The Evolving Nature of the Canadian Automotive Sector
The automotive sector is made up of several industries: automobile assembly, automotive parts manufacturing, and the relatively small auto body and trailer manufacturing sector. Although all industries are experiencing increased competition, the automotive parts manufacturing sector in particular are pressured to adopt advanced technologies and streamline processes in order to stay competitive in the face of globalization.
Ontario’s Contribution to the Automotive Sector
Ontario is home to the majority of Canada’s automotive sector, and is the only Province which hosts OEM (original equipment manufacturer) automotive assembly operations. On the strength of Ontario’s automotive sector, Canada is currently the 11th largest producer of vehicles globally (2.1 million units annually) (Source). This rank has slipped in recent years as developing countries with lower wage rates, such as Mexico, are causing businesses to migrate their production away from Canada and the United States to reduce costs.
In the competitive automotive manufacturing sector, Canada has begun to lag behind our North American neighbours in recent years. In 2014, carmakers invested $10.5 billion (USD) in the U.S. automobile assembly/manufacturing sector, $7 billion in Mexico, and only $750 million in Canada (4% of overall North American automotive manufacturing investment), according to the Globe and Mail.
This has been a long-term trend; in 2008, Canada was the world’s 7th largest automotive producer, manufacturing 3 million units annually (Source).
The global economic downturn of 2008/2009 was especially damaging to the Canadian automotive sector. As of 2013, vehicle shipments are 18% lower than pre-recession numbers, and continue to fall (a decrease of 6.4% in 2013 alone), while parts exports are down 26% from pre-recession figures. Vehicle assembly employment has dropped by 18%, while parts manufacturing jobs are down 25% (26,000 jobs lost). Especially telling is that, according to an RBC study, new investments in the parts manufacturing sector have fallen by 66% since 2007.
Ontario’s automotive manufacturing industry, however, as a whole is still a key component to the Province of Ontario’s economic well-being. Invest in Ontario states that the province is home to 90,000 automotive manufacturing employees. Ontario hosts manufacturing operations of some of the world’s premiere automotive OEM’s, including GM, Ford, Chrysler, Toyota, and Honda. Also, the $750 million invested in the Ontario automotive assembly industry in 2014 is a positive sign, as Ontario received no new investments in this industry whatsoever in 2013, and the only investment in Ontario in the 4 years prior was a $180 million one-off project (Source). The low Canadian dollar could also continue to increase Ontario’s competitiveness in this global industry.
There are several key industry trends that Ontario manufacturers must adapt to in order to guarantee future growth in the automotive sector:
- Connected Vehicle Technology: Vehicles interacting with advanced information technologies under normal operation. GSMA estimates that by 2025, each new car produced will be connected in multiple ways.
- Carbon Fibre: This material is much lighter than sheet metal, and is highly durable when used for automotive body panels. Its reduced weight results in enhanced vehicle fuel efficiency.
- Electric Cars: With only 25 models of electric car readily available on the global market, this technology is still in its infancy in North America. However, the International Energy Agency reported that 28% of all new car sales in Japan are fully electric vehicles. Electric motors result in reduced operating costs and a vastly reduced carbon footprint.
- CAFÉ Fuel Economy Standards: Based on a mathematical formula to determine a cut-off point of required fuel economy for each production vehicle sold in the U.S. market, CAFÉ standards directly impact Canadian automotive manufacturing operations, which largely export vehicles to the U.S., or face similar emissions standards imposed by the Canadian Federal Government. Manufacturers are constantly improving the fuel economy of new vehicles to better meet these legislated standards, and ensure that their vehicles can continue to be sold within Canada and the U.S. (Source).
Canadian Government Funding
There are various government funding options available to automotive sector manufacturers, as both the Federal and Provincial Governments are aiming to stimulate growth and investment in this sector. Funding initiatives include:
Automotive Innovation Fund: A large-scale fund focused specifically on encouraging new investments in the automotive sector.
- Available until 2016;
- Over $75 million in private sector investment over 5 years required;
- Eligible activities include automotive innovation/R&D initiatives to develop greener, more efficient vehicles;
- $500 million in funding made available over the next 2 years; and
- Largest payout to date: Ford, $80 million.
There are also various capital equipment investment business funding grants and loans available for smaller-scale enhancements to the operations of automotive parts manufacturers, including:
- CME SMART Advanced Technologies for Global Growth: Up to $100K grant for advanced tech adoption.
- Investing in Business Growth & Productivity: Up to $20M no interest loan for business expansion.
- Southwestern Ontario Development Fund: Up to $1.5M grant or $5M repayable loan for business expansion.
Options for employee skills training, including training on new machinery, includes:
- FedDev Ontario Training Program: Up to $50k in grant funding for training to improve productivity and export expansion.
- Canada-Ontario Job Grant (COJG): Up to $10k grant per trainee for third party training to develop workforce employees.
Please feel free to explore any of the above small business funding programs by clicking on the program name. If you would like to discover specific funding options for your business, Mentor Works offers free Canadian government funding webinars and workshops regularly; register for a business funding event today.