01.07.2019

The Detroit 3 (FCA, Ford, GM) and their international counterparts and suppliers with manufacturing and assembly in North America have started to return to life after a two-month lockdown due to the novel coronavirus (COVID-19). The automakers have redesigned assembly lines and added additional training for autoworkers in an increased effort to avoid additional outbreaks of COVID-19 that could throw off production for a second time. Although plants are coming back online, additional precautions are leading to fewer shifts and slower rate of production, although Ford and others are rumored to be back up to full production ahead of time, which in the near term is exactly what the industry needs to ensure they are making the right models (that consumers want) and not filling up lots with models that will have to be heavily discounted down the road.

As OEMs return to this new “normal” they are seeing that there is no “one size fits all” solution to increase production and demand. Lackluster consumer spending due to rising unemployment and decreased production is causing concerns for automakers as they head into the summer months. Many are relying on government incentives, such as Cash for Clunkers, and other options such as deferred payments and extended payment terms to incentivize consumer spending. According to LMC Automotive, automakers are expected to produce less than thirteen million vehicles in North America, a reduction of over 20% from pre-covid forecast for 2020.

OEMS and particularly their suppliers are in for a bumpy road as we enter uncharted territory for the industry. What we knew about the market, its investments and plans for the future have to be closely monitored and updated to stay relevant. Customer intimacy is key in this environment, with early insights leading to nimble decisions. Fortunately the market was planning for a contraction and had started to incorporate elements for longer term sustainability.

-Abey Abraham, Managing Director, Automotive & Materials

DuckerFrontier’s automotive and materials experts are closely monitoring the impact of COVID-19 on the automotive industry and what the post-pandemic environment will look like. Below are some recent insights and recommendations from our team of experts as the industry begins to reopen:

  • Planning is essential. Plants have had 6 or more weeks to develop their reopening strategy
    • Learn and emulate key success factors from their plants in China (testing, distancing, contact-tracing, etc)
    • How to keep personnel safe while enforcing production safety procedures and efficiency
    • Limit customer options to reduce complexity and line slowdowns, some models have been postponed (Chevrolet Tahoe/Suburban GMC Yukon) to ease the restart and secure sufficient demand for the product launch
  • Prepare for the unexpected. As OEMs get back online, suppliers will need to be patient and be ready for unforeseen changes, including a very slow ramp up
    • Volume projections change on a weekly basis with continuous adjustments to supply and demand
    • Accounts receivable is an essential task and needs to be prioritized to keep the lights on
    • Changes in delivery schedules, processes, and procedures
    • Difficulty with getting employees back to work will require OEMs to become creative with personnel offers such as increased PPE, daycare options, and increase salary/bonus structures
  • Supply chains are only as strong as the weakest link
    • Global supply chains – several countries have not yet given the green light to get back to “normal” – we see this with the startup and rather quick shut-down of a plant in Alabama
    • Manufacturers can face issues sourcing parts and securing the supply chain as states and regions stagger restarts
    • Mexico is expected to trail the U.S. and Canadian markets due to health and sanitary issues impacting the capacity to restart (test availability, social distancing and more)
    • One missing part can bring operations to a stand-still
  • Adjusting resources to needs and technologies in R&D, sales, marketing, and support roles
    • COVID-19 highlighted the need to reassign investments and resources due to a global slowdown in technology introduction (CASE/ACES mobility technologies)
    • New strategies and product plans will impact production plans and factory programs in the upcoming months and years
    • Cancelled programs (Lincoln “Rivian based” EV SUV and Cadillac Lyric EV SUV) will have a long-term impact on production capacity and could lead to redistributing programs or re-evaluating production capacity in the medium- to long-term
  • Accelerating the come-back – near term, monitor and react
    • Dealer inventory is at an all-time low, they are not used to this – the market is low by over 2 million units that should have been produced in the first half of 2020
    • The annual production numbers have changed, and automakers are pulling back on the incentives they used to get consumers and dealers through March, April, and May
    • Product mix driven, pickup trucks, SUVs, and crossovers are driving the surge whereas passenger cars are fighting for their market shares
    • Mexico’s part supply-chain still has not been sorted out completely just yet (still at the peak of the epidemic) and add to that the USMCA Agreement launching in July may add further strain
    • FCA, among other OEMs, for instance has cancelled planned shut-downs on lines producing most of their non-pass car lineup; Warren Truck and Belvidere IL facility will have a minimal shut down to re-tool for the new Jeep Wagoneer and Cherokee respectively
  • Opportunities for automotive suppliers:

DuckerFrontier’s Automotive & Transportation team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit our COVID-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.