Auto industry preps for restart — and it all depends on Mexico
DETROIT — The Detroit auto industry cannot restart if parts suppliers in Mexico remain down.
With about 40% of imported auto parts coming from south of the border, and parts made in the United States that are exported to Mexico for vehicle production there, the interdependency between the two countries cannot be overstated.
The challenge lies in the fact that the Detroit Three have reportedly targeted a restart for their U.S. assembly plants in mid-May. But Mexico is on lockdown, with nonessential businesses — which include auto parts — closed, and movement restrictions in place until May 30.
"This is the issue, I believe, the whole industry is struggling with," said Joe Petrillo, director of business development and advanced engineering for Meridian Lightweight Technologies, a supplier of lightweight cast metal parts mostly for the auto industry.
Meridian is based in Plymouth with operations in Eaton Rapids, Canada, Mexico and Europe. Its Mexican operations remain idle, Petrillo said.
"Automotive, like many industries, is an interconnected global supply chain, in particular for the car manufacturers located in North America," Petrillo said. "Portions of this chain through NAFTA (and continuing with USMCA), have welded key links of the chain together over the past several decades, such that they are no longer links on a chain but a rod that cannot be broken."
Put simply, the U.S. auto industry cannot build cars if the government actions in one country, state or province that suppliers operate in are not in sync with the others. But the underlying buzz across the U.S. auto industry is that the Mexican government has indicated that if the U.S. and Canada are going to reopen, it will allow the automotive industry in Mexico to reopen. At least that's what everyone believes will be the case, provided the coronavirus pandemic doesn't worsen south of the border.
General Motors, Ford Motor Co. and Fiat Chrysler Automobiles idled their assembly plants stateside in March as the pandemic swept the nation. They have not declared a restart date yet, but they have reportedly eyed May 18 as a possibility.
On Wednesday, Toyota said after working with its supplier and logistics network, it would postpone its ramp-up of its North American manufacturing operations from the week of May 4 to the week of May 11.
Inventory exists in the supply pipeline to support a U.S. restart of production before Mexico lifts its lockdown, but a large gap of time between a U.S. restart and a Mexican restart could increase risks of disruption to the supply chain, said Jeff Cole, senior director of corporate communication for auto supplier Dana Incorporated. Dana, based in Maumee, Ohio, has operations at six cities in Mexico, employing nearly 4,000 people. It makes gears and other components for axles, as well as driveshaft components, primarily for the light- and commercialvehicle markets.
Lear Corp. has 42 facilities in Mexico and employs 56,000 people there making electronics, electrical systems and car seating. Its decision on a restart date is based on being in line with government requirements and the needs of customers, said Lear spokesman Brian Corbett.
"Additionally, with the health and safety of our employees being our first priority, our Mexican facilities will not resume operations until we have all of our safety protocols in place," Corbett said.
The pandemic illustrates the Black Swan theory, said Patrick Penfield, a supply chain management professor at Syracuse University in New York. It's an event that "nobody expected so it just happens and you have to react and adjust to the best of your abilities."
He explained, "We've never seen this type of situation, where the whole supply chain is getting disrupted at different times and places. It's adding complexity. Normally, when you have a disruption it's one thing, you can react and get back to business. Here, it's one thing after the other. It's crazy."
Being "intertwined" globally makes everything more "severe," Penfield said.
It's the price of capitalism, he said, which is what global partnerships illustrate — seizing the best opportunity in the marketplace.
"With Mexico, they're one of our top trading partners, in both directions," Penfield said. "If you have only one customer, it doesn't make sense to restart."
That's why it's ideal to have everybody up and running, he said.
"Problem is, the Mexico health system is pretty poor," Penfield said. "Thankfully, coronavirus hasn't impacted them that badly yet. If they isolate and quarantine, they will protect their population. Unfortunately, so many people in Mexico are so impoverished, they're desperate to start working again."
As of April 29, the total number of confirmed cases in Mexico was 16,752 and the death toll was 1,569, according to Mexico News Daily.
"If they see the amount of people infected like we have in U.S., it could be a catastrophe," Penfield said. "We are dependent on Mexico."
The common thought by many automakers and auto suppliers is there could be some flexibility by the Mexican government that would allow the auto industry in Mexico to start back up in support of a North American startup.
"The (Mexico) president there has spoken about following the U.S.'s lead by a few days in getting their auto industry going again with the proper safety precautions in place," said a person at a global automotive supplier who asked not to be named given the uncertainty of the situation. "I think they're a bit of a wild card or unknown right now until there is something official announced in this regard."