DWINDLING DEMAND

Canadian auto exports in decline

A Conference Board of Canada report released Tuesday warns dwindling demand in the U.S., reduced interest in vehicle ownership by American millennials and the aging of baby boomers will result in a decline in Canadian automotive exports over the next five years.

The report added the decline could be accelerated if the ongoing NAFTA agreement negotiations go poorly or the agreement is terminated.

“I think they’re dead on,” auto analyst Dennis DesRosiers said of the report. “The manufacturing side has been in trouble for quite some time. It’s not letting up.

“We might be able to hold onto what we have. I don’t think we’ll become Australia where automotive disappeared entirely, but the future is less, not more.”

The report expects a U.S. sales decline of almost 1.5-million vehicles in 2018 from record sales of 17.46-million units in 2016. Sales are expected to average 16 million vehicles in the U.S. over the next five years.

Demand will be further depressed because U.S. millennials are buying vehicles at half the rate of Americans aged 35 to 54.

Baby boomers are also expected to buy fewer vehicles, but they’re treating themselves to more expensive vehicles. Luxury vehicles now account for 12 per cent of the market compared to five per cent in the year 2000.

“Going forward, demand for new vehicles will continue to ease as a result of the aging of the baby boom population in the U.S. and Canada and urban millennials’ purchasing fewer vehicles due to ready access to ride-sharing,” Conference Board of Canada economist Sabrina Bond said in a statement.

“Meanwhile, the industry will have to contend with potential changes to rules of origin in the existing NAFTA, which could take a sizable bite out of Canadian auto exports and investment in manufacturing.”

The report projects the Canadian auto industry will export on average $53 billion a year over the next five years.

Despite forecasted exports increasing by 0.8 per cent this year, there’s an expected decline in pretax profits to $1.6 billion from $1.9 billion.

Those forecasts are based on the assumption there are no changes to any trade agreements.

“Right now we’re not very well positioned to handle the next five years,” said Tony Faria, director of the Office of Automotive and Vehicle Research at the University of Windsor.

“In many areas, Ontario is not a business- and manufacturing-friendly province whatsoever. It’s not just the minimum wage, but also all the labour law legislation, the hoops business must jump through, the reports to be filed and the cost of energy. It all adds enormously to the cost of doing business.

“There are too many reasons in Ontario that if the economy slips more than forecast, Ontario is a spot where business will pull investment.”

Faria added a downturn from record sales and production in North America has been expected.

However, he pointed out if the U.S. market shrinks by the 1.5-million vehicles forecast that’s nearly the equivalent of all Canadian sales. Canada enjoyed record sales of just over two million vehicles in 2017.

“For an industry that exports most everything to the U.S., I’d rather have a stronger American market than record sales in Canada,” Faria said.

DesRosiers said the Canadian auto industry will become increasingly about research and development rather than production.

He added the lack of clarity over the NAFTA negotiations isn’t helping either.

“We’re sitting on the edge of a difficult period in the automotive industry,” DesRosiers said. “Every analyst in the U.S. sees the market being down.”

For an industry that exports most everything to the U.S., I’d rather have a stronger American market than record sales in Canada.