith COVID-19, automakers in all three countries have called for a six-month delay in implementation.

"We're in total agreement that makes sense," Worts said, representing the Japanese companies.

Uniform regulations for CUSMA have been promised by June 1. But Volpe said that's not enough time to adjust. "You're dreaming if you think you could do it in a month," he said.

"My bet isWashington will ultimately back off on enforcement. But it's a sensitive area... If they get backed into a decision, this White House usually makes the wrong one."

From her perspective as someone who researchesthe industry in Michigan, Dziczek compares the uncertainty the NAFTA changes bring to baking a cake: companies read the text of the deal to learnhow their ingredients have to change, but they haven't been given the exact recipe to ensure they're certified as compliant.

"There are computer systems that need to be reworked, and there's never been a trade agreement before that's had a labour value content rule or a steel purchasing rule," she said, referring to the deal's new minimum wage and regional materials requirements. "The compliance side of this is going to be a heavy lift, in the middle of trying to get production back up and running and make sure all the parts show up on time."

"We already have the government evaluations of the trade deal that show it was going to raise costs and somewhat lower volumes."

"I know it is the position of some that this will help the recovery," Dziczek added, referring to claims that requiring more North American parts and materials will boost regional economies. "I don't see how it does, myself."