Whenever demand for new vehicles rises following the COVID-19 pandemic, Canadian auto suppliers could be in for major new business.
Executives and experts told Automotive News Canada that the updated North American trade pact as well as investments by the Detroit Three in Michigan will lead to more business for Canadian suppliers as demand for locally sourced parts increases.
Fiat Chrysler Automobiles planned to spend US$4.5 billion ($6 billion) on five of its Detroit-area manufacturing operations, including creating the first new assembly plant in the Motor City in almost 30 years. General Motors also had plans to spend $2.2 billion at its DetroitHamtramck Assembly plant to build electric trucks and utility vehicles.
“Those are going to positively impact the Canadian supplier network” because of how regional that parts sourcing has become, said Kristin Dziczek, vice-president of industry, labour and economics at the Center for Automotive Research in Ann Arbor, Mich.
Dziczek and others quoted for this story were interviewed before the COVID-19 pandemic took hold in North America. However, no automaker has cancelled any plans already laid out.
Add to that the $6 billion to $8 billion in annual parts orders that the Automotive Parts Manufacturers’ Association has estimated the new United States-Mexico-Canada Agreement (USMCA) could bring to Canadian parts makers, and suppliers have reason to be optimistic about the long-term future, even as they navigate a bleak near-term.
BOOST FOR DOMESTIC SUPPLIERS
David Adams, CEO of the Global Automakers of Canada, said the USMCA stands to drive some parts sourcing out of Mexico and into the United States and Canada. That’s due in large part to the deal’s requirement that 40 to 45 per cent of an automobile’s components must be made by workers making at least US$16 (about C$22) an hour, along with rules for higher regional content.
“That’s going to drive the parts production into the United States and Canada just to be able to meet those requirements,” Adams said.
While automakers will still build vehicles in Mexico and ship them into the United States and Canada, Dziczek said, the new content requirements would help boost suppliers in Canada and the United States.
“They’re still going to be able to import cars, and they’re still going to be able to make stuff in Mexico,” she said. “But for what they’ve got, the content has got to go up, and that’s going to help suppliers.”
Still, hurdles for suppliers remain. Questions about whether Canada can attract a new assembly plant persist, as do concerns from suppliers about how quickly the USMCA will be carried out.
There is the question of what longterm demand for new-vehicles will look like after Canada and the United States emerge from the COVID-19 pandemic. In March, demand plummeted as consumers stayed home, nonessential businesses shuttered and automakers temporarily stopped vehicle assembly. It was unclear how quickly society could return to some sense of normalcy, as health experts and epidemiologists warned it could take at least 12 to 18 months to approve a vaccine.
WHAT’S NEEDED: NEW PLANT
Rob Wildeboer, executive chairman of Martinrea International Inc., said that while the investments in Michigan and the USMCA both present opportunities for suppliers in Canada, there is no substitute for attracting a new assembly plant to Canada and for keeping those that are here open. In recent years, the Canadian industry has been dominated by news of job cuts and plant closures, including the end of vehicle assembly at GM’s Oshawa, Ont., plant in 2019.
“The parts guys, which employ a lot of people, have grown like weeds in other places, but the head offices are still here,” Wildeboer said in a February interview. “It’s a very, very good auto story overall with the universities and everything else, but it will not be a good story unless you keep assembly or attract assembly.”
Wildeboer said he was hopeful that the signing of the USMCA would help Canada’s case to attract a new assembly plant.
“Anyone would’ve been an idiot to put an assembly facility here the past few years with the trade stuff. Now that it’s kind of done, you can think about it. But it’s got to make sense for the person investing.”
Wildeboer said he was optimistic that the USMCA would provide his company and suppliers as a whole “good opportunities,” provided the trade pact is rolled out well. Martinrea is the third-largest Canada-based auto supplier and 78th-largest globally by sales to automakers, according to the Automotive News Data Center in Detroit.
‘DON’T RUIN A GOOD THING’
“The bigger issue for us on the whole thing was don’t ruin a good thing,” he said. The North American Free Trade Agreement, which the USMCA replaces, “was a good thing for our industry, and I think the USMCA gets to the point where it’s not ruining a good thing.”
Magna International Inc. CEO Don Walker said the Canadian government did a “really good job” negotiating the deal. The Canadian industry could benefit with more jobs and investments, and new opportunities could be created for Magna, the largest supplier to automakers in North America, Walker said.
“As long as we’re competitive and we have the right technologies — and we believe we do; we’ve been moving faster than the industry — then we should be able to take advantage of that and provide some good, cost-effective solutions for customers who are going to build more vehicles here,” he said. “So, we should be the beneficiary.”
Both Martinrea and Magna said they also stood to gain from the GM and FCA investments in the Detroit area.
“If we have operations in Michigan or Ontario, they’re so close together — if you look at that as a trading area — parts makers in Ontario and Michigan can very easily and cost-effectively ship across the border,” Walker said. “If anybody’s building vehicles in that region, it’s good for Canada.”