Canadaâ€™s Motor Vehicle Manufacturing Industry

KEY INDICATORS

f = forecast; n.a. = not applicable (growth rates cannot be calculated with negative numbers). Italics indicate percentage change.

KEY ISSUESU.S. Recession—Motor vehicle sales in the United States will remain very weak as consumers retrench from the global financial crisis.

Assembler Solvency—The restructuring of Chrysler under Chapter 11 bankruptcy, and General Motors’ heavy dependence on public aid, present ongoing challenges to the viability of the major auto manufacturers.

Manufacturer ownership—The high degree of union ownership of one or more of the Detroit Three parent companies could provide downside risk for investment in the medium term.

Canadian Industrial Outlook Spring 2009

ECONOMIC pERfORMANCE AND TRENDS

Short-Term forecast Trend

productionWeak

pricesSoft

profitsWeak

Risk Index(percentage change)

Cyclicality

6 mos. 3 mos. Current0246

-1 0 1

0.73

Canada’s Motor Vehicle Manufacturing Industry

2005 2006 2007 2008 2009f 2010f 2011f 2012f 2013f

Real GDp (2002 $ millions) 15,058 14,765 14,067 11,083 6,585 7,709 8,943 10,427 11,9196.5 –1.9 –4.7 –21.2 –40.6 17.1 16.0 16.6 14.3

Employment (000s) 83.3 81.9 73.3 64.5 51.1 51.6 55.0 57.6 59.93.9 –1.7 –10.5 –12.1 –20.7 1.0 6.5 4.7 4.0

price index (2002 = 100) 78.8 73.7 69.7 69.5 79.8 78.3 77.2 76.9 77.1–6.5 –6.6 –5.4 –0.3 14.9 –1.9 –1.5 –0.4 0.3

Revenues ($ millions) 66,922 61,897 60,552 47,046 31,801 36,511 41,762 48,500 55,626–0.3 –7.5 –2.2 –22.3 –32.4 14.8 14.4 16.1 14.7

Costs ($ millions) 66,881 62,515 60,795 49,736 33,890 37,295 41,976 48,303 55,032–0.3 –6.5 –2.8 –18.2 –31.9 10.0 12.6 15.1 13.9

profits ($ millions) 42 –618 –243 –2,690 –2,089 –784 –213 197 5942.8 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 201.4

profit margin (per cent) 0.1 –1.0 –0.4 –5.8 –7.0 –2.2 –0.5 0.4 1.1

2 | Canada’s Motor Vehicle Manufacturing Industry—Spring 2009 Download this report and hundreds of others at www.e-library.ca

1 Spending on Autos and parts as Share of Real Total U.S. Consumer Expenditures(per cent)

f = forecastSources: The Conference Board of Canada; U.S. Bureau of Economic Analysis.

U.S. Consumers The fallout of the global financial crisis has hit the real U.S. economy decisively,

creating a ripple effect that will be acutely felt by Canadian motor vehicle

exporters well into the medium term. South of the border, tighter credit con-

ditions, rising unemployment, and significant losses in wealth following the

drop in home prices and stock values will ravage near-term consumer spend-

ing prospects. The Conference Board expects real U.S. household spending

to remain weak through this year, with a recovery in purchases of consumer

durable items coming only in 2010.

In total, real U.S. spending on autos and parts is forecast to slip by 18 per cent

in 2009. This will drive auto and parts spending as a share of total U.S. consumer

expenditures below 4 per cent, a level not seen since 1961. (See Chart 1.)

CURRENT ENVIRONMENT

What a year of upheaval for the auto-

motive sector! In 2008, automotive

goliath General Motors ceded its crown

as the world’s largest automaker—a title the company

had held for 77 years—to Japanese rival Toyota.

GM is teetering on the brink of insolvency after

having burned through over C$22 billion last year,

and is caught between a rock and a hard place in

formulating an effective restructuring plan by June 1.

As well, in April 2009, another fabled auto giant—

Chrysler LLC—was finally forced to enter an exped-

ited form of Chapter 11 bankruptcy after negotiations

with its creditors failed. The bankruptcy was carried

out under the guiding hand of the U.S. Treasury to

facilitate a speedy merger with Italian automaker

Fiat SpA. Canadian and U.S. government aid has

been the glue holding the two U.S. auto giants

together to date.

Even the steadier manufacturers—such as Ford,

Honda, and Toyota—are suffering as the reluctance of

U.S. consumers to spend weighs heavily on profit-

ability and will continue to do so well into the medium

term. U.S consumers are expected to

cut back on demand for new motor

vehicles sharply in 2009—to levels

not seen since the U.S. Bureau of

Economic Analysis began to report

the data in 1976. The repercussions

of consumers’ collective pull-back

will be severe. In Canada alone, the

motor vehicle manufacturing sector

will not see a single glimmer of

profitability until 2012, and even

then it will be faint.

Interesting structural changes are

bubbling under the surface amid

ambitious restructuring plans at

Chrysler (and in preliminary offers

from GM). Legacy costs—including

retiree pension and health-care

benefits—will be transferred to the

United Auto Workers Union (UAW)

in return for large equity positions

in the future iterations of the two

automakers. The UAW has agreed

to accept majority ownership of the

new Chrysler-Fiat brand, and a sim-

ilar proposed deal is in the works at

GM, where the UAW stands to take

a 39 per cent ownership stake. These

are radical adjustments, and they pose

important questions about the risk and

incentive structure that these compan-

ies will adhere to vis-à-vis investment

and compensation planning as the

automakers go under the financial

knife this year.

MACROECONOMIC DRIVERS

The sharp drop-off in Canadian and U.S. demand for new motor vehicles will

create a challenging supply-side environment going forward for Canadian

auto manufacturers. The swift depreciation of the Canadian dollar from parity

since July 2008 will provide little offset to the drop in broad consumer

demand this year.

1960 64 68 72 76 80 84 88 92 96 00 04 08 12

f3

4

5

6

7

Download this report and hundreds of others at www.e-library.ca The Conference Board of Canada | 3

2 U.S. Light Vehicle Sales plunge in 2009(millions of units)

f = forecastSources: The Conference Board of Canada; U.S. Bureau of Economic Analysis.

3 Canadians Cut Back Spending on Autos for a Second Year(2002 $ billions)

f = forecastSources: The Conference Board of Canada; Statistics Canada.

In terms of units, new vehicle sales will fall to 9.56 million units in 2009—

the lowest level on record1—and will rise only slightly to 9.7 million units

in 2010. (See Chart 2.)

Canadian ConsumersA protracted slowdown in financial and consumer activity in the United

States will take its toll on the Canadian economy, which will contract by an

estimated 1.7 per cent this year. The decline in consumer and business confi-

dence resulting from the financial turmoil and the falling stock market will

reverberate strongly in the Canadian trade sector and among domestic con-

sumers.

As in the U.S., declining employment, reduced wealth, and tighter credit con-

ditions will all result in slower domestic sales of new motor vehicles. In total,

real consumer spending on motor vehicles is forecast to fall by nearly 12 per

cent in 2009, with growth rebounding thereafter as the economy slowly

returns to its potential. (See Chart 3.)

1 Data currently exist back to 1976.

Unions Accede to Massive Cost-CuttingIn April 2009, a landmark collective bargaining agreement between Chrysler

Canada and the Canadian Auto Workers union delivered the beleaguered auto

manufacturer an estimated $240 million in annual labour-cost savings over

12.5 million work hours. In an attempt to secure public sector assistance to

facilitate a merger with Italian automaker Fiat SpA, Chrysler and the CAW

INDUSTRY TRENDS

The reality of bankruptcy among key Detroit-based auto manufacturers will

dramatically reshape Canada’s motor vehicle manufacturing sector. In the

near term, production and exports will plummet as U.S. demand for autos

falls below 10 million annualized units. Unprecedented structural changes

along with government financing and oversight of company restructuring

will be a necessary precondition for a delayed recovery of production to

2008 levels by 2013.

1976 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

f8

10

12

14

16

18

2001 02 03 04 05 06 07 08 09f 10f30354045505560


4 Relative Motor Vehicle Assembly Wages by Manufacturer($ per hour, total compensation)

Sources: The National Post; The Globe and Mail; The Toronto Star.

5 Chrysler’s proposed Ownership Under Restructuring(per cent)

Source: Chrysler LLC.

agreed to a $19 per hour cut in benefits and other concessions. That brought

total hourly labour costs down to $57. After accounting for these hourly labour

cost cuts, Chrysler Canada’s wage bill is now in line with those of its Japanese

competitors, such as Honda and Toyota. (See Chart 4.)

In addition to concessions previously negotiated between General Motors Canada

and the CAW, semi-private hospital coverage and a one-time $3,500 vacation

buy-out implemented in 2008 were eliminated. The CAW and Chrysler Canada

also agreed to establish a retiree health-care trust similar to that negotiated

by the United Auto Workers with Chrysler LLC in the United States. General

Motors (which had already succeeded in securing cuts in labour costs of over

$7 per hour) and Ford Canada are expected to renegotiate similar agreements

with the CAW now that the precedent has been set with Chrysler.

Bankruptcy: The “Worst Case Scenario” Unfolds for Chrysler LLCChrysler will receive C$17.4 billion in total financing from the Canadian and

U.S. governments. On April 30, the company filed for bankruptcy protection

in the United States, and the funding will allow it to keep operating through

a rapid restructuring aimed at facilitating a speedy merger with Italian auto

giant Fiat SpA. On top of the $750 million already drawn down by Chrysler

Canada, the Canadian and Ontario governments have pledged to jointly provide

$3.8 billion to cover debtor-in-possession financing and exit financing once

Chrysler emerges from Chapter 11 bankruptcy protection. As part of this deal,

the Canadian and Ontario governments will jointly hold a 2 per cent equity stake

in Chrysler. The deal will secure Canadian production at the Brampton and

Windsor assembly plants, as well as at a parts plant. Furthermore, the Canadian

stake will entitle Canada to one of six government seats on Chrysler’s new

nine-seat board of directors.

Bankruptcy protection will last 30 to 60 days, during which most manufacturing

operations will be temporarily halted for cost-cutting. In Canada, the hit to

second-quarter production will weigh in at 15 per cent. No permanent plant

closures in Canada have yet been announced. Chrysler’s Canadian, Mexican, and

other international operations are not part of the U.S. Chapter 11 bankruptcy

filing. Chrysler has announced that it has no plans to file for bankruptcy pro-

tection in Canada.

On May 4, Chrysler announced that the U.S. Bankruptcy Court approved

an interim $4.75 billion of debtor-in-possession financing, funded by the

U.S. Treasury and Export Development Canada, and the use of $464 million

of cash collateral, enabling the company to meet its working capital and gen-

eral business needs in the short term. This decision enables Chrysler to con-

tinue “normal course” business operations following the May 8 approval of

its merger with Fiat.

Under the merger agreement, Fiat will take an initial 20 per cent stake in

Chrysler LLC, with the option to purchase up to an additional 15 per cent

of the company—in three 5 per cent tranches— if it meets certain obliga-

tions. (See Chart 5.) Arguably, the lynchpin of the Fiat–Chrysler deal is the

General MotorsFord

ChryslerToyotaHonda

0 10 20 30 40 50 60 70 80

2008 2009

35

55

8 2 Fiat

UAW

U.S. Government

Canadian and Ontario governments


concession by the UAW to accept 55 per cent ownership of Chrysler LLC

and a $5.33-billion note in lieu of cash to finance $12.3 billion of retiree

health-care and pension benefits once the company finalizes restructuring.

Under the current plan, Fiat’s obligations include producing a 40 mile per gallon

platform in the U.S., creating a fuel-efficient engine family to be manufactured

in the U.S., and granting Chrysler access to Fiat’s distribution and export net-

work. If these goals are met successfully, then Fiat will have the option to pur-

chase a further 16 per cent of Chrysler, bringing its total share of ownership

to 51 per cent. However, Fiat’s ownership of Chrysler would be capped at

49 per cent until Chrysler has fully repaid its loans from the U.S. Treasury.

From an efficiency perspective, Chrysler will benefit significantly from its

partnership with Fiat. As part of the agreement, Chrysler will be allowed to

use Fiat platforms and engine technology in the North American Free Trade

Agreement (NAFTA) region—Canada, the U.S., and Mexico—and will also

gain access to Fiat’s distribution network outside North America. This could

present growth opportunities in areas where Fiat’s presence is especially strong,

notably in Europe, Brazil, and throughout Latin America.

What is remarkable in these developments is the fact that the Canadian sub-

sidiary will not be obligated to seek bankruptcy protection from creditors while

its parent company completes bankruptcy proceedings. Under section 18.6 of

Canada’s Companies’ Creditors Arrangements Act, all three Chrysler Canada

plants will continue operating during Chrysler LLC’s bankruptcy proceedings.

This arrangement is only possible thanks to the fact that Chrysler Canada has

no debt and is up to date on payments to its various suppliers. To further back-

stop Canadian operations, the Canadian federal government will guarantee war-

ranties on new Chrysler, Jeep, and Dodge vehicles purchased after April 7, 2009.

General Motors: Will Government Unplug Life Support?Much like Chrysler, GM’s survival is contingent upon generous lifelines pro-

vided by the U.S. and Canadian federal governments. The company is currently

engaged in negotiations with the Canadian government to secure a $3-billion

bridge loan (to ensure its operations can remain open through to the end of May)

as part of $7.5 billion in long-term loans from the Canadian and Ontario govern-

ments to remain alive until North American vehicle sales recover. The company

has until the end of May to gain concessions from all its stakeholders and put

together a viability plan the U.S. and Canadian governments find acceptable

in order to qualify for long-term government aid.

To date, GM has already announced a number of cost-cutting initiatives to justify

continued public support. In Canada, GM has pledged to slash its dealer network

in half—from 705 dealerships to between 395 and 425 by 2010. (Previous plans

called for a cut to between 450 and 500 by 2014.) The company intends to whit-

tle its unionized Canadian workforce down from 10,300 in 2008 to 4,400 by 2014

by means of a series of closures (including the May 14th shutdown of its truck

plant in Oshawa and the closing of its Windsor transmission plant in late 2010)

and shift cuts. The Pontiac brand will be scrapped no later than 2010. The end


6 GM’s proposed Ownership Under Restructuring(per cent)

Source: General Motors Corp.

7 Real Exports Dip Alongside Hesitant U.S. Consumer(2002 $ billions)


of Pontiac seals the closure of the company’s Ontario Street engine plant in

St. Catharines, and it could have an impact on GM Canada’s Cami Automotive

joint-venture plant in Ingersoll, which manufactures the Pontiac Torrent.2 By the

end of next year, GM will have phased out or sold off four (Hummer, Pontiac,

Saturn, and Saab) of its eight brands.

The most recent iteration of a proposed GM restructuring plan would see

bondholders assume a 10 per cent equity stake in the beleaguered automaker

in exchange for C$31.5 billion in debt. Some 89 per cent ownership would

be shared between the U.S. Treasury and a new health-care trust fund to be

financed, along the lines of the Chrysler LLC deal, with GM shares. Current

stockholders would receive 1 per cent equity. (See Chart 6.) GM’s bondhold-

ers have until May 26 to ratify GM’s proposed restructuring package, and an

estimated 90 per cent support will be required among bondholders to secure

further assistance from the U.S. Treasury. Should bondholders fail to support

the deal, GM is expected to file for bankruptcy by June 1.

production Outlook The Canadian motor vehicle manufacturing industry entered 2009 in an undeni-

ably weak position. The Canadian automotive sector has been, and will continue

to be, heavily affected by the U.S. recession and the drop in U.S. consumer

demand. After a 21 per cent contraction in total output in 2008, Canadian auto

manufacturers will continue to cut production. In 2009, total real Canadian motor

vehicle manufacturing is forecast to recede by a further 36 per cent, the result of

a nearly 57 per cent cutback in exports! (See Chart 7.) In fact, real production

this year will fall below levels not seen since the 1992 recession.

January saw the total closure of GM and Cami assembly facilities, as well as

Chrysler’s Windsor truck plant. Chrysler’s Brampton car assembly site operated

at only one-third capacity over the same period. Even at Toyota and Ford, pro-

duction was halved. Few improvements were registered in February as manu-

facturers continued to burn off unwanted inventories. The cuts are continuing

through the second quarter as Chrysler halts production amid restructuring

plans with Fiat; and on May 14, GM’s Oshawa truck plant closed its doors.

While the high degree of export sensitivity will plague Canada’s motor vehicle

manufacturing industry in the first half of 2009, the latter half of the year will

benefit from this same factor as U.S. consumer demand begins to rise. Even tak-

ing into account the planned elimination of the third shift on the Impala assembly

line at GM’s Oshawa car facility in 2010 and the phasing out of the Pontiac

brand, double-digit growth in exports will emerge as North American consumers

correct for 2008 and 2009’s under-consumption of light vehicles relative to

demographic needs. Ongoing government support of the Chrysler–Fiat merger

will bolster consumer confidence in the bankrupt brand, allowing the new joint

operation to reinvigorate its product line. However, the process of restructuring

will be laborious, delayed, and contingent upon continued government sup-

port of GM and Chrysler. Total Canadian vehicle production will only return

to its 2008 levels by the end of 2013.

2 Ingersoll also manufactures the Chevrolet Equinox, which underwent a major redesign for the 2010 model year, and the new 2010 GMC Terrain.

10

3950

1 GM bondholders

UAW

U.S. Government

GM stockholders

2004 05 06 07 08 09f 10f 11f 12f 13f0

20406080

100Exports Production


RevenuesRevenues in Canada’s motor vehicle manufacturing industry will recede for a

fifth consecutive year in 2009, falling by 32 per cent after nearly one-quarter

of revenues were cut from automakers’ balance sheets in 2008. (See Chart 8.)

In fact, revenues in 2009 will fall below half the average annual level seen by

Canadian motor vehicle manufacturers over the last decade. Significant near-term

reductions in production volumes across all vehicle assemblers—North American

and “foreign” alike— are by far the biggest cause of this unfavourable shift.

Even the depreciation of the Canadian dollar from parity in 2008 to around

US$0.86 in May, with its resultant increase in effective prices for the industry,

has not been enough to offset the decline in demand among U.S. consumers

who are contending with sustained job losses and shrinking personal disposable

incomes. Production shutdowns at GM, as well as select temporary closures at

other manufacturers in January, make the first-quarter revenue loss of 42 per cent

appear particularly dire. Second-quarter production will rebound sharply—even

amid temporary closures at Chrysler’s facilities and the shuttering of GM’s

Oshawa truck plant—because it is growing off a weak base.

Good news will trickle into the motor vehicle sector as the broad U.S. economy

stabilizes and job losses abate through the remainder of the year. Public assist-

ance of key auto manufacturers will bolster confidence among consumers

weighed down by recessionary psychology. Revenue growth will pick up steam

starting in 2010, and will average 15 per cent in the near term as consumer

demand gradually returns to historical norms.

CostsSustained and significant cost-cutting will remain central to the viability of any

of the restructured Detroit Three auto makers going forward. GM continues to

need government assistance to cover monthly operating costs, and is now tee-

tering on the brink of bankruptcy. Chrysler’s future hinges upon successful

near-term restructuring initiatives.

Fortunately, the demands of the North American governments haven’t fallen on

deaf ears. Sweeping efficiency gains have already been made in the motor vehicle

manufacturing industry as required under the Chrysler–Fiat deal and as part of

the loan preconditions extended to GM by the Canadian and U.S. governments.

Historic concessions paring legacy costs and wage bills have been made by the

UAW and CAW in recent negotiations with Chrysler, and similar cost-savings

will likely be negotiated with GM and Ford. In Canada this year, the combination

of temporary shift cuts and permanent plant closures will cut total labour costs

by 43 per cent as 13,400 auto assembly jobs are eliminated. (See Chart 9.)

8 Revenue Recovery Delayed Until Medium Term(revenues, $ billions; industry price index, 2002 = 1.0)


9Automotive Job Losses Staggering in 2009(year-over-year employment change, 000s)

f = forecastSources: The Conference Board of Canada; Statistics Canada; Wards Automotive Data.

fINANCIAL pERfORMANCE

Profitability will remain a distant goal for many of the parent companies of

the Canadian auto assemblers in the face of weak cyclical demand for new

light vehicles. The restructuring of Chrysler and the ongoing dependence

of GM on government financing will weigh down the sector, with marginal

profitability possible only in 2012.

2004 05 06 07 08 09f 10f 11f 12f 13f30

40

50

60

70

0.5

0.6

0.7

0.8

0.9

Revenues (left axis) Price (right axis)

-16

-12

-8

-4

0

4

2001 02 03 04 05 06 07 08 09f 10f


10Broad Cost-Cutting Necessary for Viability(costs, percentage change)


11Quarterly Losses of Select parent Companies(US$ billions)

Sources: Various companies’ public financial statements.

12profitability feasible by 2012(profits, $ billions; profit margins, per cent)


Material costs will also decline by nearly $13 billion this year as a result of

idle plants and scheduled production well below capacity. Total costs will fall

33 per cent—or $14.5 billion—by the end of 2009. (See Chart 10.)

The medium-term outlook is based on the assumption that GM will survive

and that the restructuring of Chrysler under a stable partnership with Fiat will

be successful. Real total cost growth will rise at a double-digit pace (averaging

14 per cent a year) in the medium term as U.S. new motor vehicle sales recover.

profitsProfitability will be a virtual impossibility in 2009 for many of the major auto-

motive manufacturers following mounting quarterly losses. This is particularly

true for GM and Chrysler, which will depend wholly on government aid to

backstop production. (See Chart 11.) GM, for example, burned through an esti-

mated $22.2 billion in 2008 and posted an annual loss of $30.5 billion.3 If the

company’s 2007 financial figures are adjusted for the company’s $44.5 billion

one-time tax repayments made in 2007, then 2008 marks the largest loss in the

history of GM. It is interesting to note that by the fourth quarter, no firms—not

even the so-called “foreign” manufacturers Toyota and Honda—were immune

to the fallout from the financial crisis.

Key auto manufacturers are publicly bracing for more difficult months ahead.

For instance, in its most recent financial statements, even Toyota warned that the

company expects its net losses to deepen in the year through to March 2010 to

about $6.4 billion, down even from the $5.1-billion loss posted in 2008. Honda

posted its first loss since 1994 in the fourth quarter of 2008 as it slashed global

production volumes, but it intends to pursue aggressive cost-cutting to ensure

profitability in the current fiscal year. Ford has announced that it will weather

the global auto market’s current difficulties relatively well and expects profits

to be at or above pre-tax break-even levels (excluding special items) by 2011.

Chrysler’s path is arguably one of the riskier among the major motor vehicle

assemblers, although it will likely return to profitability by the end of the

medium term thanks to its partnership with Fiat.

Arguably, 2009 will be the most difficult year for Canadian auto manufacturers,

as they record a combined loss of $2 billion, following losses of $2.7 billion in

the previous calendar year. (See Chart 12.) However, more developed restruc-

turing plans, combined with a resurgence in U.S. demand for autos, could enable

Canadian vehicle assemblers to eke out a marginal profit as early as 2012 should

public assistance for Chrysler and GM continue. By 2013, vehicle manufac-

turers are forecast to see profits in excess of 1 per cent. The last year profits

were that high was 2002.

3 All figures expressed in Canadian dollars.

Capital Labour Material Total20100

-10-20-30-40

2008 2009f 2010f

General MotorsFord

HondaToyota

0 2 4 6 8 10 12 14

2008 Q4 2009 Q1

2002 03 04 05 06 07 08 09f 10f 11f 12f 13f-3-2-10123

-8-6-4-2024

Profits (left axis) Profit margins (right axis)


AT A GLANCE

Capital Intensity, 2008

(2002 $ 000s; capital stock per employee)

Sources: The Conference Board of Canada; Statistics Canada.

All industries

Manufacturingindustries

Motor vehiclemanufacturing

0 30 60 90 120150 180210

Labour Intensity, 2008

(workers per $1 million of real output)


All industries

Manufacturingindustries

Motor vehiclemanufacturing

0 3 6 9 12 15

pricing power

(price index; 2002 = 100)


1997 98 99 00 01 02 03 04 05 06 07f 08 09f 10f 11f 12f 13f6080

100120140

Motor vehicle manufacturing CPI

Top Companies, 2007

Sources: The Conference Board of Canada; Financial Post 500.

Average Annual Output Growth

(percentage change)


1999-03 2004-08 2009-13-6-4-20246

Motor vehicle manufacturing

Manufacturing industries

Canada

Sales by Origin of Manufacturer

(000s of units)


1997 98 99 00 01 02 03 04 05 06 07 080

20406080

100120140160

Cars, North America

Trucks, North America

Cars, overseas

Trucks, overseas

Main Inputs, 2005


Export Dependence, 2008

(exports as a share of production)


82.2

1.3 Exportsto the U.S.

Exportsto othercountries

Revenues ($ millions)

General Motors of Canada Ltd. 33,340

DaimlerChrysler Canada Inc. 20,534

Ford Motor Company of Canada Ltd. 13,809

Honda Canada Inc. 12,600

Toyota Canada Inc. 6,700

ThyssenKrupp Budd Canada Inc. 1,232

Commodityper cent

Motor vehicle parts and acces-sories, excluding engines and electric equipment 47.0

Motor vehicle engines and parts 12.0

Architect, engineering, legal, and accounting services 5.3

Other financial intermediary and real estate 4.3

Motor vehicle electric equipment 4.1

Refrigeration and air condition equipment, excluding household 2.5

Stereo equipment, televisions, VCRs, and similar equipment, and unrecorded tape 1.8

Glass and other glass products 1.4


USER GUIDE

Risk IndexThis risk index is a leading indicator cre-ated by The Conference Board of Canada. It provides an early indication of turning points in the industry’s performance. In the case of the motor vehicle manufac-turing industry, components of the index include the exchange rate, oil price, new orders of motor vehicles, and the industry’s inventory-to-shipments ratio. The reported number is the six-month moving average of the month-to-month growth in the index. Thus, the higher (lower) the number is, the stronger (weaker) the industry’s profit prospects are. The chart provides the current growth rate and what it was three months ago and six months ago to give the reader an idea of how the industry’s risks are changing over time.

CyclicalityThe cyclicality indicator is calculated by The Conference Board of Canada as the correlation between GDP growth in the industry and the economy as a whole. The number is bound between −1 and 1. A value close to one indicates that move-ments in the industry’s output are strongly correlated with movements in the national economy and are thus cyclical. A value close to zero indicates no relationship between the national economy and the industry, while a negative value implies that growth in the industry is inversely related to the economy’s performance.

Key Indicators

Real GDp Real gross domestic product (GDP) is a standard measure of industry output and is equal to the total value that an industry creates. As such, it is a measure of the industry’s contribution to economic growth. It is stated in millions of 2002 dollars and is reported by Statistics Canada.

Employment Employment is the total number of full-time and part-time employees in a given industry. As part of its Labour Force Survey, Statistics Canada reports employment data monthly, in thousands.

price Index This indicator is a composite measure of the output prices for all of an industry’s products. The data for this series comes from the Industrial Product Price Index produced by Statistics Canada. All price indexes are standardized in the form of an index where 2002 = 100.

Revenues Revenues are the total receipts that an industry accumulates. They are a product of pricing and of production (which is equivalent to sales in 2002 dollars). The data are reported by Statistics Canada as part of its Quarterly Financial Statistics for Enterprises and stated in millions of dollars.

Costs Costs are the sum of labour, material, and capital costs for each industry, where capital costs include both interest expense and depreciation expense. The data are reported by Statistics Canada as part of its Quarterly Financial Statistics for Enterprises and stated in millions of dollars.

profits Profits are equal to revenues less costs and are stated before taxes or extraordinary items. The data are reported by Statistics Canada as part of its Quarterly Financial Statistics for Enterprises and stated in millions of dollars.

profit Margin The profit margin is the ratio of profits to revenues.


USER GUIDE (cont’d)

Top CompaniesThis table lists the largest companies in the industry, sorted by revenues. Both public and private companies are listed, and the data are reported in millions of dollars. Total global revenues are listed for all companies. In the case of Canadian affiliates of foreign companies, total global revenues for only the Canadian affiliate are listed.

Average Annual Output GrowthThis chart compares the average annual GDP growth of the industry with that of all manufacturing industries and of all industries in Canada. The comparison is provided over three different time periods: two historical and one forecast. This indi-cates how the industry has performed and will perform relative to the rest of the economy at different periods in time.

Export DependenceThis chart indicates the export share of production, as well as the share of production that is bound for the U.S. market. The chart assesses the industry’s exposure to the United States: the bigger (smaller) is the share, the more (less) sensitive Canadian exports are to the exchange rate and the U.S. economy’s health. The production data used in this chart is based on the input-output tables produced annually by Statistics Canada and the monthly trade data published made available by Statistics Canada.

pricing powerThis chart compares the motor vehicle manufacturing industry’s output price index with the Consumer Price Index (CPI). It indicates whether prices in the industry are rising faster or more slowly than average overall prices over time. Industries with above-average price appreciation are able to consistently raise prices faster than the rate of broad infla-tion and generally have pricing power. Industries with weak price appreciation generally have poor pricing power. Both price indexes are benchmarked so that 2002 is equal to 100.

Sales by Origin of ManufacturerThis chart indicates the breakdown of Canadian sales by vehicle type and by origin of manufacturer over time. The purpose of the chart is to assess how sales patterns in Canada are changing over time, as well as the exposure of Canadian sales to vehicles imported from outside North America. The chart is based on monthly unit sales data made available by Statistics Canada.

Main InputsThis table lists the industry’s major material inputs. The purpose is to indicate the industry’s sensitivity to changing prices for its various inputs. This information is based on the input-output tables produced annually by Statistics Canada. It is reported in this table as a share of the total value of material inputs into the industry.

Capital IntensityCapital intensity is a measure of how much capital stock—which takes the form of machinery, equip-ment, and non-residential structures—there is per employee in the industry. High capital intensity can be a barrier to entry in an industry, limiting competition. Industries with higher capital inten-sity also generally have higher levels of output per employee. For comparison purposes, the chart displays the capital intensity of the motor vehicle manufacturing industry, of all manufacturing industries, and of all industries in Canada.

Labour IntensityLabour intensity is a measure of how much labour it takes to produce a unit of output. Labour costs constitute a higher portion of overall costs for industries with higher labour intensity. Industries with higher labour intensity that produce tradable goods or services are also generally more sus-ceptible to competition from low-wage countries. For comparison purposes, the chart displays the labour intensity of the motor vehicle manufacturing industry, of all manufacturing industries, and of all industries in Canada.

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Canada’s Motor Vehicle Manufacturing Industry

by Sabrina Browarski

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Canadaâ€™s Motor Vehicle Manufacturing Industry

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