New Bridge, Auto Policy Key to Canada’s Future

This is the second in a series of reports on the health of the North American auto industry. Wednesday: Mexico.

Much of Canada’s potential for growth as both an economic stronghold in automotive sales and a world-class producer of light vehicles hinges on the stars aligning across several sectors in the coming year.

An important step is a proposed second bridge to span the Detroit River, joining Michigan and Ontario, which in large part would be funded by the Canadian government.

The idea was championed by top automotive executives and analysts seeking to alleviate traffic on the privately owned Ambassador Bridge, where 8,000 trucks, many of them carrying just-in-time parts to auto makers on both sides, are routed through residential neighborhoods.

“There are so many engineers in this room, why don’t we get together and build a bridge?” Sean McAlinden, chief economist at the Center for Automotive Research, told attendees at this summer’s CAR Management Briefing Seminars in Traverse City, MI, where Michigan Gov. Rick Snyder, the bridge’s most outspoken cheerleader, was a featured speaker.

The new bridge is expected to cost $4 billion to build and has a number of legal hurdles to overcome before construction can begin. There are two other spans between the international borders that include the Detroit-Windsor tunnel, which trucks cannot use, and the Blue Water Bridge in Port Huron, MI, located more than 60 miles (96 km) north of Detroit.

The New International Trade Crossing, as the proposed bridge is being called, would provide greater accessibility between Michigan and Canada, and this could lead to new private investment as well as job creation and retention, says a CAR study published this year, noting the State of Michigan could see a $130 million gain in gross state product each year the bridge is in operation.

Meanwhile, unionized Canadian auto workers are hoping momentum gained from ratifying new contracts with the Detroit Three can help stabilize the local industry.

Canada long has been criticized as an expensive place to build cars, especially as production hubs continue to crop up in Mexico. Audi, Mazda, Honda and Nissan plan to add assembly plants there and other OEMs such as Ford, General Motors and Fiat are investing more money in existing facilities.

Canadian Auto Workers Union President Ken Lewenza says his country needs a national automotive policy, similar to those in Germany and Brazil, that lays a foundation for the industry’s ongoing competitiveness and prevents what he calls a “race to the bottom” on working conditions.

“One of our objectives coming into these talks was to position our industry for future growth and success, and we did as much as we possibly could on that front,” Lewenza says. “But without a comprehensive sector-development strategy, the future of auto manufacturing in Canada remains uncertain, at best.”

He also tells journalists on a separate occasion, “We don’t know how committed the government is to a national auto policy. The auto industry should be a national priority.”

With collaboration between industry leaders and government officials, Lewenza says such a policy could help Canada reclaim its spot among top automotive manufacturing countries. Where once it ranked No.4 on the list, the country no longer is in the top 10.

Canada can rely on the continued rebound of the Detroit Three to stabilize losses, which can add to the improved health of North America overall, one observer says. “We should be able to sustain a 2.5 million-plus vehicle market for quite some time,” veteran Canadian automotive analyst Dennis DesRosiers tells WardsAuto.

“We are of the belief that Canada will attract investments, but there’s no fundamental reason why Canada can’t keep the investments it already has.”

To that end, the federal government recently announced a commitment of nearly C$34 million ($34.3 million) to fund six research projects aimed at developing fuel-saving technologies for auto makers.

Projects will be centered at various Canadian universities, with C$19 million ($19.2 million) of the total outlay coming from Automotive Partnership Canada, a government-industry alliance. Nearly C$15 million ($15.1 million) will come directly from the auto industry, says Gary Goodyear, minister of state for science and technology.

“This type of an announcement creates not only local jobs but it also puts Canada in a very competitive position to sell our cars and our technology to the rest of the world, creating even more jobs,” he says.

Despite changing conditions among auto makers in Canada, sales appear strong. By year’s end, light-vehicle deliveries could match near-record highs last reached in 2002, when they topped out at 1.73 million units. September LV sales nearly surpassed the monthly record set in 2000, and October’s ranking slipped just below year-ago.

“Such a strong September means that year-end sales in Canada will approach 1.7 million units, not a record but a good starting point for record sales in 2013,” DesRosiers writes in his blog that “the SAAR (seasonally adjusted annual rate) in September was 1.71 million units, very close to a decade-long high. We appear to be finishing the year very strongly.”

However, all of the increase in September was in car sales, up 15%, while light trucks remained flat, he says. “This explains some of the underperformance of Detroit brands (in the month). Detroit product portfolios are much strong on the light-truck side of the market than the car side, so when passenger cars sell well the import brands show better performance.”

WardsAuto is calling for Canada LV sales to reach 1.73 million units in 2012 and 1.82 million in 2013.

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