Auto Industry Investment Shifts Away From Canada: Scotia Economics

TORONTO, Nov. 29, 2011 /CNW/ - The Canadian auto industry continues to rebound from the global economic downturn and this year's supply disruptions caused by natural disasters in Japan and Thailand. However, according to the latest Global Auto Report released today by Scotia Economics, investment in the industry will fall to $1.2 billion this year — the lowest level since the mid-1980s and roughly 62 per cent below the $3.1 billion annual average of the past decade.

"Canada is maintaining its historical 16 per cent share of North American assemblies, and according to J.D. Power, a Canadian assembly plant was recently rated the best in North America for the second consecutive year," said Carlos Gomes, Senior Economist and Auto Industry Specialist, Scotia Economics.  "In fact, strong investment in machinery and equipment since the mid-1990s has enabled two Canadian assembly plants to be rated the best in the Americas in six of the past 10 years.  However, despite these achievements, current investment plans are less positive for Canadian plants, suggesting that it will be difficult for Canada to increase its share of North American output going forward."

Capital investment in the North American auto industry peaked in 2007 and is finally stabilizing after a 35 per cent slump through 2010. Investment is actually strengthening in the United States this year, in part because during the latest contract negotiations with the Detroit Three, the UAW was able to secure additional investment for U.S. plants. Capital expenditures have also started to stabilize in Mexico, and according to recent announcements will rebound sharply next year. In contrast, investment in the Canadian industry will fall an additional 18 per cent this year.

"On a per vehicle basis, auto industry investment in Canada this year will plunge 43 per cent below the prevailing level in the United States," noted Mr. Gomes. "This represents a sharp reversal from the trend of the past decade, when investment in the Canadian auto industry was, on average, three per cent higher than either in the United States or Mexico."

While investment in Canada remains marginally higher than in Mexico, recent announcements indicate that over the next several years, investment in Mexico's auto industry is set to approach the record pace of US$1,600 per assembled vehicle set in 2004 and 2005. During those two years, Mexico's auto sector was the recipient of 17 per cent of the industry's overall investment in North America, nearly double its share of vehicle production. This capital influx expanded assembly capacity in Mexico by 20 per cent, and has enabled it to consistently produce more vehicles than Canada since 2008.

"Recent announcements of new products and hires for Canada by two large automakers are encouraging," concluded Mr. Gomes. "However, these announcements pale in comparison with the news coming from Mexico — the auto industry's North American growth leader. Over the past six months, the industry has announced investments of nearly US$3 billion geared to expand existing facilities or building new plants in Mexico."

Looking at car sales, global volumes continued to move higher in October, but the gains moderated to only two per cent year over year last month, undercut by product shortages in Asia and double-digit declines in the key growth markets of India and Brazil. North America led the sales gains in October, with purchases in the United States climbing to an annualized 13.2 million units — the highest level since cash-for-clunkers in mid-2009. The improvement reflects increased availability of vehicles at Japanese dealerships, as well as strengthening replacement demand.

Scotia Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

SOURCE Scotiabank - Economic Reports

For further information:

Carlos Gomes, Scotia Economics, (416) 866-4735,; Patty Stathokostas, Scotiabank Media Communications, (416) 866-3625,


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