Decline in Canadian auto parts content should shift industry focus to innovation

TORONTO—Canada is contributing a meager amount of material to North American-built cars in an era where in-car content is on the rise, according to an analyst, and innovation is key to an industry rebound.

On the back of a strong Canadian dollar and minimal investment in growth, Canadian auto parts content per vehicle built in North America dropped to a dismal 7.5 per cent in 2012, according to Dennis DesRosiers, down from 9.9 per cent in 2007, and down $200 from 2010 to $1,340.

While still more than the $1,152 per vehicle mark the national industry hit in 2000, Canada is quickly losing ground to nations like Mexico and China, which are seeing their contributions skyrocket.

Chinese content per vehicle built in North America has risen from only $65 in 2000 to $903 in 2012—a near 1,300 per cent jump.

According to the data, Mexican content per vehicle has risen from $1,084 dollars to $3,195 dollars per vehicle in the same time frame.

“(It’s) a factor, there’s no doubt about it,” Automotive Parts Manufacturers’ Association (APMA) president Steve Rodgers said of the Loonie’s influence on the drastic increase in Mexican production. “In picking locations for new products, in some instances it’s better to pick a single location for a high-volume run rather than building three separate sets of tools.

“When the Canadian dollar is weak you might have more desire to do that in Canada, (but) now there might be a greater incentive to do that in Mexico.”

Rodgers said another factor in the decline is that increased vehicle production in nations like Mexico means reduced logistics costs if parts facilities are located close by.

It’s a simple numbers game, according to Rodgers.

In previous years, automakers had about 80 to 85 per cent of non-U.S. North American production in Canada, so it was easy to ship the remaining 15 to 20 per cent of parts to Mexico for assembly.

Now, with Mexican production expanding rapidly, the roles are reversed, and it’s easier to source parts closer to the assembly destination country and ship the remaining percentage to Canada.

According to Rodgers, though not a major factor, the changing landscape of in-vehicle content could also be playing a role in Canada’s declining contribution.

“If you take a look at things like electronics features, some of that technology that represents a greater portion of the cost of the vehicle has not been where our historic strengths are,” he said.

Regardless of what has led to the decline, Rodgers said the time is now for Canada to bounce back to its former glory.

With the exchange rate and facilities investment in an almost “fixed” state for the foreseeable future, Rodgers said the national industry needs to focus on new technologies in order to increase Canadian parts content.

“We need to being doing a better job (with) innovation,” he said. “We need to be finding those components where we’re really competitive.”

Wiring harnesses, for example, are very labour-intensive and can be assembled anywhere in the world.

But with new environmental standards and regulations coming into effect in the future, Canada could cement its foothold in more advanced parts development and production.

“We should be focusing on those innovations surrounding lightweighting, the autonomous car—all of those types (of) technologies,” Rodgers said. “We really need to be focusing on those areas.”