Misaligned product portfolio
Even with the overall decline in production by traditional North American automakers in Canada, the Canadian auto industry continues to make a high number of vehicles in declining market segments. About a third of all vehicles produced in this country in 2018 were passenger cars, a segment in which sales across all categories declined in Canada and the United States over the previous five years.
Supply chain impacts
The decreased prospects for production in Canada are reverberating throughout the supply chain. Due to the efficiencies of locating activities near final assembly plants, model cancellations and shifts in production to other countries are reducing economies of scale for the remaining producers, shrinking the market for suppliers and adding complexity and cost to the supply chain.
Auto parts suppliers face a number of other changes, including Canadian and US emissions regulations that are increasing the pressure to build cleaner engines. They also operate in a highly competitive market that’s very sensitive to factors like foreign exchange rates. Adding to these shifts is the outsized growth of automotive electronics manufacturing which, while a smaller segment overall than other areas of the parts industry, is seeing revenues rise at a faster rate. It includes the production of electronic and electrical parts like lighting systems, driver displays and sensors.
A number of players, including automakers as well as technology companies and other non-automotive entrants, are putting increased resources into developing vehicles oriented toward the technological shifts that are revolutionizing the automotive market. This typically refers to the so-called CASE model of connected, autonomous, shared and electric vehicles. As markets change rapidly, Canada is likely to shift from its traditional manufacturing role to being more of a hub for research into and development of these disruptive technologies.
A number of factors, like changing demographics, weakening consumer sentiment, rising loan delinquencies and economic uncertainty, point to a slowdown in demand for the global auto industry. In response, Canadian automakers and suppliers are looking to cut costs to maintain their margins while boosting cash reserves for investments in new technology.