Canadian auto industry investment down sharply, putting brakes on future output
December 2, 2011
By The Canadian Press
A sharp drop in investment in Canadian carmakers this year will likely put the brakes on future output from the industry, according to a report by Scotia Economics.
The report says only $1.2 billion was spent in the auto industry in 2011, the lowest level since the mid-1980s, and well below the $3.1 billion that has been spent every year for the past decade.
Canada has held on to a 16 percent market share in the North American auto industry so far, but that is a legacy from past investments, said senior economist Carlos Gomes.
“In fact, strong investment in machinery and equipment since the mid-1990s has enabled two Canadian assembly plants to be rated the best in the Americas in six of the past 10 years,” Gomes said in a statement. “However, despite these achievements, current investment plans are less positive for Canadian plants, suggesting that it will be difficult for Canada to increase its share of North American output going forward.”
The drop in spending on Canadian car plants comes despite a big rebound in the industry’s performance this year, as it continues to recover from the global economic downturn and supply disruptions caused by natural disasters in Japan and Thailand.
But investment increased in the United States this year as unions negotiated additional investment for plants run by the big Detroit-based automakers. And investment in Mexico’s carmakers is growing much faster, with $3 billion worth of investments in new plants and expansions over the past six months, Gomes said.
“On a per vehicle basis, auto industry investment in Canada this year will plunge 43 percent below the prevailing level in the United States,” Gomes said.
“This represents a sharp reversal from the trend of the past decade, when investment in the Canadian auto industry was, on average, three percent higher than either in the United States or Mexico.”
The report said global car sales volumes moved higher in October, but moderated to only two percent year over year, undercut by product shortages in Asia and double-digit declines in the key growth markets of India and Brazil.
Auto purchases in the United States moved to the highest level since mid-2009 as availability returned to Japanese dealerships after a severe tsunami stopped production.