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Auto Sector Revival

Posted January 30, 2015

Under Economic Issues, International Trade Issues

(Peter Hall – Export Development Canada)

Search for a gloomy article about Canada’s post-crisis experience, and you’re bound to see mention of the auto sector. Beyond the super-sized bailouts, the sector has struggled, with commentators blaming Dutch disease, competitiveness and productivity issues, corporate welfare and other macro- and micro-factors for the poor performance. Gloom even led industry insiders to pine about the fate of the sector. Is it on a long slide, or is there renewed hope for production of autos and auto parts in Canada?

We haven’t owned exclusive rights to industry gloom. Detroit was almost singularly used to illustrate the ravages of the Great Recession in its early days. Indeed, the fate of the Detroit Three was hanging in the balance. The city retained punching-bag status as Motown turned into a ghost town. But from the ashes, the industry came back. In fact, it gained strong momentum ahead of the rest of the economy. When things hit bottom, an oversold auto market suddenly was in deficit, and immediately mounted a steady comeback that revived US sales from 9 million units in the crisis to over 16 million last year.

Canada initially participated in the revival, but production has been flat since early 2012. Given the steady growth in US sales over this period, by definition, we have been losing market share. The numbers are sobering: Canadian share of North American production was fairly steady at just above 16 per cent from 2001 to 2008; it jumped up to 17 per cent in 2009-10, but since then, it has tumbled steadily, and is currently between 13 and 14 per cent. The industry faced pretty tight capacity constraints over this time, so demand hasn’t been the problem. The real issue? A lack of investment. So if we haven’t been getting it, who has? Click here to read more.