The global economy faces years of uncertainty but Canada’s auto industry is positioned to survive and even thrive, an Automotive News Canada Congress panel heard.
In an online discussion hosted by Publisher Tim Dimopoulos May 25, economist Jeff Rubin outlined forces that continue to roil a world emerging from the pandemic. They include higher-than-expected inflation, rising interest rates, high oil prices, persistent supply-chain problems, such as the microchip shortage, and political and trade realignments triggered by the Russian invasion of Ukraine.
The future impact of these pressures is unknown, but Rubin said growth in manufacturing to support domestic electric vehicle production in Ontario could trigger a re-expansion of Canada’s middle class after decades of decline due to migration of manufacturing to lower-wage countries.
“We're going to see high-paying, middle-class jobs,” Rubin predicted. “And what do high-paying middle-class households do? They buy vehicles.”
The industry should see light at the end of the tunnel, he said, “because I think what we may see going forward is that vehicle sales are more resilient than many people yet suspect.”
Hyundai Canada CEO Don Romano said the auto sector can do little to influence external factors such as oil prices, interest rates and inflation. But it can control how it responds.
EV OPPORTUNITIES
The shift to zero-emission vehicles presents an opportunity.
“That is there's a transition taking place in demand right now from combustion engines to EVs,” he said. “Our demand has never been stronger.”
Global supply-chain problems are temporary, Romano said.
“If we look at the current situation, inventories right now are tight, but at the same time discounting is at an all-time low,” he said. “So we're actually getting prices that are fair for the products that we're making.
“And that's what's causing a lot of OEMs to invest even more. And I think that's going to bear fruit down the road here.”
A sagging stock market also may be drying up funds for upstart manufacturers, he said, giving long-established brands an edge for now. But they can also learn from these newcomers on how to work with customers, such as effective online systems.
“And if we do that, if we continue to improve our customer service, we'll weather this storm,” Romano said.
Simon Deeley, fixed-asset income strategist at RBC Dominion Securities, pinpointed inflation as a principal danger. Central bankers worldwide are struggling to curb it through interest-rate hikes without pushing their economies into recession.
His team forecasts inflation dropping slowly towards the Bank of Canada’s target of two per cent in 2023.
“The recession risk really comes if inflation is stickier than expected,” which might force the bank to raise rates more aggressively to meet its target,” Deeley said.
