Perfect Storm Wrecking Canada's Auto Industry

Anthony Fontanelle
November 24, 2007

The increasing value of the loony may be good for most Canadians as they can afford to buy new cars and houses. But this rapid appreciation of the Canadian dollar is negatively affecting the Canadian auto industry according to auto parts and vehicle manufacturers based in Canada. They have gone so far as naming Canada as the most expensive country in the world to manufacture automobiles.

Mark Nantais, president of the Canadian Vehicle Manufacturers Association called the appreciation of the Canadian dollar as the perfect storm. "Today we are witnessing a perfect storm demarked by several threats and one which will make for a wild ride,' he said. "This perfect storm has a significant impact on Canada's ability to attract and maintain automotive investment and could severely impact our industry's footprint in Canada," he added.

With the loony on the rise, the number of new vehicles sold to Canadians has also increased sharply. But auto manufacturers in Canada are relying heavily in the past on their exported vehicles to the United States. But with today's exchange rate, exporting vehicles to the United States is no longer as profitable as it was before. The result of this of course is reduced profit.

This problem came after the Canadian auto industry has been hit severely by workforce reductions implemented by Detroit automakers. General Motors, Ford, and Chrysler have seen their share in the United States auto market shrink and have implemented their turnaround plans. These plans involve slashing down the number of vehicles that they are producing which in turn results to workforce reduction.

It is expected that by the end of this year, new vehicle production in Canada and the United States will be down by 1.2 million vehicles compared to 2003. This means that auto manufacturers are not the only ones affected but also auto parts manufacturers. Since they are tasked with manufacturing auto components like ABS control Canada, they would be depending on auto manufacturers on how much auto parts they need to produce. To date, 20,000 jobs in the auto parts manufacturing sector alone has been slashed.

David Adams, president of the Association of International Automobile Manufacturers of Canada said: "All sectors of the automotive industry -- assembly, parts manufacturing, and vehicle sales -- have been and will continue to be, adversely affected by the rapid appreciation of the Canadian dollar."

Adams' statement shows that even Japanese automakers are affected by the increasing value of the Canadian dollar. The AIAMC represents Honda and Mazda's Canadian manufacturing arm among others. The current crisis that the sector is currently experiencing is initially blamed by some legislators on the failure of Canadian companies to attract Japanese automakers. But Adams has shown that even Japanese automakers with auto manufacturing facilities in Canada are suffering from the "perfect storm".

Source:  Amazines.com