Study: Canada's changing auto industry

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One of the most significant changes in the global economic landscape over the last two decades has been the shift by overseas firms of their auto production to North America, following their success in sales. Still, the auto industry in Canada remains on a solid footing according to a new article published today in Canadian Economic Observer. The Asian auto manufacturers have sustained output, investment and employment in this industry at a high level, with the prospect for future growth.

The downsizing of the traditional Big 3 firms has been widely-publicized, reflecting the traumatic impact on their employees and their suppliers. Less appreciated, however, is how rapidly overseas firms have ramped up production in Canada to offset many of these losses.

Japanese-based manufacturers have filled much of the gap left by the traditional North American automakers in production in Canada. In 2006, Japanese automakers produced just over 900,000 automobiles in Canada, double their level in 1998. As a result, their share of the domestic market in production jumped from 16% to more than one-third (36%) during this period. This followed a similar trend in sales.

Also, previously unpublished data reveal that these new domestic auto manufacturers behave like the traditional North American firms in terms of exports and imports.

While exports by the traditional North American manufacturers tumbled, exports by the Japanese-owned manufacturers picked up much of this slack. Exports of the traditional North American firms peaked at $51.0 billion in 1999, before falling by almost one-third since then. However, exports of the new Japanese-owned manufacturers rose by one-third, from $10.1 billion in 1999 to $15.9 billion in 2006.

In 2006, the net exports of new domestic manufacturers equalled 68% of the net exports of the Detroit-based manufacturers: as recently as 1997, their share was negligible. Only a shortage of production capacity slowed the growth of their net exports in 2006.

Meanwhile, the behavior of the new domestics and traditional producers in importing parts are comparable. In the mid-1990s, overseas-based manufacturers imported auto parts in such large numbers that they offset their growing revenues from auto exports. Since then, however, the situation has completely turned around, with Japanese-owned manufacturers posting a surplus of $5.9 billion in 2006. These new domestic auto makers used fewer imported parts in their vehicle exports than the traditional Big 3.

Imports into Canada by the traditional North American manufacturers increased much more than imports by the new domestics from 1997 to 2004, before shortages forced the direct importation of more vehicles from overseas. Like the traditional North American manufacturers, the new domestic manufacturers ship most of their exports to the United States.

On the whole, Canadian consumers are now buying almost as many overseas models as North American brands. In the car segment, more overseas brands than North American have been sold in Canada every year since 2001. This gap is growing.

Even in the popular sport utility vehicle segment, overseas brands have practically caught up with the traditional Big 3.

The study "Canada's changing auto industry" is now available for free online. The study is also included in the May 2007, Internet edition of Canadian Economic Observer, Volume 20, no. 5 (11-010-XWB, free), which is now available. The monthly paper version of Canadian Economic Observer, Volume 20, no. 5 (11-010-XPB, $25/$243) will be available on May 24.

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For more information, or to enquire about the concepts, methods or data quality of this release, contact Francine Roy (613-951-3627; ceo@statcan.gc.ca), Current Economic Analysis Group.