Canadian Automotive Parts Sector:

An Overview John Holmes Tod D. Rutherford

Queen’s University Syracuse University

Kingston, Ontario Syracuse, New York

Canada USA

holmesj@queensu.ca trutherf@maxwell.syr.edu

APRC/APMA Meeting, Toyota Canada, Cambridge, ON.

Innovation and Commercialization

in the Automotive Parts Sector

October 20, 2014

Automotive Parts Sector: Canada

• Approximately 400 firms and 900-1000 establishments

• Employment (2013) 65,000

• Geographically concentrated in southern Ontario

• Highly integrated with automotive production in the broader Great Lakes Region (Michigan/Ohio/Indiana)

• Highly diverse sector:

• large Tier 1 global suppliers (some Canadian-based); many Tier 2 SME suppliers; automotive tooling (TDM) (mostly Canadian)

• very different sub-industries

Sub-Industries

• Statistics Canada NAICS 6-digit level: NAICS 336310 - Motor Vehicle Gasoline Engine and Engine Parts Manufacturing

NAICS 336320 - Motor Vehicle Electrical and Electronic Equipment

Manufacturing

NAICS 336330 - Motor Vehicle Steering and Suspension Components (except

Spring) Manufacturing

NAICS 336340 - Motor Vehicle Brake System Manufacturing

NAICS 336350 - Motor Vehicle Transmission and Power Train Parts

Manufacturing

NAICS 336360 - Motor Vehicle Seating and Interior Trim Manufacturing

NAICS 336370 - Motor Vehicle Metal Stamping

NAICS 336390 - Other Motor Vehicle Parts Manufacturing

NAICS 326193 - Motor Vehicle Plastic Parts Manufacturing

Sub-industry Employment Value of Shipments

Labour Productivity

Engines and Engine Parts (33631) 4 1 1

Electrical and Electronic Equip (33632)

Steering and Suspension (33633) 3

Brake Systems (33634)

Transmission and Powertrain (33635) 5 5 2

Seating and Interior Trim (33636) 3 3 5

Metal Stampings (33637) 2 2 4

Plastic Parts (326193) 1 4

Ranked Importance of Sub-Industries: 2012

Source: CANSIM 301-0006

Vehicle Sales and Production

• Vehicle Sales

• US and Canadian 2013 vehicle sales back to pre-recession levels

• Vehicle Assembly

• vehicle production down in Canada

• recovery in Great Lake States

• booming production in US South and Mexico

Automotive Parts Industry, Canada: 1990-2012

0

50

100

150

200

250

300

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Ind

ex 1

99

0=1

00

Production Workers Value Added/Worker Value of Shipments

Source: Industry Canada: Strategis

Recent Performance: Automotive Parts

• Automotive Parts in Canada

• decline in output – real value of manufacturing shipments in 2012 27% lower than pre-recession peak (2005)

• dependent on vehicle production levels in Great Lakes States (GLS)

• parts demand shrunk in Canada: apparent domestic market in 2012 20% lower than 2000

• parts exports in 2013 37% lower than 2002 peak

• employment in 2013 42% lower than 2000 peak

• large number of parts plant closures

Employment Change by Sub-Industry: 2004-2012

2004 2012

Change

2004-2012

Engines and Engine Parts (33631) 9,923 8,165 - 18%

Electrical and Electronic Equip (33632) 7,669 2,836 - 63%

Steering and Suspension (33633) 4,170 3,236 - 22%

Brake Systems (33634) 6,653 1,713 - 74%

Transmission and Powertrain (33635) 10,146 7,929 - 22%

Seating and Interior (33636) 14,139 11,950 - 15%

Metal Stamping (33637) 18,940 13,880 - 27%

Plastic Parts (326193) 16,983 11,546* - 32%

Other (33639) 21,923 14,072 - 36%

Source: CANSIM 301-0006 * Data for 2010

Automotive Parts Industry, Canada: 1992-2012

0

10

20

30

40

50

60

70

80

90

Pe

rce

nta

ge

Imports as % Apparent Domestic Market

Exports as % of Manufacturing Shipments

Source: Industry Canada: Strategis

TX

LA

MI

WI

IL

IN

KY

TN

MS

AL

GA

OH

SC

Automotive Production Regions

ON

MEXICO

Ontario Automotive Parts Exports

Great Lakes 67%

US South 8%

US Mid South

9%

Mexico 3% Other

13%

2013

Great Lakes 59% US South

5%

US Mid South

8%

Mexico 2%

Other 26%

2000

Source: Industry Canada: Strategis

Ontario Automotive Parts Exports to Great Lakes States: 2013

MICHIGAN 54%

OHIO 19%

INDIANA 19%

ILLINOIS 7%

WISCONSIN 1%

As % of All Automotive Parts Exports to Great Lakes Region

Ontario Automotive Parts Imports

Great Lakes 67%

US South 4%

US Mid-South

6%

Mexico 5%

Japan/ Korea

3%

Other 15%

2000

Great Lakes 47%

US South 4%

US Mid-South

9%

Mexico 12%

Japan/ Korea

9%

Other 19%

2013

Source: Industry Canada: Strategis

Challenge: Competitive Environment

• Labour cost differential with US

• Currency

• Health care costs

• Two-tier wage system

• Cost of Electricity:

• Ontario $US0.10/kwh;

• US Great Lakes $0.0623/kwh

• US South $0.0573/kwh

• Regulatory Environment

Challenge: Southward Shift in North American Vehicle Production

• Great Lakes Region (incl. Ontario);

• unionized D-3 assemblers

• still large number of suppliers

• major concentration of automotive R&D in Michigan (80%+)

• U.S. South and Mexico

• non-union Asian and European new entrant assemblers

• 25% of North American vehicles produced south of the Mason-Dixon Line in 2000; estimated to increase to 50% by 2016

• increasing number of suppliers

North American Vehicle Production

Source: Automotive News March 31, 2014

Challenge: Sustainability Transition

• Disruptive New Product Technologies

• power systems

• new light weight materials

• electrification - the ‘connected car’

• complex components

• Threats and Opportunities

• Innovative capacity?

We Need your Help!

• Survey of plants producing automotive parts in Canada

• Focus:

• Competitive environment

• Innovation capacity

• Changing vehicle technology: threats and

opportunities

Acknowledgements

• Research assistance:

• Paul Whiteley, PhD Candidate, Queen’s University

• Jeff Carey, PhD Candidate, Queen’s University

• Funding:

• Automotive Partnership Canada through McMaster University APRC