TORONTO (Reuters) - A strong Canadian dollar has wounded the country’s auto manufacturing sector over the last decade, but the currency’s recent drop to a near six-year low is unlikely to spur a rush of new investment, say senior industry executives.
Canada has struggled in recent years to win new investment from automakers, losing out to both the United States and lower-cost Mexico. While some major automakers have announced new investments in Canada in recent months, they are expected to preserve jobs rather than significantly increase employment.
Reid Bigland, chief executive of Fiat Chrysler’s Canada arm, said the currency was not a major factor in the company’s recent plan to invest some $2 billion to build its next generation minivan in Windsor, Ontario, as the choice was made before Canadian dollar’s recent slide.
“Under normal circumstances, when it comes to Canadian manufacturing, when the Canadian dollar goes down it’s really an opportunity to strike up the band,” Bigland told Reuters on the sidelines of the Canadian International Auto Show in Toronto. “Unfortunately the (Canadian) dollar has been strong for so long that a lot of the band has left.”
In 2014, car makers announced over $10 billion in investments in the United States, some $7 billion in Mexico, and only about $750 million in Canada, according to the Center for Automotive Research.
Bigland said Chrysler has lost local suppliers to the strong Canadian dollar, to the point where only 25 to 30 percent of those serving its Windsor operation are Canadian. He noted that in the last few years, Canada has also lost former Caterpillar, Daimler, Ford and Navistar plants, among others.
In 2013 the Canadian Automotive Partnership Council, an industry group, looked at challenges facing the industry. Exchange rates made the first page of their report.
“Canadian auto assembly labor costs have been reduced significantly in own-currency terms in recent years,” they wrote. “But the appreciation of the Canadian dollar has more than offset those savings when expressed in U.S. dollar terms.”
But Bigland said the weakening currency’s impact would be more limited “for the simple reason that there aren’t as many Canadian manufacturers around as there were 10 years ago.”
Even union economist Jim Stanford, who sees the weaker currency enhancing the business case for investment in Canada, said the damage done when the Canadian dollar appreciated will not be fully or automatically repaired by its recent weakness.
“There’s going to be a permanent price to pay,” said Stanford, who is with Unifor, a union representing Canadian employees at Chrysler, Ford Motor Co and General Motors as well as parts suppliers.
Executives at other automakers such as GM and Honda Motor Co Ltd, which have also outlined new investments in their Canadian facilities, say there are numerous factors on top of currency movements that go into their investment plans. They include labor and benefit costs, logistics and infrastructure, taxation and government subsidies.
“We don’t believe making a strategy, or a business strategy based on exchange rates is sound business logic,” Jerry Chenkin, CEO of Honda Canada, said in a phone interview, adding that the currency’s move was not a driver in Honda’s plan to invest C$857 million ($692.47 million) in its Allison, Ontario operation. “Exchange rates as we’ve already seen, go up, go down and are impossible to control.”
($1 = 1.2376 Canadian dollars)
Editing by Jeffrey Hodgson and Christian Plumb