Rocky recovery

Last year, it seemed the Canadian auto industry had successfully navigated out of the doldrums caused by the economic recession, bankruptcies and government bailouts. Output rose spectacularly at all the firms that assemble vehicles on Canadian soil, with production passing the two million vehicle mark.

The future looked radiant and then in March 2011, a massive earthquake in Japan led to a devastating tsunami, chaos at the country’s nuclear plants and a manufacturing shutdown. Part shortages became acute, leading to talk of shift reductions or temporary closures at auto plants in Canada.

Combine the multiple disasters in Japan with turmoil in the Middle East (which has contributed to eye-popping oil prices) and a consistently strong Canadian dollar, the question becomes, have the good times come to an end? Is 2011 going to be the year in which the optimistic expectations of 2010 are shattered?

In a word, no, say auto experts.

“The combination [of various calamities in Japan] is that we’re going to lose about 2.1 million units of global production in 2011... but of those 2.1 million units of net lost production, about 1.2 million will be in Japan itself and our North American numbers are only about 300,000 units... and of that, only 38–40,000 units are actually here in Canada. So, that’s not all that overly significant,” says Steve Rodgers, president of the Toronto-based Automotive Parts Manufacturers’ Association (APMA).

“People are taking a moment to review their global supply chains in light of this tragedy ... but I don’t think you’ll see the traditional domestics—Chrysler, Ford and General Motors—[experience] the extent of disruption that Japanese companies in North America will,” adds Mark Nantais, president of the Canadian Vehicle Manufacturers Association (CVMA), Toronto, which represents the “Big Three” auto manufacturers.

Asked if production at Canadian automotive plants will continue to increase in 2011 after the current round of troubles pass, and Rodgers is quick with an answer.

“Definitely,” he says.

Which is good news considering the vast scale of Canada’s automotive industry. A total of 550,000 Canadian jobs are directly or indirectly connected to vehicle manufacturing. At present, Canada boasts 11 light duty and three heavy duty assembly plants and roughly 540 OEM parts manufacturers.

According to CVMA figures, a total of 2,067,179 vehicles were produced in Canada last year, an astonishing 41.2 per cent jump from 2009, when 1,463,832 vehicles were made.

Some 71 per cent of production in 2010 (more than 1.3 million vehicles) came from Chrysler, Ford and GM plants, a nearly 50 per cent leap from 2009. Japanese firms Honda and Toyota, meanwhile, manufactured roughly 560,000 vehicles in Canada in 2009 and 740,000 in 2010.

The upsweep in production means the era of massive job cuts and permanent plant closures has come to an end, for now. Aside from the previously announced shuttering of Ford Motor Co. of Canada’s St. Thomas, ON, Assembly Plant scheduled for later this year, neither Rodgers nor Nantais are aware of any new, permanent closures.

The Japanese situation has led some plants to cut shifts but “that doesn’t mean you cut back on your workforce ... you cut back on overtime,” says Nantais.

GM of Canada remains top dog in Canadian auto manufacturing circles, turning out 527,799 vehicles in 2010 versus 348,672 in 2009, according to the CVMA. Established in 1918 and headquartered in Oshawa, ON, GM of Canada employs more than 9,000 people at the Oshawa Car Assembly Plant (home of the Chevrolet Impala and Camaro and the all-new 2011 Buick Regal), Oshawa Metal Centre (which makes 22 million parts a year for GM and other corporate clients), a powertrain facility in St. Catharines, ON, and the CAMI automotive plant in Ingersoll, ON, (which makes the Chevrolet Equinox and GMC Terrain).

Chrysler Canada was the second top auto manufacturer in 2010, producing 484,840 vehicles (up from 314,419 in 2009). Founded in 1925 and headquartered in Windsor, ON, Chrysler employs roughly 9,000 people and runs three manufacturing facilities: the Windsor Assembly Plant, the Brampton Assembly Plant and Etobicoke Casting Plant. Production of the new 2011 Dodge Charger and Dodge Challenger began at the Brampton plant in December, 2010. The new Chrysler 300 entered production in January of this year at the same facility. In April 2011, Chrysler cut back on overtime at plants in Ontario and Mexico, in the aftermath of the Japanese situation.

Rounding out the top three manufacturers, Toyota Motor Manufacturing Canada (TMMC) produced 459,049 vehicles in 2010, up from 319,548 the previous year. These figures come from the Toronto-based Japan Automobile Manufacturers Association of Canada (JAMA) and differ slightly from CVMA tallies.

Established in 1988, TMMC has 6,500 workers in assembly plants in Woodstock and Cambridge, ON, which turn out the Corolla Sedan, Matrix, Lexus RX 350 and RAV4. In March of this year, Toyota’s parent company stopped all production in Japan. Production resumed in mid-April 2011, but at half capacity. Toyota’s Canadian operations will likely see similar temporary shutdowns, but massive staff layoffs are not anticipated.

The Ford Motor Co. of Canada manufactured 316,053 vehicles in 2010, versus 237,952 in 2009. Established in 1904 and based in Oakville, ON, Ford is the oldest Big Three firm in Canada. The company currently runs two assembly plants and one engine plant and employs around 6,000 people. The scheduled closure of the St. Thomas plant will affect nearly 1,500 employees. In the wake of calamities in Japan, Ford has announced it will temporarily idle some North American plants.

Another Japanese newcomer—Honda Canada Manufacturing—made 278,272 vehicles in 2010, up from 259,796 the year before. Honda Canada Manufacturing was launched in 1986 and currently runs two assembly facilities and an engine plant in Alliston, ON. The Canadian branch of the company produces the Honda Civic Coupe, Sedan and Acura CSX, MDX and ZDX. Honda recently announced it was cutting back on production at North American plants due to a shortage of parts.

Looming over all auto assemblers and their suppliers is the strong Canadian dollar, currently above par with the US greenback, and steep oil prices.

“The simple fact is a strong Canadian dollar makes it cheaper for us to invest abroad ... [suppliers] should be thinking about becoming greater players in the global automotive economy,” states Rodgers, who suggests Canadian auto companies look for opportunities in growing manufacturing locales such as China, India and Thailand.

Some suppliers have already taken advantage of Canada’s mighty loonie: “The strong Canadian dollar has not harmed us [in fact] we’ve been getting a lot more work out of the US this last 12 months and are swamped,” says Peter Alden, co-owner of Wessex Precision Machining Ltd. in Ayr, ON.

Wessex’s share of automotive work has risen from about “five per cent auto related” last year at this time to “about 10 to 15 per cent auto-related” today, says Alden. “At the moment, we are making forming mandrels for mufflers,” he adds.

So far, the turmoil in Japan has not impacted Alden’s business, an observation seconded by David Foscarini, president of Mecon Industries Ltd. in Scarborough, ON. Roughly 50 per cent of the company’s output is auto related, “similar to last year at this time,” says Foscarini.

Mecon constructs, tests and assembles fixtures, tooling, conveyors and automation equipment for the automotive sector, as well as marine and aerospace customers.

Rodgers urges Canadian suppliers to keep their eye on two other intriguing trends, one very low-tech and the other at the cutting edge of high-tech.

The former involves “bio-fiber”—that is, plant material used as a substitute for oil resin in making plastic. The bio-fiber movement is already popular in Europe, where automakers utilize hemp, flax and kenaf, among other materials to make composite car panels. Advocates say it’s a logical next step for an industry that has already embraced ethanol, a fuel made from sugar cane or corn.

The use of bio-fiber “supports the agricultural community ... and reduces our reliance on oil-based resins,” notes Rodgers.

Given that oil prices are again soaring, in part because of violence and political turmoil in the Middle East, bio-fiber offers obvious, bottom-line benefits for car makers. As of April 11, a barrel of crude oil was going for $112, and no one is sure if the price will continue to rise or fall to more bearable levels.

“We’re looking for different ways to produce different parts and components to reduce [the weight of] vehicles ... bio-materials are definitely part of that,” chimes in Nantais.

Pushing the demand for lighter weight automobiles are US regulations, which fine American automakers who fail to produce sufficiently fuel efficient vehicles, adds Nantais.

Interestingly, the bio-fiber trend revives an old dream of auto pioneer Henry Ford, who experimented with making car doors and fenders from plant stock in the 1930s and 1940s.

On the opposite end of the technology spectrum, Rodgers says “connected vehicles” are becoming increasingly popular.

A connected vehicle amounts to something of a computer on wheels. Rodgers points to Ford’s “SYNC” system, an in-car connectivity feature that allows drivers to make phone calls, control music and receive directions and news reports solely by voice-command.

“The connected vehicle is a huge change in how vehicles are perceived by the public ... it represents a significant challenge but again, great opportunities for Canadian supplier companies,” says Rodgers.

He urges auto part makers to “simply be aware of the technologies, be aware how it impacts components they may be making.”

As for the near future, Canadian auto manufacturers and suppliers should also bear in mind that good prospects can come from terrible events.

“It’s going to be an interesting time. We know that there’s certainly an opportunity for more outsourcing from Japan,” notes Rodgers. CM

Nate Hendley is a regular contributor and freelance writer based in Toronto.