Canadian automakers returning to profitability

Restructuring has meant reduced costs, increased productivity: Conference Board
||Last Updated: 02/01/2011

Though auto sales in the United States remain weak, the restructuring in the auto sector is starting to pay off for Canada’s automakers as the industry is expected to be profitable again this year, according to the Conference Board of Canada.

“The industry will return to the black in 2010,” said Michael Burt, associate director of industrial economic trends at the Conference Board. “Profits are expected to rise even more sharply starting next year as U.S. demand picks up. But profit margins will remain weak by historical standards because the strong loonie negatively affects export prices and 84 per cent of Canadian-made vehicles go to the United States.”

After three years of major losses, the Canadian industry is expected to post a profit of $300 million this year, according to Canadian Industrial Outlook: Canada’s Motor Vehicle Manufacturing Industry-Autumn 2010. Profits are expected to approach $1 billion next year and to surpass $2 billion annually by 2015.

The restructuring of General Motors and Chrysler has led to reduced costs and increased labour productivity — to 2007 levels. As a result, costs are up by 30 per cent this year, compared to a 37-per-cent gain in revenues, said the Conference Board.

Production will grow by 38.5 per cent in 2010 and it is expected to rise by another 15 per cent in 2011. But output will still remain below where it stood prior to the recession because of continued weakness in U.S. vehicle sales, said the report. It will not be until 2014 that Canadian production returns to its pre-recession levels.

But employment in the auto sector in Canada is still below pre-crisis levels and is down considerably from the peak years of the early 2000s, according to a Globe and Mail story covering a report by DesRosiers Automotive Consultants.

The number of jobs in vehicle assembly and auto parts manufacturing has plunged 28 per cent in 2010 from 2007 levels and by more than one-third from peak levels, it said.

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