Canadian Automotive Content

In the battle of content versus unit production, content may be a better identifier of trends

Year
North American Vehicle Production
North American Assembly Content per Vehicle (US Dollars)
North American Auto Parts Content per Vehicle (US Dollars)
North American Content per Vehicle (US Dollars)
Canadian Auto Parts Content per Vehicle (US Dollars)
Canadian Auto Parts Content per Vehicle (Percent)
Canadian Assembly Content per Vehicle (US Dollars)
Canadian Assembly Content per Vehicle (Percent)
Total Canadian Content per Vehicle (US Dollars)
Total Canadian Content per Vehicle (Percent)
1997
16,055,542
$5,138
$12,085
$17,223
$1,085
9.0%
$450
8.8%
$1,535
8.9%
1998
16,032,875
$4,667
$13,264
$17,931
$1,095
8.3%
$474
10.2%
$1,570
8.8%
1999
17,616,121
$5,337
$14,136
$19,473
$1,140
8.1%
$763
14.3%
$1,903
9.8%
2000
17,659,700
$4,448
$13,714
$18,162
$1,140
8.3%
$743
16.7%
$1,883
10.4%
2001
15,816,654
$4,614
$14,103
$18,717
$1,167
8.3%
$755
16.4%
$1,921
10.3%
2002
16,717,553
$5,544
$13,450
$18,994
$1,199
8.9%
$812
14.6%
$2,011
10.6%
2003
16,215,337
$5,337
$15,456
$20,793
$1,383
8.9%
$660
12.4%
$2,043
9.8%
2004
16,224,864
$5,025
$15,912
$20,937
$1,561
9.8%
$644
12.8%
$2,205
10.5%
2005
16,315,783
$5,017
$16,285
$21,302
$1,604
9.8%
$594
11.8%
$2,198
10.3%
2006
15,877,161
$5,053
$17,354
$22,407
$1,640
9.4%
$557
11.0%
$2,197
9.8%
2007
15,426,345
$5,845
$17,452
$23,297
$1,705
9.8%
$592
10.1%
$2,297
9.9%
2008
12,950,258
$5,872
$17,250
$23,122
$1,604
9.3%
$576
9.8%
$2,180
9.4%
Change
-16.1%
0.5%
-1.2%
-0.8%
-5.9%
-2.7%
-5.1%

By looking at content rather than units of production we can actually evaluate the role of Canada in the North American automotive production process in a better way. Content can come from a number of sources, including labor, which is the biggest area; raw materials; and the profit generated from Canadian factories.

Content, though, is a concept that is not well-understood.

To begin, all content is generated at the manufacturing level and does not include any increase in the value of a vehicle created in the distribution and retail side of the industry. Many don't realize it, but the value of a vehicle at the factory gate is substantially lower than what a consumer pays at the retail level.

The average retail cost of a vehicle in 2008 was somewhere north of US$35,000, but at the factory gate, the average price of a vehicle was only US$23,122. This means that an additional US$10,000 is added to the price of a vehicle by the distributor and retailer of vehicles.

This money goes toward the cost of marketing, transportation, distributor and retailer profits, sales incentives, and the cost of selling the vehicle.

Content Explained

Most of the content is actually in the parts side of the business; the actual cost of the components in a vehicle.

In 2008 the parts content of a typical vehicle produced in North America was US$17,250. A very small part of this was Canadian content: The average vehicle produced in North America had only US$1,604 of Canadian OE parts content, or 9.3 percent of the total parts content.

This hasn’t changed much over the last 10 years. At the early part of the decade Canadian content was closer to 9 percent, grew to nearly 10 percent, and has fallen back to the current level. In other words, the parts sector in Canada has not been growing its presence in the North American production base and, indeed, has lost some of its position over the past few years. This should be a big concern of our friends in the government.

The assembly side of the sector is highly automated and accounts for only US$5,872 worth of content in a typical vehicle produced in North America. This amount is the average for both the new domestic producers and the Detroit Three.

Canadian assembly content per North American-produced vehicle in 2008 was only US$576, and no, that is not a typo. The Canadian assembly content in a Canadian-produced vehicle would be much higher, but when extrapolated across all vehicles made in North America, the value of assembly content drops dramatically.

Canada should also be quite concerned at our performance on assembly content this decade.

At its peak in 2000, Canada accounted for 16.7 percent of the assembly content of a vehicle produced in North America, but this has fallen to only 10.1 percent, another cause for concern.

Why?  Well, Canada invited the Japanese into the country, and for the most part the Japanese make smaller, lower-value-added vehicles with lower-cost labor than the Detroit Three.

They also brought with them the most automated factories in the world, factories that were much more automated than any Detroit Three factory in this country. These factors keep their Canadian content low.

As Japanese production grew in Canada, our share of assembly content naturally declined. In addition, the Detroit Three didn't sit on their butts and do nothing. They also automated their Canadian factories and closed some of the facilities making vehicles with the highest assembly value added vehicles in North America.

Chrysler closed its full-size van plant in Windsor; Ford closed OTP in Oakville, which made pickup trucks; and GM is closing its pickup truck factory in Oshawa. So the Detroit Three also lowered their assembly content in Canada relative to the U.S. and Mexico, and relative to their historical performance in Canada.

We should be concerned about this. We have a tendency to become comfortable with our unit production performance. And on a unit performance basis, Canada is faring rather well.

At the end of October 2009 Canada was still producing 16.8 percent of vehicles built in North America. Total production was down radically, but Canadian companies have maintained their share of unit production.

However, if you look at the Canadian content in these vehicles, it is down significantly on the assembly side of the sector, and parts content is declining as well.

I recommend that our policy wonks start evaluating this decline with a better understanding of the whole issue of raising Canadian content. If we are able to do this, then the jobs will take care of themselves.

For more information, visit www.desrosiers.ca.