Canadian auto parts industry rebounds but still room for growth

TORONTO—The Canadian auto parts industry performed well last year in select markets including the United States and Mexico, as well as advances in sales to India and South Korea, according to a new Scotiabank report.

The financial firm’s Global Auto Report found the nation’s auto parts sector posted a double-digit increase in 2012 after a meager three per cent gain in 2011.

The gain didn’t help the Canadian sector recapture a top 10 spot among the world’s export ladder, though, as it finished the year in the 11th spot.

The last time Canada cracked the top 10 was 2007, when it was the world’s eighth largest parts exporter, according to Scotiabank.

“The Canadian auto parts sector is still searching for a strategy that will enable it to benefit from the rapid growth occurring outside of the mature auto market of North America,” Scotiabank senior economist and auto industry specialist Carlos Gomes.

Gomes noted Canada also relies heavily on parts imports, with each Canadian-built vehicle containing close to $15,000 in foreign parts—almost double the global average of $7,400.

Last year’s improvement reflects a double-digit increase in auto parts exports to Mexico and a seven per cent gain in shipments to the U.S., as well as solid advances in sales to India and South Korea.

However, outside of these countries, offshore shipments were largely flat, according to the report.

According to the numbers, 98 per cent of Canadian auto parts shipments still remain in North America—either in Canada, or exported to its NAFTA partners—a level in line with the average of the past several decades.

However, the nation’s share of global vehicle production has slumped sharply, falling to 19 per cent in 2012, down from one-third of global output in the late 1990s.

Despite last year’s improvement, Canadian auto parts exports are still 20 per cent below the level prevailing at the top of the previous economic cycle in 2007—one of the worst performance among the top auto parts-exporting nations.

In contrast, U.S. and global auto parts exports are more than 20 per cent above the previous cycle peak in 2007.

Foreign sales of auto parts by competitors such as Mexico have surged a stunning 44 per cent over this period.

Aside from the lack of an effective export strategy outside of North America, Canada is also heavily reliant on imported auto parts.

While the nation’s status as a top global auto manufacturer is being challenged by developing nations, Canada’s auto parts industry has consistently been among the top three importers in the world behind the U.S. and Germany.

As a result, Canadian-made vehicles have the highest content of imported parts among the major vehicle-producing nations.

Each vehicle assembled in Canada contains at least 25 per cent more imported parts than vehicles built in either the U.S. or Mexico, according to Scotiabank.

The financial firm estimates cars and trucks assembled in the U.S. contain an average of $11,000 in imported parts.

The foreign-content of Mexican-built vehicles is marginally lower, averaging $10,500 per car and truck.

Scotiabank said the higher import content for models built in Canada and the U.S. reflects the large two-way trade between the two countries in semi-finished auto parts.

It said bilateral auto parts trade between Canada and its neighbour to the south totals roughly $40-billion per year—more than three per cent of the $1.2-trillion in global auto parts trade.

Engines are the largest component of auto parts imported into Canada, accounting for nearly one-quarter of the sector’s overall imports.

Despite several top-notch engine plants in Canada, Scotiabank said over 80 per cent of all vehicles built in Canada contain imported engines.

Transmissions and electrical systems are the next categories of auto parts heavily imported into Canada, which Scotiabank estimates account for roughly half of Canada’s overall auto parts imports combined.