Auto industry turns losses to profit in three years

Canada’s motor vehicle manufacturing industry has gone from $1.5 billion in losses in 2009 to an expected profit of $1.5 billion this year, according to The Conference Board of Canada’s Canadian Industrial Outlook: Spring 2012.

 “The recovery of the auto industry is in full swing,” said Michael Burt, director, Industrial Economic Trends. “And an encouraging sign for the Canadian industry is that many of the best-selling models are assembled here.

“Consumers in Canada and the United States, who held off new vehicle purchases in recent years, are back in the showrooms to replace their older models. Low interest rates, dealer incentives, and fresh models are also boosting demand, although increased competition will squeeze profit margins. Even high fuel prices are encouraging consumers to trade in older vehicles for more fuel-efficient cars and trucks.”

In response to brisk sales, automakers will ramp up production by an expected 12 per cent this year. Canadian vehicle sales are expected to reach pre-recession levels this year; the United States is forecasted to return to its pre-recession sales total in 2014. In addition to the revitalized Detroit companies, a rebound in production of Japanese automakers Toyota and Honda is underway following the supply disruptions caused by the 2011 earthquake and tsunami.

The Canadian industry will also benefit from moderating prices for raw materials and a weaker loonie. This is a silver lining for the industry in what remains a period of elevated risk brought on by the European debt crisis and slowing economic growth. If U.S. job growth continues to wane in the months to come, Canadian auto exports will be negatively affected.

The industry’s forecast pre-tax profit of $1.5 billion in 2012 is its highest level since 2002, when the dollar traded at 62 cents U.S. In 2013 and beyond, profits are expected to stabilize at just over $1.5 billion annually. Fierce competition among the major automakers – such as consumer incentives – will keep profit margins low.