(In U.S. dollars)
By Amran Abocar
TORONTO, March 31 (Reuters) - North American auto-parts suppliers, already under pressure from car makers keen on lowering costs, face a growing challenge from China and other low-wage countries, a report released on Wednesday said.
Scotiabank's Canadian Auto Report said the increased competition from low-cost countries seen in recent years will only heighten in the years to come.
Carlos Gomes, Scotiabank's auto industry specialist, said North American companies have done a decent job of fending off the challenge by "moving up the value chain" and focusing on parts that have more value added, typically highly engineered components.
"Continue to do what you're doing but realize that, with people locating in these low-wage countries, the competitive pressures really are intensifying even further, is really the point that we're getting at," he said.
Gomes noted that in North America, Mexico has been the lowest-cost region with labor rates of about $3.20 an hour. Canadian wages are about $23.80 an hour, while U.S. workers get roughly $33.60 per hour.
"Even Mexico will be challenged to compete with the ultra-low wages of $1.30 per hour paid to a worker in China," he said. "It's obvious that we can't compete on labor cost alone."
Gomes said that while wage and benefit costs account for about 15 percent of most Canadian and U.S. suppliers' total costs, materials account for about 60 percent.
The report said suppliers that make parts that are labor-intensive and have little value added, such as brakes and electronic products, are more at risk from part imports from Asia countries.
With automakers asking suppliers to lower their prices by at least 3 percent a year, Gomes said increased global sourcing of materials means parts makers may lose existing contracts if cheaper locations are found.
"What they have to do is...continue to invest in machinery, and equipment and research and development so they can produce parts with greater value added," he said. "That's really where we can, and have, developed our niche here in Canada."
Chinese parts imports to Canada and the United States have risen but still only account for about 1.5 percent of the market.
($1=$1.31 Canadian)