Climbing out of the pit
- April 29, 2012
by Jim Barnes
While recent resurging North American auto sales have led some to celebrate, it may be more of a reprieve for the Canadian automotive industry than anything else.
That growth is coming off very low numbers. According to data provided by the Automotive Parts Manufacturers’ Association, North American unit production of light vehicles dropped from 15,102,752 in 2007 to 8,626,384 in 2009.
“The bottom was pretty low, and there was nowhere else to go [but up],” notes Mark Stoddart, chief technology officer and executive vice president, marketing, Linamar Corp., Guelph, ON.
“We are looking at close to 14 million units this year,” he says, adding that in 2013, growth to 15 or 16 million units might be realistic.
“From a vehicle production point of view, the industry has recovered about 40 per cent of its lost volume,” says Dennis DesRosiers. However, he notes, “our parts sector has not recovered any volume.”
Two factors drove the glory days of the auto industry in Canada.
The first was strong trade with the US, underpinned by Auto Pact and the North American Free Trade Agreement. Since then, low-cost offshore competition has made major inroads in the market and many automotive OEMs have turned to Mexico as a source of production.
The second factor was a currency exchange rate that worked strongly in our favour. At 70 cents to the dollar, manufacturing in Canada made for a compelling argument. However, international demand for commodities in the past decade has strengthened the Canadian dollar to parity with the US dollar. That is unlikely to change significantly.
The industry was already struggling when the recession hit. Some of the OEMs teetered on the edge of insolvency during the credit crisis, rescued by a $4-billion emergency loan package in Canada in 2008. Not only was business down, but some real risk entered the picture—would the customers still be in business a year from now?
Wages and benefits were another piece. When the recession hit, the Canadian Auto Workers union tried to protect the wages and benefits in its collective agreements. Its US counterpart, the United Auto Workers, fought to keep jobs and made concessions. While comparing overall labour costs and productivity is a complicated exercise, the automotive OEMs insist that labour costs in Canada are substantially higher.
The bottom line is the Canadian industry has a long fight ahead of it, even with the welcome return to something approaching normal in automotive sales. SMT
Jim Barnes is a Toronto-based journalist with 30 years of experience in writing about manufacturing technology.