Pressure from Mexico, Southern US and CAFE requirements provide growth potential for auto parts manufacturers, conference hears.
June 4, 2015
by Matt Powell, Associate Editor
WINDSOR, Ont. — The North American automotive sector is undergoing a profound change, and it’s happening quick.
With impending and stricter US fuel emissions standards, more automaker investment heading to Mexico, emerging markets in the southern US and elsewhere, plus new materials adoption and the processes needed to integrate them affordably, there are opportunities for Canadian auto parts suppliers to play a critical role in an increasingly global environment, but they will need to shift into a higher gear to keep pace.
The mood at the 2015 Automotive Parts Manufacturers’ Association (APMA) annual conference in Windsor, Ont. was particularly upbeat. The sector is in pretty good shape after all, despite increasing external pressures, but now is not the time to relax.
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To capitalize on improving global economic conditions, Canadian auto suppliers must get out of their comfort zone in the US and explore emerging markets, improve their presence in Mexico and demonstrate their ability to provide OEMs with the parts and processes they need to meet incredibly strict CAFE fuel emissions requirements by 2025.
Despite the calls to explore export markets outside of the US, Export Development Canada’s (EDC) chief economist Peter Hall said Canada’s largest trade partner will be critical to driving global growth thanks to pent-up consumer demand.
“Macro-economic conditions that we didn’t see as driving growth in the US,” he said. “There’s a crisis there, but it’s a crisis of growth – capacity there has been tapped out.”
Low oil prices, he added, will also benefit net importers of energy such as the European Union, which anticipates $122 billion in savings and drive consumer demand. If that’s the case, there will be opportunities for Canadian firms if they’re willing to navigate European markets thanks to the Comprehensive Economic and Trade Agreement.
EDC predicts auto parts exports to the EU could increase by 28.8% as a result of CETA. Auto parts represent 11.6% of Canada’s total exports, worth $67.9 billion. But just 5% of those exports are shipped to emerging markets. Hall said he expects the sector to grow by 13% this year, but it will flatten out in 2016 with just 1% growth, the result of increased capital investments and impact from processing skills shortages.
Michael Robinet, managing director at Douglas County, Co.-based IHS Automotive, believes the sector’s shift is being led by geographic factors as more OEMs and suppliers move to the southern US and Mexico to take advantage of jurisdictions ripe with government incentives.
“Everything has moved about 350 miles south in the US,” said Robinet, addressing the crowd of about 400 industry executives and association partners.
By the end of this year, he estimates more than 50% of North American automotive production will take place south of Ohio. Mexico’s share of production will grow to 4.8 million units by 2020 (up from 2.2 million in 2010), while Canada’s production will slide to 1.8 million in 2020 (down from 2 million in 2010).
The Detroit Three’s (Chrysler, Ford, General Motors) will also slip to less than 50% of the NAFTA pool by 2020 from a high of 77% in 2000, Robinet said.
And although Mexico has taken a large bite out of Canada’s NAFTA auto production, it wants Canadian expertise and suppliers to meet the demands of its growing sector.
Oscar Albin, executive president of the National Industry of Auto Parts Mexico, its version of the APMA, said the nation needs to pad its engineering and R&D expertise to maintain its promising growth patterns in the auto sector. Mexico exports 79% of its auto production and the sector represents 17% of its manufacturing GDP, he added.
It has also worked to diversify its export markets. In 2002, the US imported 85% of Mexico’s total exports, but that number had decreased to 71% by 2014. By 2021, Mexico will account for 27% of total NAFTA auto production, totalling 5 million units.
Albin said R&D amounts to just 0.4% of GDP, but Mexico wants to double that figure to 1%, adding that the availability of good technicians and engineers is a challenge – a gap Canadian firms could fill.
Lightweighting was also a topic du jour, taking up the majority of an afternoon session headlined by the head of composites for the UK’s McLaren Automotive Ltd.
Marcello Grassi said there’s major opportunities in carbon fibre and other advance composites for automotive applications, but costs remain an impediment to mass industry adoption. He estimates the price of carbon fibre per kilogram will need to drop from $30 to $10 for OEMs to integrate the material into their production vehicles affordably.
New manufacturing processes, recycling abilities and repairability are factors he said must be ironed out before automakers can realistically consider the material. He anticipates that won’t happen until at least 2025.
CAFE fuel emissions requirements are a driving force behind the industry’s efforts to find new materials and processes, but the industry’s progress so far is concerning for Mark Stevens, project manager at the Centre for Automotive Research (CAR) based in Ann Arbor, Mich.
The Obama Administration’s Corporate Average Fuel Economy (CAFE) standard rises to 54.5 miles per gallon in 2025, from the industry’s current commitment of 35.5 mpg by model year 2016.
“If we change nothing, just 30% of the vehicles produced in North America would meet CAFE requirements for 2016,” he said, adding the situation gets worse by 2020 when not one automaker in Canada or the US would meet requirements if progress isn’t made.
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A 10% reduction in vehicle mass translates to fuel savings of 6% to 7%, he added. It will, however, be the 163 grams of CO2 per mile that will be the most difficult to meet.
Ford’s 2015 F150 pickup truck is a bright spot, said Jeff Bladow, director of engineering at Kaiser Aluminum, headquartered in Foothill Ranch, Calif. The truck’s five-star NTHSA safety rating also proves the material’s viability in car and truck body and chassis applications.
Minister of State Gary Goodyear delivered the conference’s lunch keynote speech to tout the federal government’s $100 million Automotive Supplier Innovation Program, which was announced in April’s manufacturing-heavy federal budget.
He said the five-year supplier program will help primarily small- and medium-sized automotive manufacturers to support R&D, prototype development, engineering and product testing to bring Canadian-made components into the global automotive supply chain at a quicker pace.