Canadian automotive assembly plants are bearing the brunt of a North American-wide slump in vehicle sales, according to a report by BMO Capital Markets.
Production in Canada was down 7.8 per cent by the end of June compared to the same period in 2018. That’s double the rate of decline in the U.S., where production fell 3.9 per cent. Meanwhile, output in Mexico rose 0.8 per cent, the report showed.
“It’s not a surprise that we’re seeing a decline in production given the slowdown in North American sales,” BMO senior economist Alex Koustas told Automotive News Canada.
Automotive sales in Canada were down 4.8 per cent to the end of July, while sales in the U.S., where 80 per cent of Canadian production is headed, were down 1.6 per cent for the first half of the year, according to the Automotive News Data Center in Detroit.
“But, certainly, Canada is bearing the brunt of that decline,” Koustas said.
Canadian vehicle production had slipped to 985,501 units in the first six months of this year, its lowest level since the Great Recession of 2008-09, Koustas noted in a research note to clients called “Trailing Big Time at Half Time.”
U.S. production also fell to 5,395,931 units during the same period, with declines in North American automakers’ output partially offset by an increase in European automakers’ production at southern U.S. plants, Koustas said.
In Mexico, production rose modestly to 1,977,903 units to the end of June as North American automakers continued to invest south of the border.
“At this juncture, the big wins promised by the USMCA are certainly not acting as a deterrent to investment in Mexico,” Koustas said in the research note, referring to the new Canada-U.S.-Mexico free trade agreement that was supposed to help stem that tide.
Koustas said the decline in Canada is due in part to the number of aging vehicle models produced here along with the falling popularity of some model types, such as the Chrysler and Dodge minivans assembled at the FCA Canada plant in Windsor, Ont.
As well, Canada has lost out in the competition to attract new assembly plants as automakers see the southern U.S and Mexico as lower cost places to operate, he said.
“The fact that we haven’t seen any new greenfield development is a concern,” Koustas said. “The probability of that changing in the near future isn’t high.”
With General Motors set to end vehicle production at its Oshawa assembly plant this fall, Canada’s position will worsen in the near term, he added.
Canadian vehicle production is down by a third from its peak in the late 1990s and now accounts for just 12 per cent of all North American production, the report showed.
The research note was based on data supplied by DesRosiers Automotive Consultants, of Richmond Hill, Ont.