Automakers must look beyond North America.
August 14, 2012
by Matt Powell, Assistant Editor
That’s the call from Canada’s auto parts industry experts and key players as the sector continues its recovery.
Keynotes from Toyota’s Ray Tanguay, chairman of the automaker’s Canadian manufacturing operations and Magna International CEO Don Walker at this year’s Automotive Parts Manufacturers’ Association (APMA) conference were similar, calling on the country’s parts manufacturers to boost operations abroad and leverage Canada’s strong manufacturing labour force to boost competitive advantage.
“It won’t do to stick in Canada,” said Tanguay, at the annual conference in Windsor, Ont. “To succeed today, you have to go global.”
APMA president Steve Rodgers concurs. “Competitive opportunities lie outside the NAFTA region,” he said.
For an industry in recovery devastated by recession, globalization would boost lucrative opportunities for companies hoping to diversify operations. Walker said Magna will have more than 45 facilities in China and Brazil operational by 2014. By then, North American production will represent less than 50% of the Aurora, Ont.-based manufacturer’s total output.
This year, the North American automotive industry is expected to produce 14.7 million vehicles, according to Michael Robinet, managing director at Colorado-based automotive consultancy, IHS. In terms of growth, he expects sales of light vehicles to skyrocket, making up 39% of total sales between 2010 to 2017. From 2002 to 2007, that segment represented only 23% of output.
OEMs are also expected to lower production costs and speed up supplier cycles by boosting cross-segment modularity techniques to handle several vehicle segments on single platforms.
“Tightening emissions regulations have tightened platform development,” said Robinet. “Economies of scale are no longer vertical.”
Perhaps most telling about this industry in transition, however, is Tanguay’s concession that Toyota will slow production in its native Japan, which could be a good thing for Canada considering the automaker’s already prominent presence in Ontario.
Tanguay says 60% of Toyota’s overall production will come from outside of Japan. He also hinted a new Lexus product could be on its way to the company’s Woodstock, Ont. facility, where it produces the Toyota RAV4 SUV. In April, the automaker invested $80 million to boost the plant’s RAV4 production by 50,000 units a year. More recently, it pumped $100 million into its Cambridge, Ont. facility creating up for to 400 jobs and boosting production of its Lexus RH350 and RH450 luxury SUVs by 30,000 units.
It’s clear Canada’s auto sector has an ally in Toyota, and despite the potential of a new Lexus product eventually coming to Canada and the benefits it would provide the industry, there’s still a number of roadblocks the industry needs to overcome, Rodgers says.
“We’re still coming from behind, we’re still fighting a difficult situation with respect to the overall competitiveness of Canadian manufacturing,” said Rodgers in an interview, citing ballooning labour costs, coming up short on innovation and looming labour shortages that account for the sub-par investment profile Canada’s sector currently presents.
There’s also upcoming labour negotiations with the Canadian Auto Workers (CAW) union that could have a major impact on Canadian competitiveness. Rodgers says prosperity will depend on the union’s willingness to make concessions.
“The union needs to respond with a package that meets the needs of the industry,” he said.
Industry success will come down to whether or not the CAW understands that auto workers are the roadblock between production going up in Canada or slipping further, he adds.
“If they’re responsive, production will go up,” he said. “If not, we can count on production continuing to leave Canada.”
Robinet says two more Canadian plants will close if negotiations go sour.
“The CAW negotiations will be a major driver in what happens in Canada in the next five years,” he said.
Indeed, General Motors (GM) recently announced the closing of one of its Oshawa, Ont. plants, potentially cutting 2,000 Canadian jobs and moving Chevrolet Impala production to Hamtramck, Mich.
The automaker has cut 10,000 Canadian jobs since the recession, shuttering two plants in Oshawa and Windsor after Canadian governments invested $10.5 billion keep the company on its feet.
Meanwhile, investments in the BRIC countries and Mexico are a-plenty, thanks in part to cheap labour and inflated R&D budgets.
But Rodgers is reluctant to throw in the towel.
“There’s a ton of opportunities in Canada,” he said. “We’re still producing 2.3 million vehicles here. Logistically, it makes sense to be here and we’ve got an incredibly talented labour force.”
Indeed, most of Canadian vehicle production is confined to an area so small, it can be driven in less than five hours.
“Canadian auto production is contained to the area between Windsor and Oshawa. It’s a tight range compared to other areas like China and India, which may have more producers, but they’re spread out across massive distances,” he said.
Canadian suppliers would benefit from expanding their scope to emerging markets. Rodgers expects the global automotive sector to produce about 80 million vehicles this year, up from 50 million in 2002. There’s obviously growth, but he estimates 60% of that is coming from Asia-Pacific markets.
“Canadian firms need to go there,” he said. “It’s not just about going to every country in Asia, it’s about realizing where your customer is going. But that doesn’t mean you have to leave Canada.”
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This article appears in the July/August 2012 edition of PLANT