Canada's auto parts industry encounters challenges from China and Mexico

According to a report released by Scotiabank on March 30th, due to the appreciation of the Canadian dollar and competition from low-cost countries, the competitiveness of the Canadian auto parts industry in export has weakened, thus focusing more on the development of Canada's domestic market. But in the domestic market, they also face competition from parts and components in lower-cost countries such as Mexico and China. In the case of internal and external difficulties, the Canadian auto parts industry must increase investment in research and development, maintain technological leadership, and increase investment in emerging markets. The following is the main content of the report.
Export Dilemma Due to the increase in production of many automakers in North America, shipments of Canadian auto parts suppliers will increase by more than 20% in 2010. But the competitiveness of Canadian auto parts suppliers has weakened as the Canadian dollar strengthened. The Canadian dollar exchange rate against the US dollar has risen from about 100:82.5 in 2005 to 100:98.01 (as of March 30).
Exports to the US market accounted for 92% of Canada's total exports of auto parts, but this amount fell by 32% in 2009 to less than $9 billion. This amount only accounts for 6.7% of the total auto parts in the US market last year, which is the worst performance since the 1990s. The share of Mexican auto parts in the US market has reached 12% last year. Exports of Canadian auto parts to other countries outside the United States fell more than 40% last year.
The more serious problem is that more than 60% of Canada's auto parts exported to the United States are exported to the Great Lakes region—mainly traditional cars heavily in Michigan and Ohio. These two provinces account for nearly 50% of Canada's exports of auto parts to the United States, but their weight in the US auto industry has declined. At the end of the 1990s, more than 40% of automobile production in the United States was carried out in these two provinces, compared with only 33% in 2009.
Nearly 40% of the US cars were produced in the southern provinces in 2009, but Canadian auto parts companies have not yet penetrated the southern US market well, and only about 18% of the parts exported to the US are exported to the southern provinces.
In total, nearly 80% of the auto parts produced in Canada are supplied to Canada and the Great Lakes region, but these regions produce only 5% of the world's total. Asia now accounts for more than half of global auto production, but only 1% of Canadian auto parts companies export to Asia.
Foreigners’ “preemption” of their domestic markets
At the same time as exports fell, Canadian auto parts companies turned their attention to the domestic market. As can be seen from Figure 1, as the Canadian dollar appreciates, the proportion of Canadian auto parts sold in the country is also on the rise.
In 2009, more than 45% of Canadian-made auto parts were supplied to the domestic market, an increase of nearly 10% over the average of the past 10 years. Each of the cars produced in Canada, including cars and trucks, includes Canadian-made parts worth about $5,260, a significant increase from $3,520 a decade ago.
At the same time, auto parts from lower-cost countries are also “squeezing” the Canadian market. Among the cars produced in Canada in 2009, the value of parts from Mexico was $1,650, doubled from $800 in 2003; the value of parts from China exceeded $600, and only $320 in parts five years ago. from China.
About one-third of China's auto parts exported to Canada are brake systems and electronic system components.
The way out for the Canadian auto parts industry For these issues in the Canadian auto parts industry, the report's proposal by Carlos Gomes is:
“To achieve long-term growth, the Canadian auto parts industry must increase its innovation and investment in fast-growing emerging markets, while at the same time 'resisting' competition from low-cost countries in Latin America and Asia.
Although the Canadian auto parts industry is a world leader in technology in many areas, its investment in auto parts research and development is still far lower than that of US companies. Canadian auto parts companies account for about 3% of their total R&D investment, which is nearly 1% lower than that of US companies. It was even worse last year, with only about 1.8% of sales being spent on research and development. Canadian auto parts companies must invest more in technology research and development to ensure their leadership in new products, including green technology. ”
 

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