Many observers have been predicting the slow demise of Canada's auto industry, but The Economist magazine has put a more-or-less specific date on it: Somewhere between 2030 and 2040.
In an article published late last week, it quotes prominent Canadian analyst Dennis Desrosiers as saying that, thanks to almost nonexistent investment in new facilities, Canada will continue to lose its auto manufacturing base until “somewhere between 2030 and 2040 we’ll be Australia.”
Australia, another resource-heavy economy like Canada’s that has seen a strong currency in recent years, will see what remains of its auto industry disappear between 2016 and 2018. The country’s last three manufacturers — Ford Australia, GM-owned Holden and truck maker Iveco — are all planning to shut down operations.
The global auto industry is booming, and investment in new plants worldwide soared nearly 37 per cent last year, to $24.1 billion. But according to a report from the University of Windsor’s Odette School of Business, Canada got only 0.2 per cent, or $118 million, of that money.
“The bad news is behind us but there’s no good news in front of us,” Desrosiers told The Economist.
Despite a soaring U.S. dollar making American exports more expensive, the U.S. saw $4.2 billion in auto investment last year, more than 35 times as much as Canada.
Mexico has now overtaken Canada as the number-two auto production country in North America, after the U.S. Canada’s share of the North American production market fell to 14.1 per cent last year, from more than 17 per cent in 2009.
Analysts have generally blamed Canada’s high-flying loonie over the past decade for the decline in the auto industry, but The Economist notes that the regulatory environment has changed in recent years as well.
Canada’s auto industry used to be protected under the 1965 Canada-U.S. Auto Pact, which created a free trade area for car parts and mandated that U.S. manufacturers produce as much in Canada as they sell here.
But successive free trade deals and an unfavourable WTO ruling in 2001 undid the Auto Pact, and those protections have disappeared.
Desrosiers’ prediction came following the Harper government’s sale of General Motors shares last week, for which the feds received $3.26 billion. Most observers say Canadian taxpayers took a loss on the investment, and one estimate says the federal and Ontario governments got back $3.5 billion less than they put it into GM back in 2009.
All the same, because it kept GM from shutting down its facilities, The Economist declares the GM bailout a “success,” though noting that “it was never going to save an industry in slow decline.”
Economists say the falling loonie will help exporters and the Canadian auto industry with it, but so far that turnaround hasn't materialized. Sales of auto parts fell 15 per cent in February, the most recent month for which there are numbers, though they are up a modest 1.5 per cent over the past 12 months. Employment in manufacturing has fallen by more than 30,000 in Canada over the past year, wth 2,400 of those jobs lost in March alone.
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> Days in inventory: 138.1 > 2014 unit sales: 29,890 > MSRP: $33,215 A Cadillac ATS spent an average of about 138 days on dealers’ lots before it was sold, the 10th longest time of all other car models last year. Cadillac sold nearly 30,000 units of the luxury sedan in 2014, nearly 20% of all Cadillac’s annual unit sales. Because ATS represents a large portion of the maker’s business and floundering sales, GM laid off workers at its ATS factory in Lansing, Michigan. The ATS is one of three Cadillac models with the longest days to turn. The carmaker released the ATS in 2012 to compete with small luxury brands such as the BMW 3 series.
> Days in inventory: 138.8 > 2014 unit sales: 9,267 > MSRP: $35,100 The Cadenza was reviewed favorably among large sedans by Consumer Reports magazine in 2013. Despite the favorable review, a Cadenza, like other slow-selling car models, spent well more than four months on dealers’ lots before it was sold. The Cadenza is not especially popular among Americans, but neither are most large sedans. As consumer preferences have shifted towards mid-sized and entry level luxury brands, large vehicle segments are doing considerably worse this decade than they did in the previous one, according to KBB’s Fleming. Cadenza sales made up less than 2% of Kia’s overall unit sales last year. Despite poor turnover rates for the Cadenza, overall Kia sales grew by more than 7% over that period, even while sales of many automakers declined from the first half of 2013 through the first half of 2014.
> Days in inventory: 139.5 > 2014 unit sales: 3,952 > MSRP: $48,900 The XC90 is Volvo’s take on the mid-sized luxury SUV. While the car is generally well reviewed and affordably priced relative to its competitors, it did not move in 2014. Volvo sold just 3,952 such units in the United States, with the average car sitting on the lot for almost 140 days. Volvo updated the first generation of this car last year, with the next generation model being introduced this year. It is likely that the slow sales are attributable in part to customers waiting for the next generation.
> Days in inventory: 140.1 > 2014 unit sales: 12,413 > MSRP: $19,195 Fiat Chrysler (NASDAQ: FCAU) sold 12,413 500L models in 2014, a sizable 30% of its total unit sales that year. The 500L was not especially popular, spending an average of nearly five months on the lot before it was sold. The Fiat 500L is one of the best-selling cars in Europe, but it has not caught on nearly as well in the U.S. market. Fiat’s unit sales increased 15.5% from the middle of 2013 through the middle of last year, one of the larger growth rates reviewed. While the 500L is relatively inexpensive with an MSRP of less than $20,000, quality concerns may partly explain the car’s especially long days to turn. In J.D. Power’s Vehicle Dependability Study, more than 200 problems or complaints were reported per 100 Fiat vehicles, the highest number compared with other carmakers reviewed. In addition, the 500L is larger than a compact car but not quite a utility vehicle. Fleming observed the position of the model between traditional segments may also have hurt its chances at the dealership.
> Days in inventory: 144.6 > 2014 unit sales: 24,335 > MSRP: $44,660 Cadillac’s CT6 was unveiled at this year’s New York Auto Show. The large sedan is meant to eventually replace the XTS, which is now scheduled to be discontinued in 2019. Because the two cars are similar, consumers who would have purchased an XTS last year may have opted to wait for the arrival of the CT6. While Cadillac sold 24,335 XTS models last year — a significant portion of its total U.S. unit sales — the model spent nearly five months on the lot before it was sold. Cadillac’s parent GM still dominates the U.S. auto market with a 16.2% market share as of March. However, with floundering Cadillac sales and slow-selling models are weighing on the manufacturer’s ability to maintain its leading position.
> Days in inventory: 144.7 > 2014 unit sales: 43,743 > MSRP: $23,380 Introduced in 2012, the Buick Verano’s design is based on the less expensive Chevy Cruz. Like several cars spending the most time on dealers’ lots, the Verano is a more expensive entry-level compact luxury sedan. While slow-selling models tend to have relatively low unit sales, Buick sold 43,743 Veranos in 2014, more than any other slow-selling model. According to Fleming, Verano’s high number of days to turn may be acceptable for Buick, as the automaker posted substantial profits from Verano sales. Like Cadillac, the Buick brand is operated by GM, which dominates the U.S. auto market. But while Cadillac’s U.S. market share decreased slightly last year, Buick’s increased.
> Days in inventory: 158.3 > 2014 unit sales: 7,740 > MSRP: $40,950 The Q60 is Infiniti’s mid-sized luxury coupe. It competes in a tough space, with stiff competition from BMW, Mercedes, and Lexus. Infiniti appears to have overestimated its ability to compete in the space. In 2014, Q60s spent an average of 158.3 days on dealers’ lots before being sold. This implies that despite decent sales numbers of 7,740, Infiniti made more of these cars than the American people were interested in buying. This is not that surprising given that the car is priced similar to more highly rated comparable cars.
> Days in inventory: 158.6 > 2014 unit sales: 1,310 > MSRP: $75,000 The ELR is Cadillac’s first foray into the electric car space. These cars spent an average of 158.6 days on the lot prior to being sold. The main problem of the ELR is its competition — the comparably priced Tesla model S, which apart from being far better reviewed than the ELR is also far more recognizable by most Americans in the electric car market. Beyond issues of tough competition, sales of Cadillac’s electric car likely also suffered from the large decline in gas prices in 2014. The good news is that Cadillac did not bet the farm on this car. The 3,952 ELR units sold in 2014 represented less than 1% of total Cadillac unit sales.
> Days in inventory: 169.9 > 2014 unit sales: 1,436 > MSRP: $101,770 According to Nissan, the GT-R is the fastest car produced in high volume worldwide. Less than 1,500 of these supercars were sold in 2014, and it took nearly six months to sell a GT-R, longer than all cars but the Honda Insight. The slow selling GT-R model is not likely a major concern for Nissan, however, as the car is intentionally exclusive as the pinnacle of the manufacturer’s portfolio. The price point of the GT-R of around $100,000 is exceptionally high even among luxury vehicles. In March, Nissan North America’s car business had a 5.4% U.S. market share, down from the same time in 2014, when the company had a U.S. market share of 6.2%.
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