Opportunities for growth in resilient automotive industry
by Tim Wilson
If there is a good news story in the midst of the present economic malaise–in which the US economy is stuck in neutral, and the European crisis trudges on–it is here in Canada where, despite a strong dollar, the automotive industry has shown remarkable resilience.
“All domestics for North America are at over 100 per cent capacity,” says Jim Gazo, VP operations at Automodular, Ajax, ON, which sequences and sub-assembles modules for the automotive industry.
Gazo’s observations are confirmed by auto industry analyst Dennis DesRosiers, who notes metalworking manufacturing was up 25.9 per cent in the year to date (YTD) for the first quarter of 2012, and “the manufacturing backbone of Canada’s auto industry is enjoying a cyclical upturn.”
The question then becomes: how to get a bigger piece of this pie? The answer requires an understanding of Mexico and lower cost US “right to work” States that are putting pressure on Canadian suppliers.
“We remain one of the higher cost jurisdictions to do business,” says Mark Nantais, president of the Canadian Vehicle Manufacturers Association (CVMA). “That means to compete we have to focus on efficiency.”
The pressure is on because, though there is demand for more shifts and more plants, much of the recent news has been about activity ramping up outside of Canada. “The next round of CAW talks could be even bigger than the one during the downturn,” says Gazo. “Both the CAW and the government will need to focus efforts on helping the Detroit Three auto production scene in Canada, not only securing new investment but maintaining what we already have.”
Part of the discussion may centre on how industry can thrive without having a race to the bottom on the wage front. That means seeking higher-value opportunities.
“The luxury market is growing significantly in Canada,” says David C. Adams, president of the Association of International Automobile Manufacturers of Canada (AIAMC). “Luxury production in Canada may not be that far-fetched, as that market continues to grow.”
Fortunately, once a manufacturing facility sets up in Canada there is incentive for the company to source in Canada. This is in order to meet the 62.5 per cent NAFTA content that would allow duty free access into the US.
“The history with Toyota and Honda has been that their Japanese suppliers established facilities in and around manufacturing plants in Canada and the US,” says Adams. “I think the same pattern would likely occur with other manufacturers as well.”
As a result, location can make a big difference, with just-in-time delivery models requiring that suppliers cluster around the Tier One manufacturers. “With what we do, you can’t be very far away from the assembly plant,” says Gazo from Automodular.
Innovation is a must
For a shop that wants to take advantage of changes in the automotive supply chain, keep a close eye on trends and technological innovations.
“Canada was a pioneer in fuel cell technology, and we have abundant expertise in lightweight materials as well,” says Adams.
The current revolution in fuel economy and emissions standards, coupled with California\’s requirement that each automaker must have a zero emission vehicle (ZEV), is changing the industry.
“These developments point the way to the need for a major decrease in vehicle weight while maintaining and even enhancing vehicle safety,” says Dr. Peter Frise, the Windsor-based scientific director and CEO of the AUTO21 Network of Centres of Excellence.
For example, Toyota has secured the production of the RAV 4 EV in Woodstock, ON. This will give Canada a leg up in electric vehicle technology at a manufacturing level. “The fact that between 70 per cent and 80 per cent of the components of most vehicles come from the auto parts segment means that parts manufacturers must become more expert at cost effectively designing and making parts from lower density materials,” says Dr. Frise.
It means keeping an eye on costs while developing expertise in aluminium, magnesium and advanced composites. It might also mean being aware of increased research and development in technology, such as active cruise control, vehicle radars, and ultrasonic proximity detectors. SMT
Tim Wilson is a contributing editor based in Peterborough, ON.