What’s left in the auto manufacturing tank?
Record sales are boosting production, but investments in Mexico and the US will wreak havoc on Canada's sector.
TORONTO – A sharp rebound in US auto sales and growth in the Canadian and Mexican markets has led to an 18% increase in North American automotive production, with double digit increases seen in all three countries.
Production in 2012 totalled close to 15.4 million units, reaching the highest level seen since 2005, according to a report from TD Economics.
To a lesser extent, unfavourable exchange rates around the world – in Japan especially – also helped to give North American production a boost, as automakers have been shifting more production here, moving toward a ‘build where you sell’ model. The Detroit-3 automakers, however, lost market share of sales last year. The production-to-sales ratio across the continent was 90%, up from the 80% that was typically seen in the years leading up to the recession, and the highest level seen since 1997.
Foreign automakers now represent roughly 45% of auto assembly output in North America.
With the outlook for US auto sales over the next few years positive, expected to reach the 16 million unit mark by the end of 2013, the TD report expects North American automotive manufacturing to continue to grow as well, albeit, like sales, at a slower pace than seen in 2012. The increase, however, will not be spread evenly throughout the continent. In both Mexico and the US, production of light vehicles is expected to record further healthy gains over the next few years. In contrast, the number of vehicles assembled in Canada is likely to hold relatively steady compared to last year’s turnout.
Other highlights include:
- While auto production in Canada has nearly returned to pre-recession levels, there is not much fuel left in the tank. New investment is going to Mexico, and to a lesser extent, the US, suggesting that Canada’s share of North American production will shrink. The same holds true for the auto parts sector.
- Although some headway has been made through new labour contracts and government support, competitiveness remains a key challenge for Canadian auto manufacturers.
- Parts producers perhaps have more upside potential, given that global auto production is expected to expand, and there are pockets within the auto parts industry that offer opportunities for growth.