Canadian Auto Parts Manufacturer Sees Tough Times Ahead

Anthony Fontanelle
November 19, 2007

The strong Canadian dollar may be a sign that the country's economy is getting better but it does not necessarily mean that it does not affect some sectors negatively. Case in point is the auto parts manufacturers based in Canada. With the loonie's value always on the rise, they would not be able to ship their product out of the country and into the United States and selling them for a profit.

In fact, it is widely believed that if the Canadian dollar continues its upward surge, Canadian auto parts suppliers will only be able to ship their products to auto assembly facilities in Canada only. In the past, manufacturers can mass produce auto parts at a lower cost and then export them to the United States. Through this practice, they were able to turn in huge profit. But with the loonie's value now almost at par with the greenbacks, shipping auto parts from Canada would cost manufacturers much thus making their profit much smaller.

Troubling news for the automotive sector in Canada is the increasing number of auto manufacturing facilities in Canada being shut down. Automakers are moving production to Mexico where they can pay workers less than what they will pay for Canadian workers. Since Mexico is just as near as Canada to the United States, it is the best choice for automakers. This will negatively impact auto parts manufacturer as they will have significantly less auto assembly facilities in Canada to supply them with auto parts like the AC condenser Canada. Instead, they will be forced to ship their products to either Mexico or the United States and expect less profit.

The auto parts sector in Canada has already been battered even before the rise of the loony. With General Motors, Ford, and Chrysler showing signs of decline in terms of sale in the United States auto market, the three automakers decided to cut down production. That means less auto parts will be needed. This resulted to layoffs not only from the automakers' facilities but also in the auto parts manufacturing sector.

Earlier this month, Buzz Hargrove, the president of the Canadian Auto Workers union or CAW, asked the government to take some steps to help the ailing industry. Experts though pointed out that the rising value of the loony is no longer in the hands of the government.

The problem of the auto parts manufacturing sector in Canada is now being blamed on the sector itself. Experts pointed out those auto parts suppliers have been dependent on contracts from the Big Three of Detroit. They have failed to secure contracts with surging Asian automakers like Honda and Toyota.

Source:  Amazines.com