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North American vehicle production hit its highest level in a decade last year, but Canada missed out on the recovery – another sign that the country's position as an auto-making powerhouse is being eroded.

Output at assembly plants in Canada fell 3 per cent, compared with increases of 7 per cent at U.S. plants and 2 per cent at factories in Mexico, pushing Canada's share of North American vehicle production to its lowest level since 1987.

The decline in Canada's relative position is reflected in another fact – Michigan produced more cars and trucks than any other state or province last year, knocking Ontario out of the top spot it has claimed since 2004.

There is no danger of the industry packing up and moving south overnight, but there are questions about the viability of several factories and potential threats to thousands of direct jobs and tens of thousands more at auto suppliers, all of which are among the best-paying Canadian manufacturing jobs.

The deterioration of Canada's position last year also underlines the importance of retaining existing plants if the country is to hang on to its status as a major vehicle producer and exporter. The drop in Canada's share last year was the third straight decline.

"The fact that we've lost 2.5 points in the last three years is pretty significant … we've got a distinctive downward trend," said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. "The other significant part – and it's really important – is that we were down and the U.S. and Mexico were up."

Assembly plants in Canada produced 2.37 million vehicles last year, compared with 2.45 million a year earlier, data from industry publication WardsAuto show.

Part of the reason for Canada's decline is that Mexico is booming with billions of dollars worth of new investment by Asia– and Europe-based auto makers coming on stream. A new Mazda Motor Corp. plant began producing vehicles last month, while the newest Honda Motor Co. Ltd. plant is scheduled to start up in the next few months. An Audi AG factory is under construction.

Mexico is threatening to displace Japan as the second-largest exporter of vehicles to the United States and could soon challenge Canada's leading position.

In addition, the rise in the value of the Canadian dollar before its recent tumble has hurt Canada's competitive position. At the same time, the Detroit-based auto makers have undertaken what the Center for Automotive Research in Ann Arbor, Mich., has called a retreat to the core, closing many factories that were in such states as Delaware, Georgia and Missouri that were relatively distant from their core operations in Michigan.

The addition by Chrysler Group LLC of a third shift at its Jefferson North Assembly Plant in Detroit contributed to an 8-per-cent jump in vehicle production in Michigan last year.

The proposed investment of more than $2-billion by Chrysler in its Windsor, Ont., minivan plant, and whether the federal and Ontario governments will come up with financial assistance of more than $400-million to secure it, will represent a key signal about the future of vehicle manufacturing in Canada.

The Windsor plant employs more than 5,000 people and has been a humming economic engine of southwestern Ontario since the first minivan rolled off the line in 1984. The plant has been producing minivans on three shifts for almost three decades and its output represented 14 per cent of all Canadian vehicle production last year.

The Chrysler request is one of many that will arrive during the next few years amid what is a fact of life in the auto industry: Governments throughout the world offer auto makers hundreds of millions of dollars to attract new factories and retain existing plants. Ottawa and Ontario provided $140-million to Ford Motor Co. last year to help retool its Oakville, Ont., assembly plant.

"This industry needs investment in the next three to five years pushing $10-billion to keep what we have," Mr. DesRosiers said.

He said there are few levers governments can pull to compete with Mexico and other jurisdictions. Canada's tax structure is competitive, and the drop in the dollar should help relieve some of the wage pressure.

"It comes down to three words: Cut a cheque," he said.

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