Tuesday Ticker: April 28, 2020

Toronto, Ontario — April 28, 2020 — In this week’s Tuesday Ticker: around the globe, businesses in the automotive sector see a light at the end of the coronavirus tunnel, but speedbumps are ahead.

Sharp Restart

Ontario’s auto sector is preparing to resume its operations after the coronavirus lockdown period ends.

Magna International has announced plans to reopen its plants on May 4. Despite concerns from Provincial officials about the date, the news has been met with cautious optimism from investors. Magna’s stock has continued to be stable, trading around $50 per-share.

It is not the only business planning to revive its Ontario operations in early May.

Toyota Canada intends to resume production at its Woodstock and Cambridge plant on the same date.

Fiat-Chrysler also intends to restart production at its Brampton facility on May 4, but hold-off on bringing workers back into its Windsor facility until May 18.

Other OEMs, including Ford Canada, have yet to offer any insights about when the plants will reopen.

It is unclear if the businesses will be able to abide by the May 4 timeline, which would require the assent of the Provincial Government.

On April 3, Premier Doug Ford released a statement that said “You are not an essential business, you need to close your doors, work from home if possible and play a role to help contain this outbreak. This is a matter of life and death.”

Delays Expected

When the U.S. auto sector does reopen, Canadian parts suppliers could have a strategic advantage over Mexican rivals–a head start.

Mexico’s auto sector will not reopen until after the U.S. sector shows signs of a restart, President Andres Obrador has declared.

Like its USMCA partners, Canada and the U.S., Mexico’s auto sector came to a virtual standstill in March. According to the Mexican president’s own estimates, Mexico would likely require up to four days to resume operations after the U.S. sector reopens.

America’s manufacturing sector may not be able to tolerate the delay. Because of the interconnected nature of the North American auto manufacturing sector, any supply line delays could have major ramifications for American automakers. Buying more than 40 percent of the auto parts manufactured in Mexico, U.S. companies spend an estimated $100 billion U.S. ($125 Canadian) on Mexican auto parts.

Surging Subcontinent

India’s largest auto parts company, Jamna Auto Industries, has seen an almost seventy-five percent drop in its stock value in less than 12 months. Trading at just under ₹100 INR ($1.84 Canadian) in early May of 2019, it is now trading at about ₹26 ($0.48 Canadian). Despite this, many experts believe India’s auto parts sector might not be down for the count.

More than seventy million Indians are involved in the auto parts sector, but there is considerable room for growth. Though auto parts account for 25 percent of the country’s manufacturing sector, the vast majority of its parts are used domestically. The country, which is home to one-in-seven people, exports just 1.5 percent of the world’s auto parts. In fact, it is a net importer of auto parts, with more than a quarter of the parts used in manufacturing vehicles coming from China prior to the arrival of the coronavirus.

India is looking to expand its presence in the global auto parts manufacturing market once the impact of the coronavirus allows supply chains to reform. Several market analysts have suggested that India could benefit from the redevelopment of supply chains around the globe.

Currently, Chinese auto parts have long had a price advantage over Indian ones, but that, as global supply chains are re-established, it is likely that business leaders will be prepared to pay a premium to Indian manufacturers in order to diminish the risk of catastrophic market failures.

Currently, India’s automotive sector is underwater.

In March, the arrival of the coronavirus saw a 61 percent drop in new vehicle sales. Some OEMs have reported selling no vehicles in April.