It wasn’t long ago that people were planning a funeral for North America’s auto sector. Yes, things looked dire in 2008, but after the worst of the crisis ended, people started buying cars again. Today, vehicle sales are almost back to where they were before the recession.
This is great news for everyone in the industry, but especially for auto parts manufacturers that rely on the brand name car companies for business. These operations were hit hard during the downturn, but many have made strong recoveries since. “Things are pretty encouraging,” says David Kwiatkowski, national leader, automotive at Deloitte.
Although sales are robust again, consumer expectations have changed since the crisis. People now want more affordable vehicles and cars that are also environmentally friendly. Canadians care about fuel economy, comfort, safety and performance,
says Kwiatkowski. For parts manufacturers, this means focusing on technologies that can make engines and other car parts lighter, stronger and more efficient.
Customers also want more Internet and data connected vehicles and a number of new supply companies are looking at ways to bring that connectivity to the masses. These companies could become significant players in the industry, especially as technology becomes less complex and cheaper to implement.
Canadian parts makers are also looking to lower costs and tap into new opportunities by growing their businesses outside of the country, such as in Mexico and China, the latter being the world’s biggest auto market. Opening a new location is an expensive proposition and often requires financing help, says Kwiatkowski.
The companies that cleaned up their balance sheets during the recession – and there are many of them – should have some profits to invest in new equipment, but some may also want to spend that money on purchasing small innovative operations in order to gain access to new technologies, he says.
One of the big challenges going forward for these companies is global competition, says Kwiatkowski. There’s pressure to get larger and achieve a more global scale, especially as the auto industry grows around the world. According to McKinsey & Company, global profits for automotive original equipment manufacturers (OEM) will rise by 50 percent between now and 2020.
Fortunately, Canadians are well positioned to succeed. There’s access to strong academic institutions that can supply top-notch talent and there are industry associations, government agencies and regional networks that can help companies expand.
It’s a good time to be in the auto industry, says Kwiatkowski. Things are only looking up and a lot of companies could find themselves doing better than they were before the recession. “Suppliers have survived,” he says. “They’re healthier, stronger and more resilient than ever.”
This content was produced by The Globe and Mail's advertising department, in consultation with GE Capital. The Globe's editorial department was not involved in its creation.
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