Another pandemic-induced economic shutdown could prove lethal to a weakened auto supply chain, industry experts and executives warn.
“If there is a stoppage by any government ... again, you are going to see a free-fall of liquidities, bankruptcies [and] restructuring,” said Don Walker, CEO of Magna International Inc. “Because then the banks will say, ‘Well, if you stopped again, how would you possibly get started?’
“And they’ll stop the funding. We don’t have an option but to keep going, in my opinion,” Walker said during the May 28 Daily Drive podcast hosted by sibling publication Automotive News.
Health experts have warned of a potential second wave of infections later in the year, possibly during flu season, threatening to overwhelm health care systems. During the first round of COVID-19, economic activity ground to a halt throughout much of North America, with the auto manufacturing sector essentially closed down for about two months.
Linamar Corp. CEO Linda Hasenfratz urged governments to invest in “widespread testing” to locate carriers of the coronavirus and to isolate them, helping limit the spread of the virus.
“I think we can’t shut down the economy for two months next time,” Hasenfratz said. “And of course, there will be a next time. It might not be this fall with another wave, but at some point, another pandemic is going to roll through our country and our planet.
“We need to be better prepared for that so that when it happens, we can keep working [and] keep working safely.”
Magna and Linamar are the largest Canadian suppliers of parts to automakers based on annual sales, according to the Automotive News Data Center in Detroit. Magna, based in Aurora, Ont., ranks third on Automotive News’ list of the Top 100 global suppliers, with $40.83 billion in sales to automakers in 2018. Linamar, based in Guelph, Ont., is No. 57, with $4.1 billion in global sales last year.
NEED TO PREPARE
A second wave of COVID-19 could crush consumer confidence, crippling a sustainable economic recovery, said Joe McCabe, CEO of AutoForecast Solutions LLC.
“It all comes down to the demand side. If there’s no demand to absorb these vehicles, there’s no reason to build.
“If the whole optics of moving forward are crushed by a second wave, that demand cycle will be further impacted, which is going to ripple all the way through the vehicle manufacturers and suppliers. And it’s not going to be a couple months; it’s going to be several months of impact, and they don’t have the cash to survive that.”
To prepare themselves for a possible second shutdown, McCabe said, suppliers should look at diversifying their product offerings and customers while also improving lines of communications with their own suppliers, customers, local governments and health authorities.
“There’s a high chance there’s another wave of this,” he said. “If you’re not thinking about that in your business plans, that could be the end of your company. There has to be some sort of scenario that says, what if we have this W-[shaped recovery]? That second point at the bottom of the W will be worse than the first, should it happen. And there are high odds it could.”
