New head of parts association says hard years remain, but industry will rebound

TORONTO - The new president of Canada's auto parts association believes production levels and employment in the industry will return to the highs seen in the last decade, but it will take a few years.
Many analysts are predicting a "new normal" in the North American auto industry, saying the historic highs reached in the first few years of the new century were an anomaly and demand for new cars will stabilize at a lower level as North Americans adopt more conservative buying habits.
But Steve Rodgers, who became president of the Automotive Parts Manufacturers' Association on Jan. 1, said a combination of factors will overcome the downward pressure that resulted from the global recession.
Rodgers noted that immigration, the growth in driving-age population, the rate at which vehicles are being scrapped and the need to get old polluting vehicles off the road will all help the industry.
"When you take into account all those factors, I do believe that we will come back to those numbers that we have seen in the past," Rodgers said in an interview Monday.
Rodgers has been working in the auto industry for more than 30 years as both an employee of General Motors and Canadian auto supplier Magna International Inc. (TSX:MG.A), and as a consultant.
He says the slump caused by the recession and the credit crisis was the worst he's seen, but he believes things have been on the rebound since last summer, when the automakers began to experience a "significant depletion in inventories."
This should help Canada's major parts suppliers - including Magna, Linamar Corp. (TSX:LNR) and Martinrea International Inc. (TSX:MRE) - report a bright fourth quarter when they release their results over the next few weeks.
This is good news for an industry that saw employment fall by almost 25 per cent in the last year. Since its high of almost 99,000 Canadians in 2001, the number of jobs in the parts industry has fallen 38 per cent to around 61,000 last year as companies have gone out of business due to plant closures and slumping production at the automakers they supply.
However, conditions are slowly starting to improve, Rodgers said.
"We're not going to see the growth back to those significant numbers until we get out a few years, but if we do everything right, we can get back to the employment levels that we have historically enjoyed," he said.
In the meantime, the industry is going to have to work together to ensure the industry remains competitive and innovative, particularly in the face of a strong Canadian dollar, Rodgers said.
Canadian auto parts suppliers, most of which are based in southern Ontario, export 62 per cent of their wares to the U.S., and a strong loonie makes it difficult to compete with manufacturers south of the border.
Rodgers called for improved collaboration between governments, manufacturers and universities on research and development so Canada can stay ahead of the curve with new green technologies. He cited a recent partnership between Magna and the National Research Council of Canada to develop lighter-weight, more environmentally friendly auto parts as a good example of the sort of collaboration the industry needs to see more of.
"I still believe there's a great degree of respect for Canada and for our innovation capability, but we can't ever take that for granted. We have to continue to drive that every day," he said.
Scotia Capital has predicted that global auto sales will reach record highs by 2011, helping to boost Canadian vehicle assembly rates by as much as 30 per cent. However, this follows production declines of close to 40 per cent between 2008 and 2009, and many parts suppliers continue to struggle with low demand.
Parts makers were also hit particularly hard by an inability to access credit during the darkest days of the downturn.
The federal government said in the spring it would provide an additional $700 million through Export Development Canada to insure suppliers against non-payment from troubled automakers. Despite the government help, many companies went bankrupt even as demand improved, as they were too low on cash to be able to buy the materials needed to build parts.