Canadian auto industry revving up

Industry leaders and the Canadian government are joining forces to help secure Canada’s multi-billion dollar automotive sector as competition heats up from manufacturers in the United States and Mexico.

According to Carlos Gomes of Scotiabank, Canadian auto sales climbed a higher-than-expected 3% in 2015 to a record high of 1.9 million units. Automotive exports from Canada are growing strongly, with manufacturers in Quebec, Ontario and Columbia reporting gains over 2014, according to Gomes. The Canadian automotive industry is integrated into NAFTA (Canada, U.S., Mexico), and is the eighth-largest in the world. A major contributor to the Canadian economy, it employs over half a million people.

In the most recent win for the Canadian auto industry Premier Kathleen Wynne joined Canadian Prime Minister Justin Trudeau and General Motors executives to announce that General Motors has chosen Ontario, Canada to significantly expand its engineering and software development work. The company’s investment will also boost the province’s economy and create more than 700 jobs. In addition to the investment, General Motors will build a major software development center in Markham Ontario, and upgrade its cold weather testing facility in Kapuskasing in the Cochrane District of northern Ontario. This will double the length of its test track.

“GM selected Ontario to be a key software engineering hub for the future because of its wealth of talent and focus on innovation. Ontario is a leader in STEM graduates, artificial intelligence and mobile security and has shown its commitment to taking a regulatory approach that enables innovation,” said Stephen Carlisle, President and Managing Director, General Motors of Canada at the announcement.

Ontario is the only sub-national jurisdiction to have five major global automotive assemblers: Chrysler, Ford, General Motors, Honda and Toyota. Ontario has been a longstanding and proactive partner to the automotive sector, investing over $1.1 billion since 2004 to leverage more than $12 billion in total industry investment.

The province is also the first in Canada to allow on-road testing of automated vehicles to help foster the development and commercialization of disruptive technologies that will define the industry’s future.

These reflect how government is supporting Canadian auto makers to adapt to changes in the global auto sector: “Although public policy played a critical role in the automotive industry’s development worldwide in the mid-20th century, many Western governments came to eschew such industry support. The 2008-9 financial crisis challenged this way of thinking and many governments began experimenting with new tools of industrial policy. These policies are altering the global economic and political landscape of the automotive industry. For Canada to secure a future in this rapidly-changing landscape of automotive manufacturing, a consensus is beginning to emerge that a more activist role for government is necessary,” says an excerpt from the APRC (Automotive Policy Research Centre) report written by Charlotte Yates, Principal Investigator, APRC.

Canada’s government has historically been very supportive of the nation’s automotive manufacturers. In 2008, the Automotive Innovation Fund (AIF) provided $250 million over five years to support automotive firms’ strategic, large-scale research and development (R&D) projects to build innovative, greener, more fuel-efficient vehicles. On January 4, 2013, the prime minister announced the renewal of the AIF, with an additional $250 million over the next five years. On February 11, 2014, the government of Canada announced an additional $500 million over two years (2014–2016) to support significant strategic research and development projects and long-term investments in the Canadian automotive sector through the Automotive Innovation Fund.

Canada’s Economic Action Plan 2015 proposed the provision of $100 million over five years, starting in 2015–2016, for the creation of the Automotive Supplier Innovation Program to help Canadian automotive suppliers gain a competitive edge through new innovative products and processes. The program supports product development and technology on a cost-shared basis with participating firms. The Automotive Supplier Innovation Program complements existing initiatives supporting the automotive sector, according to a Canadian government statement.

One of the beneficiaries of the AIF was Toyota Motor Manufacturing Canada. In July 2015, the Federal Economic Development Agency for Southern Ontario announced a repayable contribution of up to $59 million, which would enable Toyota Canada in investing in a project to use advanced lightweight materials to secure production of Lexus vehicles in Canada.

Toyota Canada is one Canada’s major automotive manufacturers. The company operates three assembly lines in Ontario (two in Cambridge, one in Woodstock). The three lines employ more than 8,000 workers and produce more than 579,000 vehicles annually. The Cambridge plant is Toyota’s only facility outside Japan to manufacture the Lexus vehicle.

Earlier Ford of Canada received a $250-million for a five-year program titled Project Northern Star through the AIF. Project Northern Star aims at strengthening research and development at Ford to transform its Oakville Assembly plant by installing a global platform, and keep Canada’s automotive sector innovative and globally competitive. “Ford’s investment demonstrates Canada can be competitive in the global market through strategic partnerships,” said Dianne Craig, President and CEO, Ford Motor Company of Canada in a 2013 statement. “Working closely with government and labor, we have secured a bright future for our employees at Oakville Assembly.”

A major development has been the signing of the Trans Pacific Partnership or TPP, which is a yet-to-be-ratified trade agreement among twelve countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. China is not a signatory. Although the Government of Canada has agreed to sign the TPP, there is no guarantee the agreement will be ratified, according to a report by the Automotive Industries Association of Canada. If the agreement is ratified it will lower tariffs on imported auto parts coming into Canada, lower tariffs on Canadian auto parts being exported to TPP countries, and lower the North American content required in vehicles and parts, according to the report on threats and opportunities in the TPP.

Automotive suppliers are an integral part of Canada’s automotive footprint and success. In order to stay competitive, these companies, many of which are small and medium-sized enterprises, must make new product development the cornerstone of their business strategies, according to the Canadian Automotive Parts Manufacturer’s Association (APMA). Vehicle manufacturers are demanding a supply of innovative products to meet new fuel efficiency, emission and safety standards and address the growing consumer interest in connected and automated vehicle technologies. Suppliers that can demonstrate an ability to meet these demands will not only succeed in winning business from domestic manufacturers, but will be well positioned to market their solutions globally, says APMA.