CANADA’S AUTO MANUFACTURING SECTOR IS FACING PRESSURE LIKE NEVER BEFORE. CANADIAN AUTO DEALER LOOKS AT SOME OF THE ISSUES CURRENTLY AFFECTING THE INDUSTRY AND WHAT CAN BE DONE TO TACKLE THEM.
There’s been a great deal of discussion regarding vehicle manufacturing in Canada as of late. From trade agreements like the Trans Pacific Partnership to the rising costs of producing vehicles here and issues over funding for plant modernizations, plus competition from other jurisdictions for new production (including Mexico and even Southern U.S. states), it’s a lot to take in. So what exactly does the future hold for the auto-makers that have plants in Canada? Furthermore, do both governments (at the federal and provincial level) and the general population, really understand the
significance of auto manufacturing when it comes to Canada’s economic well-being?
Different levels, different viewpoints
Mark Nantais, President of the Canadian Vehicle Manufacturers Association (which represents, Ford Motor Company, General Motors and Chrysler Group), says that government officials who work closely with automakers do have a good understanding of the economic importance related to auto manufacturing but says that understanding “becomes more limited when you begin to discuss the issue more broadly across the country.”
Nantais says one of the biggest misconceptions concerns the ripple effect that’s felt when economic and political issues affect auto manufacturing. “The auto industry, particularly an auto assembly plant has a 9-1 job multiplier that’s second to none,” says Nantais.
With the industry representing close to 20 per cent of all GDP in Ontario and 500,000 direct and indirect jobs across the country, not to mention the fact that the longer plants go without upgrades the more difficult it is to acquire new capital to rejuvenate them, Nantais says it’s really important to understand why continued investment in the auto manufacturing sector is so crucial.
Global competition
There’s also the bigger picture to consider, namely that regions like China and South East Asia are aggressively competing for auto manufacturing investment. “It’s like playing a game of hardball,” says Nantais. “These countries are aggressively competing for a slice of the automotive industry to underpin their economies because they recognize the socio-economic benefits that result from having their own assembly plants.”
Nantais says that Canada is not getting its fair share of new auto manufacturing (3 per cent of the 3.5 million units in new capacity expected 2016 in North America).
“If we want to change things around, we need to find a competitive edge,” he says. Advantages Canada does have over other jurisdictions include a highly skilled and educated labour force, a stable political environment, highly developed infrastructure and close integration with one of the largest economies in the world — the U.S.
“We have a very efficient border with the U.S. and in the automotive industry it is highly integrated between both countries. Components travel back and forth as much as six times a day along with the finished product so an effective border, a reliable border is absolutely critical for our ability to produce effectively,” he says.
Nantais notes that shutdowns at the border
can result in millions of dollars in lost revenue very quickly, something that soon gets noticed by decision makers in Detroit. Nevertheless, an efficient border plays to Canada’s strength and strategies such as the Harper Government and Obama Administration’s Beyond the Border initiative (designed to enhance perimeter security and economic competitiveness, as well as harmonize regulations between the two countries) add further reinforcement.
Labour and technology
Yet there are other challenges that also need to be weighted, such as finding skilled labour (currently there is high demand, particularly for skilled engineers and tradespeople but often not enough positions to fill) while the increased cost of doing business is another important consideration.
Other significant requirements, such as tough Corporate Average Fuel Economy standards and reductions in greenhouse gas emissions in the U.S. (and being harmonized by Canada) through 2025 (calling for vehicles to reach 54.5 miles per gallon/4.3 L/100 km), require different approaches to designing, engineering and manufacturing vehicles.
“The new regulations are unprecedented in scope,” says Nantais “and the technology required to achieve these standards is still evolving. It represents a huge effort in terms of resources, engineering and funding. We are probably looking at close to $160 billion across the industry. These are the high cost, high capital intensive types of technology each company needs to adopt if they are to remain a player in this business.”
Nantais says that forging closer ties between Canada and the U.S., with the aim of achieving a single, harmonized standard when it comes to vehicle regulations will deliver the maximum environmental benefit in terms of emissions tonnage reductions while at the same time minimizing the increase in cost, both to the industry and the end consumers that buy those vehicles.
It will also help ensure Canada remains a viable place to manufacture vehicles over the long term, while keeping vehicle prices affordable and ensuring greater choice for consumers. Given the impact of the auto sector, not only manufacturers but also suppliers and (particularly) retailers have on nearly every part of the country, such a strategy is likely to play a major factor in helping solidify Canada’s economic strength at both a regional and global level.
