Canada’s auto industry driving towards increased profits

Production expected to grow by 2.5%; weaker loonie will increase profits to $2.3 billion this year.

June 25, 2015   by PLANT Staff

OTTAWA — Thanks to record North American sales and the lower Canadian dollar, Canada’s auto manufacturers will likely see their highest profits in years in 2015, according to The Conference Board of Canada Spring 2015 Industrial Outlook.

Industry profits are forecast to reach $2.3 billion in 2015, up from $1.3 billion in 2014.

Vehicle sales in Canada have posted a new record in each of the last two years but may be reaching a saturation point. A weak labour market and the adverse effects of the collapse in oil prices on the Alberta economy have slowed sales in Canada. However, south of the border where the labour market remains robust and pent-up demand is high, strong sales growth is expected to continue until at least 2017.

On the production side, the Canadian industry has been parked in the neutral position since the start of 2015 as two plants were retooling in preparation for the production of new models. However, production is expected to rebound strongly in the second and third quarters and overall production is expected to grow by 2.5% this year, supported by the depreciated dollar and the resurgent popularity of light trucks, which make up about 60% of the vehicles produced in Canada.

Auto suppliers have work to do to keep pace globally

Beyond 2015, the outlook gets dimmer. The end of the Camaro production in Oshawa, Ont. by November and the likelihood of further layoffs at the plant in 2016 mean that Canadian production will decline in both 2016 and 2017.

Industry costs are expected to rise by 3.9% this year due to a combination of increased production and higher material prices. From 2015 to 2019, costs will grow by just 1.5% per year. Labour costs, however, are projected to grow very slowly due to more senior employees retiring, continued labour productivity improvements and low interest rates.

Motor vehicle parts producers will benefit from the lower loonie and stellar North American vehicle sales this year.

Profits are expected to grow by 3.1% to about $2 billion, thanks to a strong sales growth. Over the next few years, as domestic vehicle production declines and pent-up demand in the US wanes, profits are expected to gradually decline to around $1.5 billion per year.

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