Canadian auto parts shipments up 14% in 2014, according to report

TORONTO—Surging auto sales in the United States are driving the Canadian auto parts sector higher this year, according to a report, with shipments up 14 per cent so far in 2014.

Decade-high North American auto production and the depreciation of the loonie are also benefiting Canadian parts makers, according to the Scotiabank Global Auto Report, with shipments south of the border advancing 16 per cent, and a further 20 per cent to jurisdictions outside the U.S.

Sector employment has also jumped five per cent in the past year, the sharpest gain since 2000.

While vehicle production in Canada has been weakened this year by retooling for new products at a number of assembly plants, stronger-than-expected passenger car and light truck sales south of the border have prompted automakers to further boost fourth-quarter production for Canada, the U.S. and Mexico.

The financial institution expects North American vehicle assemblies to climb to a record 17.8 million in 2015, surpassing the previous peak of 17.7 million in 2000, and giving the Canadian auto parts industry a further boost through next year.

Exports up, imports down—for now

The sharp gain in auto parts exports this year—exports to Mexico have jumped 30 per cent over the past year and are approaching a $507-million peak hit in 2007—combined with largely flat imports due to retooling at assembly plants have helped slash Canada’s auto parts deficit to an annualized $18.1 billion.

That’s down from an average of $19.5 billion over the past years.

Scotiabank said a further deficit reduction is unlikely, however, as parts imports are likely to pick up as vehicle production ramps up here in the coming months.

Each vehicle built in Canada contains roughly $16,000 of imported auto parts, double the global average and at least 25 per cent higher than vehicles built in either the United States or Mexico.

By contrast, North American-built vehicles contain just $1,600 worth of Canadian-made parts, according to Scotiabank.

Diversifying states

As automakers move to establish U.S. production facilities outside the Rust Belt, Canadian auto parts are beginning to ship beyond their traditional destinations.

Auto parts exports destined outside of the traditional vehicle-producing states of Michigan and Ohio have shot up 20 per cent this year, according to the report—double the gain to the the Rust Belt.

Meanwhile, shipments to the lower Midwest and upper U.S. South—including Missouri and Tennessee—have increased 18 per cent over the past year.

These states now account for 30 per cent of all vehicles assembled in the U.S., and are the destination for almost 17 per cent of Canadian auto parts exports heading south of the border, up from 15 per cent in 2011.

Despite the increase in exports, Canadian parts content per vehicle assembled in those states is only $680, roughly 60 per cent below the North American average.

Shipments to the U.S. still remain 25 per cent than a decade ago, the report said.

Employment gains

While Canadian auto parts employment is up five per cent over the past year, the bigger story is the sector’s recovery from the recession.

Scotiabank’s report said employment is up a cumulative 22 per cent since bottoming out in 2009.

That’s in contrast to Canada’s overall manufacturing sector, which has struggled to add jobs lost since the economic downturn.

According to Statistics Canada, the manufacturing sector has lost more than 500,000 jobs in the nine-year period from 2001 to 2010.