Time to hit the road

There's major growth in Asia-Pacific markets. Canadian automotive parts manufacturers need to be there.

Go global.

That’s the call from Canada’s auto parts industry experts and key players as the sector continues its recovery.

Keynotes from Toyota’s Ray Tanguay, chairman of the automaker’s Canadian manufacturing operations and Magna International CEO Don Walker at this year’s Automotive Parts Manufacturers’ Association (APMA) conference were similar, calling on the country’s parts manufacturers to boost operations abroad and leverage Canada’s strong manufacturing labour force to boost competitive advantage.

“It won’t do to stick in Canada,” said Tanguay, at the annual conference in Windsor, Ont. “To succeed today, you have to go global.”

APMA president Steve Rodgers concurs. “Competitive opportunities lie outside the NAFTA region,” he said.
For an industry in recovery devastated by recession, globalization would boost lucrative opportunities for companies hoping to diversify operations. Walker said Magna will have more than 45 facilities in China and Brazil operational by 2014. By then, North American production will represent less than 50% of the Aurora, Ont.-based manufacturer’s total output.

This year, the North American automotive industry is expected to produce 14.7 million vehicles, according to Michael Robinet, managing director at Colorado-based automotive consultancy, IHS. In terms of growth, he expects sales of light vehicles to skyrocket, making up 39% of total sales between 2010 to 2017. From 2002 to 2007, that segment represented only 23% of output.

OEMs are also expected to lower production costs and speed up supplier cycles by boosting cross-segment modularity techniques to handle several vehicle segments on single platforms.

“Tightening emissions regulations have tightened platform development,” said Robinet. “Economies of scale are no longer vertical.”

Perhaps most telling about this industry in transition, however, is Tanguay’s concession that Toyota will slow production in its native Japan, which could be a good thing for Canada considering the automaker’s already prominent presence in Ontario.

Tanguay says 60% of Toyota’s overall production will come from outside of Japan. He also hinted a new Lexus product could be on its way to the company’s Woodstock, Ont. facility, where it produces the Toyota RAV4 SUV. In April, the automaker invested $80 million to boost the plant’s RAV4 production by 50,000 units a year. More recently, it pumped $100 million into its Cambridge, Ont. facility creating up for to 400 jobs and boosting production of its Lexus RH350 and RH450 luxury SUVs by 30,000 units.

It’s clear Canada’s auto sector has an ally in Toyota, and despite the potential of a new Lexus product eventually coming to Canada and the benefits it would provide the industry, there’s still a number of roadblocks the industry needs to overcome, Rodgers says.

“We’re still coming from behind, we’re still fighting a difficult situation with respect to the overall competitiveness of Canadian manufacturing,” said Rodgers in an interview, citing ballooning labour costs, coming up short on innovation and looming labour shortages that account for the sub-par investment profile Canada’s sector currently presents.

There’s also upcoming labour negotiations with the Canadian Auto Workers (CAW) union that could have a major impact on Canadian competitiveness. Rodgers says prosperity will depend on the union’s willingness to make concessions.

“The union needs to respond with a package that meets the needs of the industry,” he said.

Industry success will come down to whether or not the CAW understands that auto workers are the roadblock between production going up in Canada or slipping further, he adds.

“If they’re responsive, production will go up,” he said. “If not, we can count on production continuing to leave Canada.”

Robinet says two more Canadian plants will close if negotiations go sour.