TORONTO, April 30 /CNW/ - While automakers are sourcing globally, the
Canadian auto parts sector continues to think locally and remains almost
exclusively focused on the domestic and U.S. markets, according to the latest
Global Auto Report released today by Scotia Economics. General Motors, Ford
and Chrysler still account for nearly 90 per cent of all shipments from
Canadian auto parts facilities, nearly double their 55 per cent share of
overall Canadian and U.S. vehicle sales.
    The value of Canadian auto parts in each North American built vehicle
declined to $1,869 last year, more than seven per cent below the 2004 peak of
$2,019. Suppliers of brakes, engines, electrical and steering systems are
facing the greatest pressure, with their content per vehicle slumping by
nearly 20 per cent over the past two years, double the drop-off of the entire
industry. In contrast, companies concentrating on seating, transmission and
power trains, and, to a lesser extent, metal stamping are outperforming, with
2006 shipments above the industry-wide peak of two years ago.
    "Canada has several world-class auto parts companies that are continuing
to gain market share, even in the current turbulent environment," says Carlos
Gomes, Scotiabank's auto industry specialist. "For example, we estimate that
since the new millennium, Canada's two largest auto parts suppliers have
boosted their content in North American vehicles by more than 70 per cent to
$880 per vehicle. However, during this period, the rest of the Canadian supply
base has seen its content decline by roughly 10 per cent, with the drop-off
accelerating last year."
    Canadian auto parts shipments have declined sharply over the past two
years, a significant reversal from more than a decade of consistent market
share gains. This reflects lower vehicle production at the traditional Big
Three in North America, the impact of a rising Canadian dollar, which has
eroded the industry's competitiveness and virtually no exports to the rapidly
growing emerging markets of Asia and Latin America. As result, while global
vehicle production continued to scale new heights in 2006, the value of
Canadian auto parts shipments slumped below $30 billion, the lowest level
since the 2001 economic downturn.
    A similar trend is evident in the United States, with U.S. suppliers
capturing less than 60 per cent of their home market in 2006, for the first
time on record. As recently as 1999, U.S. suppliers garnered more than 70 per
cent of the U.S. market. As in Canada, low-wage countries are posting the
strongest gains.
    "Despite the recent shift in vehicle production to the U.S. South, the
traditional vehicle-producing states, Michigan and Ohio, remain the
destination for nearly half of all Canadian auto parts exports to the United
States," says Mr. Gomes. "As a result, vehicles produced in the U.S. South
have only one-third of the Canadian content of those assembled in Michigan."
    Turning to new vehicle sales, after starting the year on a strong note,
purchases in North America have softened over the past two months. In the
United Sates, sales edged down to an annualized 16.3 million units in March,
from an average of 16.6 million during the previous two months. The weakness
was concentrated among the traditional Big Three, especially Ford and General
Motors. In contrast, Asian and European automakers continued to gain, with
Toyota posting record sales in March. The company's car sales jumped 19 per
cent year-over-year, buoyed by strong demand for its Prius hybrid.
    Weaker-than-expected volumes at General Motors prompted the company to
trim its second-quarter North American production schedule by an additional
15,000 units. Automakers now plan to reduce second-quarter vehicle production
in Canada and the United States to an annualized 13.8 million units, down from
14.3 million in the opening months of 2007, and in line with the weak output
registered in late 2006.
    Canadian vehicle sales fell 0.3 per cent below a year earlier in March,
undercut by a double-digit decline at General Motors. However, we estimate
that overall sales remained above an annualized 1.60 million units for the
fifth consecutive month, underpinned by double-digit year-over-year gains in
Alberta and Saskatchewan. Sales were weakest in Ontario last month, falling
8 per cent below a year ago. The fall-off reflects slowing economic growth due
to declining exports to the United States, the destination for 60 per cent of
the province's manufacturing output and 86 per cent of its overall exports.

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