Canada’s auto industry is at an “inflection point” and a new report suggests its future success hinges on restoring free trade with the U.S.
The report by RBC, released Tuesday, looked at four paths to determine options the industry could take, but also the trade-offs that would come with them.
“Canada is at a strategic crossroads when it comes to the future of its auto industry and essential to that future is securing free trade with the United States,” said Jordan Brennan, managing director at RBC Thought Leadership and author of the report, in an interview.
In its most optimistic scenario, the report says tariff-free access to the U.S. could lead to its volume increasing to two million units by 2040. But at the other end, its most pessimistic outlook would see auto assembly plants shut down or leave the country by the same year, the report said.
In the latter scenario, auto provisions under the Canada-U.S.-Mexico Agreement would be scrapped or severely weakened and, eventually, plants would leave.
“We must maintain the automotive manufacturing supply chain and footprint that we have in this country or we will not have any hope of securing any sort of other automotive activity in Canada,” said Brian Kingston, president and CEO of the Canadian Vehicle Manufacturers’ Association (CVMA). “The plant itself creates thousands of jobs, but then you have all of these spin-off jobs related to the supply chain.”
Kingston stressed it’s why efforts must be made to find a deal with the U.S., adding that he’s optimistic that one can be met, as Canada is an important market for the U.S. auto industry.
But the report outlined tariffs are only one issue facing the auto industry.
The drop in electric vehicle sales, the increase in software-loaded cars, a decrease in sales in the market and China increasing its presence as a seller are all playing a role.
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“How can Canada, whether it’s governments or its auto sector itself, how can they navigate through these difficult paths?” said Brennan. “It does seem difficult to say, ‘OK, are we going to get tariff-free here or are all the jobs going to be lost to automation?’ … We’re at an inflection point.”
One option the report put forward was Canada turning to Eurasia for investment, keeping modest tariffs on Chinese imports but diversifying the industry, such as by trading market access for investment through its remission framework.
Yet while Brennan notes Prime Minister Mark Carney’s government is exploring how to leverage market access, industry leaders such as the CVMA say it’s difficult.
“The idea that you would attract investment from manufacturers in other parts of the world to build here and then export to Asia or Europe, it doesn’t make commercial sense, it doesn’t make economic sense,” Kingston said. “Companies that want to service other markets outside of North America will do so through the plants that they have in Europe or that they have in Asia.”
While he stressed the need for an end to tariffs, Kingston did not rule out that increasing Canada’s battery supply chain could be another method, saying the country has the resources, such as critical minerals, that could help us become a major supplier.
Some auto-making cities have looked at batteries, including the recently opened NextStar Energy’s plant, but others are looking at other products to succeed. Last year, Toyota invested $1.1 billion in Ontario operations, including launching production of a RAV4 hybrid in Woodstock.
“They have a 10-year plan and they’ve kind of been sticking to that the entire time I’ve ever met with them,” said Woodstock Mayor Jerry Acchione. “We have probably at least a five, six, maybe seven-year production cycle of this model year. So that brings that stability here.”
Tariffs are still affecting other products like steel or aluminum, but he said it’s also led to outreach opportunities with international companies. But he added that Toyota is leading a change in technology, investing not only in the making of the vehicles themselves but also in what goes inside them.
The RBC report noted Canada should shift its automotive policy by expanding from assembly volumes to advances in automation and the value of engineering and software inside the vehicles.
Brennan says in his report that the future of the auto sector will be “most likely” some combination of different paths put forward, but action will need to be taken because impacts to the industry can be far-reaching.
“Auto is not an industry, it’s an ecosystem and so the assembly plants, they anchor that ecosystem,” Brennan told Global News. “If the assembly plants were to close or move to the United States, a lot of tier one, tier two, tier three parts suppliers would migrate with themselves (the auto plants) or close.”
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