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Auto makers moving to Mexico

Automakers’ shrinking investment in Canada raises red flag

  Nov 29, 2011 – 10:08 AM ET | Last Updated: Nov 29, 2011 11:16 AM ET

The level of investment from global automakers in Canada is raising a “red flag” as assembly work increasingly finds its way to Mexico, according to a new report.

The news seems counterintuitive with companies like General Motors Co. ramping up production of their popular crossover vehicles in Ontario, and others, like Honda Motor Co., even announcing new vehicle lines to be produced here, like it did earlier this month with the CR-V.

But, in fact, investment in Canadian auto assembly and parts plants will be reduced to $1.2-billion this year, its lowest level since the mid-1980s, or 62% below the average annual investment of $3.1-billion over the past decade, the new report from Scotia Economics states.

“Recent announcements of new products and hires for Canada by both General Motors and Honda are encouraging,” said Carlos Gomes, the Scotia senior economist who authored the report. “However, these announcements pale in comparison with the news coming from Mexico — the auto industry’s North American growth leader.”

The fall off in new investment in Canada is particularly pronounced in auto assembly plants, which typically account for 70% of the overall industry investment, and will see their lowest level of investment this year since 1985, Mr. Gomes said.

But the investment in parts suppliers, which make up the bulk of the employment in the industry, have also been cut in half from the past decade average, he added.

Investment in the U.S. this year has improved after the United Auto Workers were able to negotiate U$4-billion in new investment from the Detroit Three. But investment in the Canadian auto industry continues to fall by an additional 18% in 2011.

On a per vehicle basis, auto industry investment in Canada will fall 43% this year, below the prevailing levels in the U.S., Mr. Gomes said.

“This represents a sharp reversal from the trend of the past decade, when investment in the Canadian auto industry was, on average, 3% higher than either in the United States or Mexico,” Mr. Gomes said. “While investment in Canada remains marginally higher than in Mexico, recent announcements indicate that over the next several years, investment in Mexico’s auto industry is set to approach the record pace.”

Mr. Gomes said over the past six months, the industry has announced investments of nearly US$3-billion geared towards expanding existing facilities or building new plants in Mexico. The bulk of that investment is being made by Japanese automakers searching for low-cost geographies as the yen appreciates, he said.

Mazda recently broke ground on a new US$500-million plant there, while Honda announced in August it would build a new US$800-million assembly plant there for both vehicle and engine assembly. Nissan said it would invest $1.1-billion at its existing plant in the country as well to increase production, after a massive investment last year to increase output by 20%.

But it is not just Japanese automakers moving work to Mexico, Volkswagen is also building a $550-million engine plant in Silao, Mexico, Mr. Gomes noted.

 

Published Tuesday, November 29, 2011 8:43 AM by Zinnia Q.

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