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Productivity levels at Canadian automotive manufacturing plants are significantly above both Mexico and the US, according to the latest numbers in the Scotiabank Canadian Auto Report. "Our estimates indicate that productivity — measured by the number of worker days required to assemble a vehicle — currently stands at 3.04 in Canada compared with 3.27 in the United States, nearly a 7% advantage," says Carlos Gomes, Scotiabank auto industry specialist. "This represents a further improvement from Canada's 5% edge in 2000 and 1% advantage in the mid-1990s." Canadian plants are 33% more productive than Mexico.
While the realm of car manufacturing and assembly plants is exclusive to large corporations, the local and independent service shops take care of these automobiles once they come off the assembly line and hit the local roads. "The thing that most people are not aware of, when you look at small business in Canada, the automotive sector, the service and repair, what we call the aftermarket business, is a $15-billion industry that employs 225,000 people," says Ray Datt, President of Automotive Industries Association.
The strong upsurge in new car sales in the last four or five years is only now starting to show in this aftermarket industry, says Datt. This situation, coupled with people keeping their cars longer, will lead to more business for the sector. According to the Scotiabank report, sales in Canada are poised to surpass 1.6 million units for the first time. "If more new cars are being sold and less old cars are being scrapped, the size of the fleet is going up. The strength of new car sales over the last five years will start to bring more cars back to the service and repair industry as they get older, and that's good news for everybody," says Datt.
Toronto on top
Three Canadian facilities rank among the top 10 most efficient plants in North America. Plants in the GTA were included in these ratings where they were 15% ahead of the US and had a 40% edge on Mexico. "The competitive advantage of auto assembly plants in the GTA is important to highlight because the region accounts for roughly half of all assembly capacity in Canada," says Gomes. "Going forward, industry and government should focus on initiatives that bolster the competition vis-à-vis the US south because the latter region is the next growth area."
A hiring increase may have attributed to the Canadian productivity increase, allowing the industry to do better than its competitors after a two-year slump. "Auto manufacturers and parts suppliers in Canada have created 8,500 new jobs so far this year, recouping more than half of all job losses since late 2000," says Gomes. "In addition, job creation in the Canadian auto sector this year has matched that of the much larger US industry, where only 7% of all jobs lost since late 2000 have been recovered."
Competition ahead
The US and Mexico plan to open facilities that will challenge the Canadian position as a competitive leader. The southern US states of Alabama, Kentucky, Mississippi and Tennessee represent the biggest growth area in the next five years. These states offer incentives to manufacturers in an attempt to boost their own economies.
Small business owners should not worry too much about this increasing competition, or even plant closures, as they are beyond their control, says Datt. What small business owners should be most concerned with is how they can gain market share. "The small businesses, if they don't find ways to get into that marketplace and are comfortable only servicing North American cars, their share of the market will drop. If ever there was a time for threats and opportunities, it's now because the market is changing dramatically and will continue to change. The Japanese and Europeans have a whole different outlook to service and repair competition than the domestic North American folks do."
Michelle Collins is a CanadaOne™ staff writer.
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