COVID-19, which began in China and spread to the rest of the world, has exposed some of the weak links in the decades-long march toward globalization, as shutdowns in some parts of the world stall production in others.
The virus has highlighted some of those holes in the supply chain, said David Adams, president and CEO of the Global Automakers of Canada, a group that represents Toyota, Honda, Volkswagen, MercedesBenz and other non-North American automakers.
Those holes, combined with the requirements of the USMCA, could lead to some manufacturing returning to North America, Adams said.
“It could make business sense to do that,” he said. But it will also increase costs as the pandemic weighs heavily on vehicle sales.
Global supply chains, built up over decades, offer many benefits, including high levels of efficiency and expertise that would be difficult to replicate at home, said Linda Hasenfratz, president and CEO of Guelph, Ont.based Linamar Corp., Canada’s second-largest global autoparts supplier.
“I wouldn’t say [the auto industry] has outsourced too much necessarily. Frankly, it’s a bit of a moving target anyhow. What might have made sense 10 years ago might not be making sense today. Things are always shifting around.
“What’s the best technology, cost and quality? Ultimately, that is always going to dictate where the production is.”
General Motors of Canada, meanwhile, considers the USMCA trade deal, expected to go into effect July 1, the “most significant influence on our future supply chains for automotive production in Canada,” spokesman David Paterson wrote in an email.
Still, union and some political leaders say the crisis underscored the importance of having a robust domestic manufacturing base, as Canada’s auto industry joined the national effort to make ventilators, face shields and masks.
‘WE NEED A PLAN’
“It’s the auto industry, the aerospace industry and all the industries that people say are dying industries that are saving our bacon,” said Jerry Dias, national president of Unifor, which represents hourly workers at the Detroit Three’s Canadian plants. COVID-19 has exposed the risks of allowing Canada’s auto industry to decline, he said.
When the dust settles on the pandemic, “The first thing we need is a plan. Government has never had a manufacturing plan, and that’s come back to bite us.”
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, cited the vow of Ontario Premier Doug Ford to “never again ... trust the supply of critical medical instruments to another country, especially in Ontario, where we have the factories and the people and tools to make this stuff.”
But will that recognition be enough to rekindle an auto manufacturing sector that has been in decline for more than two decades?
Since its peak in 1999, when the five major automakers operating in Canada made 3.06 million vehicles, production fell below two million units in 2019. And in 2018, for the first time, the value of vehicles Canada exported, mainly to the United States, fell below the value of vehicles Canada imported, said Brendan Sweeney, managing director of the Trillium Network for Advanced Manufacturing, a nonprofit think tank based at Western University in London, Ont., and supported by the provincial government. The deficit in the balance of trade reverses a decades-long trend that was in Canada’s favour, he said.
“At this point in time, people in Canada really have to say, ‘Do we want [an auto industry],’ and, if so, I think we’ve got to think about unconventional ways to make sure that it stays here.”
The federal minister of innovation, science and industry, Navdeep Bains, defended the government’s record, saying COVID-19 has proved that Canada already has a robust manufacturing sector. Bains noted that during the crisis, more than 75 auto industry suppliers and automakers shifted gears to make medical supplies.
“If you look at the mobilization efforts around leveraging our strong automotive footprint to build a made-in-Canada solution, it has been remarkable,” he told Automotive News Canada. “The automotive sector has led the way.”
Canada is also well-positioned to help build the car of the future, with its combined expertise in auto manufacturing, technology and artificial intelligence, Bains said.
“I have no doubt we’re going to continue to work with this industry,” he said, although he declined to explain what measures that might include.