Auto assembly plants are working overtime and vehicle sales are steady, so one of the key engines of Canada’s economy seems to be running smoothly.
But a troubling trend in auto maker investment is beginning to raise questions about the medium- and long-term health of an industry that contributes 1.5 per cent of Canada’s gross domestic product directly, and much more when the spinoff benefits it generates are included.
Canada has received far less than its traditional share of investment by auto makers in North America since the industry’s recovery from the recession got into gear in 2010, new data show. Between that year and 2012, global auto makers invested $42.3-billion (U.S.) in Canada, the United States and Mexico, according to data from the Center for Automotive Research (CAR), an industry research organization based in Ann Arbor, Mich. Just $2.3-billion of that money was spent in Canada, or 5.4 per cent.
That’s considerably less than the double-digit share of investment auto makers pumped into Canada for more than two decades and – along with other data – bolsters the argument that the country is much less attractive to the world’s auto makers than it once was.
This is a key concern for all three levels of government, which rely on billions of dollars of taxes generated by assembly plants and tens of thousands of employees to finance social programs and other spending.
A further decline in the auto industry would deal another blow to Ontario’s manufacturing heartland, where shuttered factories already dot the landscape.
It also raises questions about the payoff from the $13-billion effort by the federal and Ontario governments to help bail out Chrysler Group LLC and General Motors Co. in 2009. With the bailout, those governments extracted promises that protected jobs and Canadian plants for seven years. Four years later, however, investment trends are causing fear about what happens after 2016.
“There is no real capital-A advantage to being in Canada,” said Kim Hill, CAR’s director of sustainability and economic development strategies and the author of a report that contained the investment data. “There used to be – health care and the (Canadian) dollar.”
The CAR numbers are backed up by Statistics Canada data compiled by industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc., showing that auto makers’ capital spending of $767-million (Canadian) in Canada last year represented 9 per cent of the investments they made in their U.S. and Canadian operations. That’s the first time that indicator has been in single digits since 1990 and compares with a figure of 40 per cent as recently as 2007.
Other signals are also glowing red, including the four measurements of the industry established by the Canadian Automotive Partnership Council (CAPC), a joint industry-union-government group set up in 2002 and given the task of developing an automotive strategy for Canada amid a flood of investment by auto makers in the southern United States.
The group set targets in four key areas: employment in the assembly and parts industries; shipments of parts; the automotive trade balance; and vehicle production in Canada as a percentage of North American sales.
Not a single target has been hit. In some categories, notably employment and trade, the results fall well short of the targets.
The target for jobs was 150,000. Assembly and parts jobs stood at 101,510 last year.
“This is an employment-less recovery,” Mr. DesRosiers said.
The performance of the auto industry on the trade front is even worse. In 2001, the auto industry made a massive positive contribution to Canada’s trade performance with a surplus of $11.6-billion. By last year, that figure had plunged to a $17.3-billion deficit.
There have been some snippets of good news. General Motors of Canada Ltd. recently announced a $250-million investment at its Cami Automotive plant in Ingersoll, Ont., that should secure that facility and about 2,500 jobs well into the 2020s. Toyota Motor Manufacturing Canada Inc. is adding workers and production capacity at its two plants in Cambridge, Ont., and Woodstock, Ont.