A SILVER LINING
Sales boost fuels bright forecast for Canada’s auto industry,
Canadian automakers’ profits are expected to jump 73 per cent to $2.36 billion this year thanks to a lower dollar and record sales, the Conference Board of Canada says in its spring outlook.
But a dark cloud hangs over General Motors’ Oshawa plant with1,000 job losses this year and more possible in 2016, the board said in a report due Wednesday.
“Profit margins should improve over the next two years, and vehicle producers will likely see their highest profits in years,” the report predicts.
Though they are quite good and better than they have been in recent years, those profits still represent only about half the profits seen in the late 1990s and early 2000s, a board spokesperson said later.
Sales in 2015 are expected to rise 5.6 per cent to $59.5 billion.
About 86 per cent of vehicles produced in Canada are sold to the U.S., where Canada’s lower dollar is proving to be a competitive advantage. The Canadian dollar, which closed Wednesday at 80.65 cents U.S., is trading at lows not seen in a decade.
That’s down from about 92 cents U.S. in June 2014 as plunging world prices for oil hurt energy-rich Alberta’s prospects and Canada’s overall economic growth.
Auto sales in Canada may be reaching a saturation point, as lower oil dampens demand in Alberta, but still have a way to go in the U.S., where the labour market remains strong, the report says.
Vehicle sales in the U.S. reached 16.4 million in 2014, a 5.7-per-cent jump over 2013 and the industry’s best showing since 2005. Demand has been especially strong for light trucks, which continue to grab market share away from passenger cars.
Vehicle sales in Canada have also been exceptionally strong over the past two years, reaching a record 1.89 million units in 2014.
However, the labour market in Canada has been weak recently. Only 16,000 net new jobs were added in the six months up to April 2015, and unemployment rose 0.2 percentage points to 6.8 per cent during the same period.
As well, Canadian vehicle sales have been fuelled in part by a marked increase in subprime lending, the report says. Some dealers and banks have been offering car loans for as long as eight years to would-be purchasers with poor credit scores, the report says.
Meanwhile, the future of GM’s Oshawa assembly plant remains in doubt.
The automaker is losing production of the Chevrolet Camaro to a plant in Lansing, Mich., at a cost of 1,000 jobs by the end of this year. Almost all of the jobs are being cut through early retirement incentives, the company has said.
But more layoffs may be coming next year with the expected shutdown of GM’s consolidated assembly line, which makes the Chevrolet Impala, the conference board says.
“If GM does not announce within the next two years that it is bringing new production to Oshawa, the whole plant could be shut down in the not-too-distant future,” the report cautions.
“Needless to say, such a loss would have a big impact on the industry,” the report warns, noting the plant accounts for11per cent of auto production in Canada.
GM’s remaining Flex line in Oshawa makes some Camaros, as well as the Cadillac XTS and Buick Regal.
The plant offers some competitive advantages, the report says. Nearly 2,100 of the 3,600 employees are retirement eligible and would be replaced with new, lower wage employees, the report says.
But much will depend on what kind of deal the U.S. automakers strike with their own U.S. workers this year, and how that affects Canadian auto workers’ talks in 2016, the report says.
Recent major investments by Fiat Chrysler in its Windsor minivan plant and by GM in its Ingersoll Cami plant are welcome news, the report says, but do not boost production capacity or jobs.
Canadian auto industry production was down 6.7 per cent in the first four months of 2015 because of planned shutdowns at Ford’s Oakville plant and Fiat Chrysler’s Windsor plant as they retooled to build new models.
Production in Canada is expected to rise by 2.5 per cent for the year. Including price gains, Canadian auto industry revenues are expected to rise by 5.6 per cent, following a 6.1-per-cent increase in 2014.
But growth is expected to slow after 2015 as the Canadian dollar stabilizes around 85 cents U.S. and production in Oshawa diminishes.