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Jeff Kowalsky/Bloomberg

The days of Ontario bragging about being the largest auto-making jurisdiction in Canada and the United States are coming to an end.

Michigan has roared into first place in vehicle manufacturing among states and provinces this year, knocking Ontario off the perch it has enjoyed since 2004.

The Great Lakes State is forecast to hang on to the lead when year-end statistics are tabulated.

Michigan and some other U.S. states have been the biggest beneficiaries of the robust recovery in the U.S. market that has the Detroit Three auto makers rushing to boost production as quickly as they can.

The U.S. state's leapfrog over Ontario is the latest troubling sign for the province's most important manufacturing industry, which has fallen behind in the highly competitive global contest for automotive investment.

"This is just another message to all the stakeholders – government, business, labour, communities – that confirming the next round of investments in our plants is a historic priority," said Jim Stanford, economist with Unifor, the union that represents assembly line workers at the Canadian units of the Detroit Three.

Auto makers have assembled about 1.6 million vehicles in Michigan this year, compared with about 1.5 million in Ontario. Forecast data published by consulting firm WardsAuto/AutomotiveCompass show Michigan on pace to build 2.45 million vehicles by the end of the year, a 9-per-cent increase from 2012 levels and ahead of the forecast for 2.34 million built in Ontario.

Both Ontario and Michigan are up against Mexico, which surpassed them during the 2000s and is gaining billions of dollars in new investment by Europe and Asia-based auto makers that will lead to increased output later this decade.

There have been some positive developments at the Ontario plants, including the recent announcement of a $700-million investment by Ford Motor Co. at its Oakville, Ont., plant and production increases by Toyota Motor Manufacturing Canada Inc. in Cambridge and Woodstock factories.

But those amount to just a fraction of a 3.5 million vehicle boost to production that will happen in North America during the next several years.

About one-third of that capacity is being added in low-cost Mexico. Meanwhile, about three-quarters of the jobs being added at factories operated by the Detroit Three are so-called Tier 2 workers who earn about half the wages and benefits of longer-serving employees, Morgan Stanley auto analysts said in a research report.

"This indicates the [auto makers] want to make more cars, but they want the ability to turn off the lights when the music stops," the analysts said in a report on the industry this week.

Ontario's drop below Michigan comes amid other indicators that show the recovery in auto parts and vehicle manufacturing is weak, even as vehicle sales in Canada are poised to hit a record. Statistics Canada data issued earlier this week showed the trade deficit in automotive products widened to $1.37-billion in August, from $1.08-billion a year earlier.

Nonetheless, Ontario Economic Development Minister Eric Hoskins said he believes the industry is healthy in Ontario.

"We believe we've got all the right measures in place to ensure that Ontario remains a competitive environment and a place where the auto sector is going to want to invest and produce," Mr. Hoskins said.

The strength of the Canadian dollar is to blame for Canada's declining position in North American auto manufacturing, said Doug Porter, chief economist of BMO Nesbitt Burns Inc.

"It's the fact that the loonie has continued to fly around the parity level for most of those six years that has slowly but surely prompted investment dollars to drift away from this country," Mr. Porter said.

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