Canada has turned from an automotive powerhouse with an industry trade surplus of $20-billion to a country coping with a $12-billion deficit – a staggering turnaround that reflects the steady rise in the Canadian dollar and a decade of turmoil in the sector.
The $32-billion shift in the auto trade balance highlights how the surge in the value of the currency has pulverized the manufacturing sector since the dollar hit its record low of 62 cents (U.S) 10 years ago this quarter, three of Canada’s big banks say in reports released this week. The Canadian dollar continued its recent rally Thursday, reaching about $1.0143.
“While there are many factors at play, the robust loonie has its wing-prints all over that momentous shift,” Bank of Montreal deputy chief economist Douglas Porter said in a report.
The trade figures underline the dramatic transformation the auto industry over the past decade as a commodity and oil boom sent the dollar surging, which in turn hammered the competitive position of auto makers and parts suppliers in Canada. The bank reports add to the debate about the impact the oil-fuelled rise of the dollar is having nationally as Alberta revels in record revenues and Ontario bleeds manufacturing jobs.
As the dollar has appreciated, almost 500,000 manufacturing jobs have vanished, Mr. Porter noted. More than half of those job losses came before the 2008-2009 recession, he said, “and virtually none of the recession losses have been recouped.”
A substantial chunk of the lost jobs are in the auto industry, a pillar of the Ontario economy because all vehicle assembly plants are located there, along with the vast majority of auto parts-making.
At peak levels in the early 2000s – as the dollar was hitting its record low – 198,000 Canadians were employed in assembly, auto parts, tool mould and die making and truck body and trailer manufacturing. By the end of November last year, that number had plunged to 131,000, a decline of one-third.
“This is the real live picture when we go from big surpluses to big deficits,” said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. “These are some of the best jobs in the economy. It is perhaps one of the absolute best examples of what the [high]dollar can do to an industry.”
As the last decade began, Canada was riding high with production of close to 3 million vehicles annually, most of which were exported to the United States. That helped create a surplus. Production fell to 1.5 million vehicles during the recession, and although output has rebounded it’s still almost 1 million vehicles below the peak.
“Canada once punched above its weight in this industry and we’re now punching below our weight,” said Canadian Auto Workers economist Jim Stanford.
Another little-noticed but significant change between 2001 and 2011 was the gradual disappearance of dozens of parts plants as U.S.-based giants such as Collins & Aikman Corp., Dura Automotive Systems Ltd., Dana Corp. and others scaled back operations or abandoned Canada entirely.
In addition to battering the manufacturing sector, the 10-year rise in the currency is helping redraw the economic map of the country, Canadian Imperial Bank of Commerce economists Avery Shenfeld and Warren Lovely said in their look at the dollar.
“As the producers of higher-priced commodities, Alberta, Newfoundland and Labrador and Saskatchewan have enjoyed a huge advantage over Central Canada and the Maritimes,” they wrote.
Ontario meanwhile, has trailed the rest of Canada in economic growth for nine straight years, a period that coincides with the dollar’s rise.