Vehicle production is plunging across the globe as automakers struggle to get their hands on vital computer chips, resulting in long downtime at assembly plants and posing a challenge to economic recovery.
Despite this, the Canadian slowdown is particularly severe.
In August, light vehicle production in Canada fell 38% from a year earlier, according to data from research firm Wards Intelligence. Production in the United States fell by 16 percent over the same period and in Mexico by 20 percent.
Canada has not always been lagging behind. In the early months of the COVID-19 pandemic, the trend in Canadian production largely mirrored that elsewhere in North America and Europe, marked by plant closures in the spring and a rapid rebound over the course of summer.
This year, however, the chip shortage has hampered production. And while the reductions are widespread, they have also been significantly larger in Canada, which is on track to produce fewer vehicles this year than in 2020, when the industry shut down.
Analysts and industry veterans say the reason for Canada’s weaker trend is quite simple: With a tight supply of chips, automakers are prioritizing their higher-margin vehicles – and these are manufactured in other markets.
“The way that automakers decide to allocate a reduced supply of microchips is to choose their most profitable lines,” said Flavio Volpe, president of the Association of Auto Parts Manufacturers. “Usually this means vans or large [sport utility vehicles]. … Apparently, these are not the lines that are built in Canada.
The auto industry is emblematic of what is plaguing the global economy in its recovery from COVID-19. At the start of the pandemic, automakers canceled orders and can no longer obtain enough computer chips, a situation recently exacerbated by outbreaks of the Delta variant in Southeast Asia. These supply issues are exacerbated by the lack of shipping containers and delivery delays. Manufacturers had no choice but to curb their production.
Ultimately, there is less inventory at car dealerships, forcing consumers to shell out more money for vehicles, whether new or used, and fueling higher inflation that has become a topic. debate among economists, investors and central bankers. Many frustrated consumers are simply hanging on to their money.
The spinoffs are evident in the Canadian labor market. Almost 10,000 auto manufacturing jobs have yet to be restored, and the number of people receiving unemployment benefits through EI remains high in places like Windsor, Ont.
This is a major obstacle on the way to Canada’s recovery, especially for parts of southern Ontario where the auto industry plays a disproportionate role in the local economy.
“Canada has always been at risk for the auto industry when it comes to decisions made in other countries,” said Jerry Dias, president of Unifor, whose membership includes thousands of auto workers . “We have no control over our industry.
The disruption of the supply chain has been brutal for American automakers. General Motors Co., Ford Motor Co. and Stellantis NV (which owns Chrysler, Jeep and other brands) have imposed lengthy shutdowns on Canadian assembly plants this year. GM’s CAMI plant in Ingersoll, Ont., Has been largely closed since February.
Japanese automakers have not been spared either, despite maintaining larger parts inventories. Toyota Motor Corp. and Honda Motor Co. Ltd. reduced their production, including in Canadian factories.
These decisions impacted the Canadian auto parts industry, which in terms of gross domestic product is much larger than vehicle manufacturing.
“There’s a really big trickle-down effect here,” Volpe said. “If one assembly plant is down, then all of its power plants are down as well. So everyone feels the pain.
The impact is visible at car dealerships. In September, vehicle sales in Canada fell 20% from a year earlier, which analysts blamed on a lack of supply. With fewer cars available, the price of new vehicles has jumped 7.2 percent in the past year, according to the latest inflation data from Statistics Canada. Lightly used vehicles often sell for more than when they were new.
“The demand is just really high and the willingness to pay is really high,” said Rebekah Young, director of fiscal and provincial economics at the Bank of Nova Scotia. “But it’s the supply constraint that’s hurting things. “
The prospects for production are somewhat obscure. A recent Scotiabank report said it “seems increasingly optimistic” that global vehicle production will pivot in the fourth quarter, reaching capacity next year. However, with such pent-up demand for vehicles, supply shortages in North America could persist until 2023.
The Canadian sector should get a boost later this year. Auto assembly is set to return to GM’s Oshawa plant – this time with Chevy Silverado and GMC Sierra pickup trucks. “These are extremely profitable vehicles,” said Kristin Dziczek, senior vice president of research at the Michigan Center for Automotive Research.
Still, Wards Intelligence predicts that Canada will manufacture 1.6 million vehicles next year and into 2023 – stronger than this year and last year, but less than 1.9 million units in 2019. The industry Canada is in a period of transition that will slow production, but is also accompanied by historic investments intended to serve future demand.
On the one hand, CAMI’s Ingersoll plant is retooling to produce commercial electric vehicles starting next year – a process that will see GM phase out assembly of the Chevy Equinox in Canada. Likewise, Ford’s Oakville plant will revamp its operations in 2024 to begin manufacturing electric passenger vehicles the following year.
It will be a “difficult time to retool and drop in volume,” Ms. Dziczek said. “But it also gives the industry a glimpse into the future. “
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