If Canadian companies are a bellwether of the global auto market, then things are looking grim.
The country’s companies offer a window into the sector as a whole: Magna’s products were installed on two-thirds of vehicles around the world as of 2019, while Winnipeg-based NFI has the largest production capacity for zero-emissions buses in both North America and the U.K.
Auto firms’ third-quarter earnings reports have stirred anxious discussion between analysts and CEOs over whether the industry can shake off the supply-chain inefficiencies and sluggish demand of the past few years.
“We would not be surprised to see continued volatility,” wrote CIBC analysts Krista Friesen, Kevin Chiang, and Jonathan Mossiagin in a research note.
While the U.S. election outcome resolved uncertainty in other sectors, the note said, it “may have led to more questions than answers” in the auto industry. Will Donald Trump scrap emissions mandates? What becomes of the USMCA? Will Canadian companies operating in Mexico get sideswiped by new tariffs?
For a sense of other issues facing the Canadian sector, you could hardly do better than the following three quotes:
“The Canadian consumer is still feeling the effect of inflation.”
That’s AutoCanada CFO Samuel Cochrane, who told analysts the company had pulled the “handbrake” on spending. AutoCanada owns 83 dealerships across eight provinces and Illinois. Despite rate cuts and more incentives from automakers, the company predicted that “the lingering impact of inflation will continue to shape consumer behaviour.” It’s doing a strategic review and running a pilot to overhaul four dealerships.
“It’s way more intrusive than we’ve ever had to be involved with a supplier.”
So said NFI CEO Paul Soubry after the company’s seat supplier lost control of a key system upon moving into a new plant. NFI staged what Soubry called an “intervention,” sending its own people to the supplier’s plant to forestall more production delays. NFI has reined in many of the post-pandemic supply-chain issues that by 2023 left it struggling to stay afloat. Evidently, some vulnerabilities remain.
“I’ve watched the lemmings jump off the cliff time and time again… during lower volume periods, our industry tends to cut too deep.”
Pat D’Eramo, CEO of Ontario-based auto parts supplier Martinrea, foresees an unusual dip in auto production in the fourth quarter, noting that automakers haven’t lowered prices to account for increased inventory. Plus, he said, “our plants with EV business will likely remain under-utilized.” Rather than bow to the inevitable pressure to lay off workers and risk brain drain, Martinrea plans to use the slow period to equip its facilities with machine-learning technology. D’Eramo figures the move could lead to greater efficiency and shave five or six years off the company’s long-term transformation plan.
Meanwhile, Martinrea’s executive chair, Robert Wildeboer, tried to cool tariff fears ignited by Trump’s election win. He noted that investors were spooked by Trump’s tariffs in 2016, sending Martinrea’s share price plunging. In the end, the stock not only recovered, but doubled. The company expects its Mexican suppliers will get on board with the new U.S. agenda, he said.
The takeaways: Economic and supply-chain issues may continue to weigh on auto production, including for EVs. That’s leading some manufacturers to delay investments in technology—but not all. And doomsday fears about the U.S. election might be overplayed.
“It’s up to all of us to make a case to the new administration,” said Linamar executive chair Linda Hasenfratz. “When you think about the fact that 80 per cent of vehicle markets are actually outside of North America, wouldn’t we all be better off focusing on that market, than trying to add costs and reduce efficiencies within North America?”
Read Shift—The Logic’s authoritative weekly newsletter on automotive technology industry news—for more; and if you know someone who should be reading it, they can sign up here.
