The Canadian Automotive Market
Johannes Van Biesebroeck
University of Toronto
September 18, 2006
Executive summary: The Canadian Automotive Market
The automotive sector is Canada’s largest manufacturing sector, accounting for 12% of its
manufacturing GDP and 25% of its manufacturing trade. The principal objective of this study is
to calculate the impact of changes in Canada’s trade policy on the automotive sector. The study
is organized in five sections: the first identifies current and future trends in the industry; the
second contains an econometric model to analyse the market effects of four trade policy
scenarios on automobile production; the third identifies the impact of trade policy on foreign
direct investment; the fourth contains an analysis of the market effects of trade policy changes on
the aftermarket auto parts sector; and the last section of the study discusses the future direction of
the automotive industry.
1.
Current and Future Trends in the Industry
Despite record sales in North America over the past few years, the long-term trend for the
automotive industry is weighted towards higher growth rates in lesser developed economies,
particularly China, Korea, Mexico, Brazil, India and Thailand. While global production
increased by a factor of six between 1950 and 2004, combined production in Canada and the
United States less than doubled over the same time period. Even though Canadian exports of
finished vehicles remain very strong, there is a significant reliance on the U.S. market. From a
policy perspective, there is little Canada can do about this. The export potential for vehicles
produced in Canada is effectively driven by the type of vehicles foreign-owned manufacturers
decide to produce in their Canadian assembly plants.
The larger growth area for the Canadian automotive industry in recent decades has been in parts
and components which, by 2002, had reached 66% of total automotive employment, up from
55% in 1991. Exports of automotive parts, while al