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Will challenges hobble automotive industry’s recovery?

by Jim Barnes

In January, you could almost hear the sigh of relief in the automotive industry. According to Global Auto Report published by Scotiabank in February, global vehicle sales in January grew six per cent above the preceding year. At the same time, US sales exceeded an annualized 14 million units for the first time since the “cash for clunkers” incentive in 2009, and Canadian sales grew 15 per cent above the year earlier.

While far off the pre-recession peak, these were promising developments. 

Or were they? Will a strong Loonie, offshore competition, slow response to innovation and ongoing investment issues hobble the Canadian automotive industry as it plans for recovery?

Offshore competition
“Canada is getting clobbered” in auto parts. “It has one of the lowest levels of market share since the Auto Pact years.” —Dennis DesRosiers

 “One way to mitigate the impact of the yen is to do more in the local markets,” as has been done in Canada. ­­­­­—David Worts

Competition from offshore remains a problem. “I lived through the decline of the British motor industry. The government spent a ton of money on it, and it went nowhere.” The problem was efficient offshore competition. “Nobody wants to spend twice as much for a product than they have to.” —Les Payne

Noting that Canada’s share of NAFTA is declining, he says, “it’s not so much about Mexican parts coming into Canada. Mexico is where the growth is going on, so facilities are required in Mexico. —Steve Rodgers

“We have found that the highly technical tooling, with complex injection, has stayed here because of our expertise and our design engineering. A lot of the simpler tooling is still coming from China. David Palmer

 “Linamar has plants all over North America, Europe and Asia, and from a productivity standpoint, our best plants are here in Ontario.” —Mark Stoddart

Parity
“We are perhaps not as competitive as we once were—the exchange rate is making it difficult. There might be some question as to whether we are investing as much as we could in Canada.” ­—Steve Rodgers

 “Parity has little to do with the lack of sales. It’s lack of vision, lack of investment, lack of R&D, it’s lack of a willingness to do the things that are necessary to compete.” —Dennis DesRosiers 

Canadians are not the only ones with a strong currency. “The strength of the yen has been a bigger business issue for Japanese exporters than the earthquake and tsunami. It’s still with us.” —David Worts

 “Canadian companies that were making profit off exchange rates found out that business model doesn’t work. It has hurt a lot of companies over the years, and that’s why they are not here anymore.” Mark Stoddart

The strong loonie hurts most CTMA members. —Les Payne

 “We’d all love to go back to 20 years ago, when there was a 30 per cent exchange rate that gave us a competitive advantage. That is probably not going to happen again.” David Palmer

Innovation
“Some of the big opportunities are in the emerging technologies,” he says, citing roll forming, hydroforming, lightweight materials, bio fibres and powertrain as examples. —Steve Rodgers 

“We have about a half-dozen truly innovative parts manufacturers in this country. Mostly, we have order takers.” —Dennis DesRosiers

There is a constant battle to remain competitive. For that, you need to invest. The industry is being driven by new technology.” —David Worts

“We recognize that you need to be doing R&D, process improvement, eliminating waste, and you have to be doing it constantly.” —Mark Stoddart

“We have to invest in technology. It’s the high capability, CNC machining and software that not only gives us design capabilities but will do our cutter paths at the same time.” David Palmer

Prospects
“Clearly, if we focus on the right things, we can be competitive in Canada. But that means a focus on what makes a truly efficient auto manufacturing operation these days—it’s about being lean, adapting tools and systems, innovation, all those factors.” Steve Rodgers

 “There is a misperception that [most Canadian auto parts makers] are good suppliers. For the most part, they are not. Also, that we have a viable auto parts sector. We do not. That if we attract more assembly plants into this country, that will automatically mean a stronger auto parts sector. It will not.”—Dennis DesRosiers

“We need to invest in technology that will remove hours out of a build and… make us more competitive and profitable.” —David Palmer

“We don’t have the advantage of the low Canadian dollar anymore… The recession took its toll on a lot of companies that weren’t competitive.” —David Worts

 “There is a feeling that, with the strong dollar, Canadian suppliers can’t be competitive. That is not the case. A number of leading Canadian suppliers are all doing well—and doing well here in Ontario.” —Mark Stoddart

Investment
Right now, the industry is “sticking to its knitting.” Ultimately, though, “You have to evolve into more [sophisticated technologies.]” —Steve Rodgers

 “There are just over 50 Japanese-owned auto parts plants in Canada, most of them original equipment suppliers.” Investments by Japanese companies have been steady. —David Worts 

 “In the automotive industry, you don’t get price increases ever year, you get price decreases. That’s the norm for this business. The only way you can offset that is through productivity improvement.” —Mark Stoddart

 “We are seeing a continuation of the fast write-off, which is allowing companies to purchase equipment,” he says, adding that the exchange rate is working in favour of companies that buy equipment in US dollars.

Prospects: The demographics of aging and economic shifts are shrinking the automotive industry workforce. “Strengthening the apprentice system would solve a lot of industry’s staff problems and help deal with youth employment.” —Les Payne 

A couple of years ago, suppliers had to question the long-term viability of certain OEMs. “It put a crimp in investment,” he says. With the return of some stability, planning for investment is easier.
David Palmer

 “There has been virtually no investment in innovation and not a lot of investment in the factories… I  estimate that less than one per cent of automotive R&D investments are made in Canada.”
Dennis DesRosiers

Jim Barnes is a Toronto-based journalist with 30 years of experience in writing about manufacturing technology.

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