4 key issues the Canadian auto industry faces right now

If one word could sum up what Canada’s auto-industry experts expect to dominate in 2022, it’s “recovery.”

Recovery from the effects of the COVID-19 pandemic and recovery from a semiconductor shortage that’s hammering new-vehicle inventory.

Electric vehicles are also expected to propel the agenda this year as the industry lobbies the federal government to lay out a clear road map to its target of 100-per-cent EV sales in Canada by 2035. The key, however, is persuading U.S. President Joe Biden to detour around protectionist restrictions that pose an existential threat to the auto industry here.

Here are are the four biggest issues the Canadian auto industry faces right now:

CHARGED DEBATE

Canada’s automotive industry is gearing up for a fight over the US$12,500 EV incentive, which applies only to U.S.-made, union-made vehicles. The federal Liberals are threatening a full contingent of trade remedies, ranging from court fights and challenges before the World Trade Organization, to retaliatory tariffs.

“I think the Americans understand, if they do their homework on NAFTA and TPP [Trans Pacific Partnership trade pact], you can bank on us to do what we say,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association (APMA). “They do know we’ll follow through.”

Volpe expects to spend considerable time traveling to Washington to meet with Republican and Democrat legislators in Congress. He’s not confident of success, at least unless the 2022 U.S. midterm election leads to a shift in power favouring the Republicans, who appear to oppose the EV incentives.

That we’re here at all, with a different president, is and isn’t a surprise, he said.

“On one hand, we knew we had a crazy president yelling at the moon,” Volpe said. “Now, we have a rational actor looking us in the eyes, knowing what he’s proposing is injurious to us and still following through.”

There’s little doubt the incentive violates provisions of the United States-Mexico-Canada Agreement (USMCA), said David Adams, president of the Global Automakers of Canada (GAC). His organization represents foreign automakers such as Honda and Toyota.

“It amounts to a 34-per-cent tariff against Canadian-made vehicles. That’s higher than the [25-percent tariff on Canadian cars] threatened by protectionist president [Donald Trump].”

“The real struggle — and [Canada is] collateral damage — is between the U.S. and China,” Adams said. “China is significantly advanced from where the U.S. is [on EVs], and the U.S. is trying to recapture some of that dominance.”

Although Unifor President Jerry Dias favours a government’s prioritizing the employment of its own citizens, “you can’t commit suicide while you’re doing it,” he said.

“We’re dealing with issues that don’t make a stitch of sense,” said Dias, whose union represents Canadian workers at the Detroit Three plants.

“We thought that the adult finally got elected. No question, 2022 will make the Trump era look mild in comparison.”

Canada’s supply of raw materials for electrification — nickel, cobalt and magnesium — constitutes another bargaining chip in the country’s favour, said Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association (CVMA), which represents the Detroit Three automakers.

It’s especially important, given Canada’s commitment to workers’ rights and opposition to child and slave labour and the movement of automakers to demonstrate ethical business practices throughout the manufacturing process, Kingston said.

“My key point is — while the U.S. needs to look at its own security — Canada is the best and most reliable partner the U.S. can have. We happen to have a significant endowment of raw materials. There’s no better country to be partnering with.”

CHIPS ON THE TABLE

Kingston expects recovery in the supply of integrated circuits from Asia, but he warns that a bump caused by another wave of the pandemic could delay production once again. A big effort is underway in the United States to build domestic capability in semiconductor manufacturing, but that won’t happen in 2022.

“There were some encouraging [manufacturing] numbers in the last half of 2021, but the Delta variant in Southeast Asia again impacted overall production,” Kingston said. “We will have to see with this new variant if it will again result in supply disruptions.”

IN NEED OF A NATIONAL STRATEGY

Few industry executives would disagree that Canada needs a cohesive plan for its automotive sector, and now more than ever with a relatively short timetable to pivot the industry to EVs, Kingston, Dias, Adams and Volpe all said separately.

“We need a comprehensive auto strategy if we hope to keep a semblance of the industry into the future,” Adams said.

Volpe and Kingston both said the federal government needs to take politics out of the EV plan as much as possible, with Volpe arguing for the appointment of an arm’s length electrification czar who can drive the plan regardless of which party is in power between now and 2035.

“The default has been it’s the transport minister or it’s the environment minister,” Volpe said. “But best practices around the world show us that person should be an outsider with a concrete understanding of one or more of the pillars — generation, manufacturing, renewable technology.

“Let’s put a public-private structure in place and put someone in charge who isn’t dependent on the political structure.”

CHANGE IS ON DEALERS’ HORIZON

The agency model has been common for dealerships in Europe and Asia for some time. And if executives such as Hyundai Canada President Don Romano have their way, it’s coming to Canada.

It’s called the agency model, and it strips dealers of the burden of owning inventory.

“There’s a big revolution coming in the way we sell and service cars,” Romano said.

He points to the arrival of new players in the market, starting with Tesla and moving to other manufacturers that have adopted or are likely to adopt new methods of retailing that don’t involve the current dealership models operated by legacy automakers such as Hyundai. That will involve online ordering and just-in-time delivery of cars to retailers, rather than automakers building large numbers of cars and selling them to dealers.

“To me, it’s a tsunami that’s building up out over the ocean, and it’s coming at us, and I don’t think we’re paying enough attention to it,” Romano said. “Our dealer network is more important than ever, but the need for that dealer network to evolve — quickly — before that tsunami hits the shore is vital to their long-term success.”

Under the agency model, the automaker would retain ownership of new vehicles, and customers wouldn’t be pressured to buy what the dealer has on the lot. Rather, they would be encouraged to order the vehicle they want

Without the carrying costs of owning inventory, Romano said, dealers who embrace the concept “should be more profitable.”