Automotive Manufacturing in Canada Report

On June 4 of this year, the Automotive Parts Manufacturers’ Association (APMA) unveiled a glimpse of the future in the form of a Toyota Lexus RX350 SUV decked out with cutting-edge electronics. Some 13 Canadian companies contributed to the connected and customized RX350, which boasts the latest in communications, infotainment, safety, operating and lighting technology. While the exterior of the four-door SUV looks standard (aside from an array of company logos), its dashboard resembles something out of Star Trek.

Introduced at APMA’s annual conference in Windsor, Ontario, the souped-up and fully functional RX350 serves as a showcase for made-in-Canada automotive technology, says Steve Rodgers, president of the Toronto-based APMA. The Association represents most of the 90,000 workers employed in Canada’s auto parts sector. APMA plans to take the vehicle on a tour of automotive OEMs in North America, Europe and Asia—the latter two locales via video feed.

Canadian firms that provided time or technology for APMA’s connected vehicle project include Magna, Lixar, Leggett & Platt, Rogers, QNX Software Systems (a subsidiary of BlackBerry), the University of Waterloo Centre for Automotive Research (WatCAR), etc. The Lexus itself was donated by Toyota Motor Manufacturing Canada (TMMC).

“There’s no doubt in my mind [connected cars] are an area where Canada can be very competitive. It’s an area where we have some fairly interesting technology,” says Rodgers.

Innovation, as exemplified by the modified Lexus RX350, will help guide Canada through changing times in the auto sector, he continues.

Rodgers insists the mood in the Canadian auto industry “is very optimistic. 2014 is going to continue to be a good year, no doubt about that. 2015 still looks very positive.”

He says this despite the fact Canada’s share of North American vehicle production has been on a slight decline. Automotive manufacturers in Canada and their suppliers have to reckon with competition from Mexico (where car manufacturing is booming) and strict new U.S. rules on gas mileage.

At present, an estimated 115,000 Canadians are directly employed in the automotive industry, making vehicles or parts. This represents 7.7 per cent of all manufacturing jobs in Canada. Overall manufacturing sales in the automotive sector stood at $82.6 billion in 2012, according to Statistics Canada. Some $68.5 billion of these revenues came from exports. Rodgers says auto part sales will probably amount to $23.6 – $23.7 billion this year.

The epicenter of Canadian auto manufacturing remains the industrial heartland of Ontario, where five OEMs—Chrysler Canada, Ford of Canada, General Motors of Canada, Honda Canada Manufacturing and Toyota Motor Manufacturing Canada—currently operate manufacturing facilities.

A total of 2.379 million vehicles were manufactured in Canada in 2013, down from 2.463 million the year before, a drop of 3.4 per cent. These figures come from the Paris-based International Organization of Motor Vehicle Manufacturers (known as the “Organisation Internationale des Constructeurs d’Automobiles” or OICA in French).

This year’s production figures look much the same: between January and June 2014, some 1.186 million vehicles were manufactured in Canada, versus 1.207 million for the same period last year, reports Southfield, Michigan automotive research firm, WardsAuto. As of mid-2014, Canada’s share of North American auto production stood at 13.5 per cent, down from 14.3 per cent in 2013.

Of the vehicles produced in Canada last year, some 408,183 were made by Honda and 505,335 came from Toyota. The remainder were built by “Big Three” plants (that is, facilities run by GM, Chrysler or Ford).

Mexico, for its part, produced 3.052 million vehicles in 2013, up 1.7 per cent from 2012 when the country produced 3.001 million. Production in the United States stood at 11.045 million in 2013 up from 10.332 million in 2012, a lift of 6.9 per cent, states the OICA.

Despite the dip in domestic production, Rodgers believes Canada is in an excellent position to take advantage of the growing interest in high-tech cars. In addition to “connectivity,” the current buzz word in auto circles is “autonomous vehicles” — as in, driverless cars run by computers. While auto experts insist autonomous cars won’t be produced on a commercial basis any time soon, driverless vehicles represent another niche tech-minded Canadian companies can explore.

The Canadian government seems to have similar ideas and has been pouring money into automotive research.

In February 2014, Ottawa announced plans to add $500 million over two years to the Automotive Innovation Fund (AIF). Introduced by the Canadian government in the 2008 budget, the AIF initially earmarked $250 million over five years for automotive firms looking to make greener, more fuel-efficient vehicles. The AIF was renewed in 2013, to the tune of $250 million over five years. February’s announcement ramps up funding even further.

To Rodgers, the increased funding demonstrates Ottawa’s commitment to the auto sector and offers a lucrative enticement for Canadian car firms to get creative. Innovation is seen as key to preserving Canada’s existing automotive manufacturing infrastructure. Embracing innovation will help Canadian companies compete with low-cost, but less technologically advanced regions such as China, India and Mexico, he states.

Rodgers concedes that “re-shoring” (that is, North American automotive firms returning to this continent because of quality concerns about off-shored operations in Asia and elsewhere), has primarily been an American phenomenon so far.

“The trend in the auto industry in NAFTA is definitely a story of re-shoring. We’re starting to see more [auto companies] coming back. More decisions are being made to stay local rather than going to China and India, etc. But we have to be honest, the re-shoring industry or re-shoring story rather has been more of a United States story. We haven’t really seen it to the same extent in Canada,” he states.

Nonetheless, combining innovation and cutting-edge technology seems a logical avenue to follow for Canadian firms looking to stand out in the global automotive market.

Other developments south of the border present additional challenges and opportunities for Canada’s auto sector. The American program CAFE (Corporate Average Fuel Economy) places increasingly stringent gas mileage rules on cars sold in the United States. By 2025, CAFE calls for an average fuel economy in new cars of 54.5 miles per gallon roughly, double the current average. While there is some flexibility in the rules, CAFE regulations have had the effect of pushing auto companies to embrace hydrogen fuel cell, electric and hybrid engines as well as the notion of “light-weighting.”

Light-weighting refers to the science of making automobiles that weigh less than standard vehicles currently on the road. This can be done through copious use of advanced composites, ultra-high strength steel and aluminum. Ford, for example, will be releasing an F-150 pickup truck later this year that weighs 318 kilograms less than its predecessor, thanks primarily to aluminum.

The CAFE rules “are generally seen as positive, because [they] create a number of opportunities” for innovative Canadian suppliers, says Rodgers.

Given that nearly all (some 97.2 per cent worth, according to Statistics Canada) of Canadian automotive exports go to the United States, CAFE rules are also unavoidable.

The wobbly Canadian dollar represents another challenge/opportunity. At present, the Canadian dollar sits at around 90 cents to the U.S. dollar, down from parity in 2007. To make an impact among firms that sell goods and services to the United States, the dollar needs to stay where it is.

“Most of the OEMs that were purchasing components for the United States haven’t really in their minds adjusted their exchange rates. The Canadian dollar needs to remain down at 90 cents and below for a longer period of time before they change their long-range forecasts,” says Rodgers.

David Foscarini, president of Mecon Industries Ltd. in Scarborough, Ontario, believes a consistently weak dollar might spur diversity in the manufacturing sector.

An automotive supplier, Mecon makes coil handling equipment. Foscarini estimates 75 percent of the company’s business is auto-related, a percentage that has remained consistent for years.

“We need to maintain a culture of manufacturing to be a well-rounded and diversified province,” says Foscarini.

While the Mecon president was speaking specifically of Ontario, his words echo APMA’s attitude about the country as a whole.

Asked if he had any advice for Canadian part makers, Rodgers offers the following: “I think the words of wisdom are, continue to make investments in new technology and innovation. Through 2025, there’s going to be lots of opportunities. So it’s necessary to continue to make investments to stay competitive. That’s highly important. Take advantage of innovation at every turn. Take advantage of all the opportunities we have because that’s where the growth is going to occur.”