Canada is a leader in the global automotive sector and though it has seen its fair share of challenging years, 2015 saw Canada reap some of the benefits from automaker reinvestment, a sign that the sector was back in business in Canada. Said EDC chief economist Peter Hall: “After years of people hand-wringing and saying investment is never coming back to the auto sector, all of a sudden, we have a spate of these things happening,” Hall said. “It’s about running out of capacity state-side. It’s a sector that’s bursting at the seams.”
Canada’s automakers, centered in Oshawa, Cambridge and Windsor, Ont., built 2.4 million vehicles in 2015 and the supply chain is clustered around those cities. That supply chain focuses on supporting those automakers, whether the companies supply parts, tools, dies and moulds (manufacturing equipment) or robotics and machinery.
The supply chain is very close to Michigan, which is the automotive headquarters of North America and home to the Detroit three: Ford, GM and Chrysler (now a part of Fiat Chrysler Automobiles). Although there have been encouraging new investments in 2015, the largest challenge for the sector remains attracting new investment from automotive Original Equipment Manufacturers (OEMs) and large parts manufacturers, all while competing with the cheaper labour and government incentives that Mexico is providing.
“Competition is fierce for new automaker investment in North America; cheaper labour and generous government incentives in other jurisdictions have conspired to make it tough for us to get new investments,” said Christian Bertrand, sector adviser for automotive at Export Development Canada, adding that Canada still has a lot to offer automakers. “In addition, at a time when automakers place tremendous importance on the proximity of their suppliers, Canada’s northern geography makes this a bit tougher, with our supply chain being much further away from some of the new plants being announced in the southern U.S. and Mexico.”
Areas of focus for automakers include meeting aggressive new fuel-efficiency standards by 2025, by making the car lighter with composites, plastics or lightweight metals replacing steel, or improving the efficiency of the engine. As it relates to fuel efficiency, automakers are looking at how to power the cars of the future. There are many alternatives being looked at, including battery electric (such as Tesla) or hybrid engines, which use electricity and gas, and fuel-cell technology, which uses hydrogen as fuel to create electricity that powers an electric motor.
“There’s a lot of disruption, a lot of innovation — blurring some of the lines that used to exist between information technology companies and automotive companies. It’s a relatively new marriage,” Bertrand said. “How does the Canadian supply chain play into that? We have world-leading parts and tooling suppliers and a world-leading automotive supply chain that has experience supplying to the automotive industry. We also have an emerging cluster of connected vehicle companies with innovative technologies to offer for the connected autonomous cars of the future.”
Here, in his own words, are Bertrand’s answers our questions on the automotive sector.
1. Tell us about your role and responsibilities at EDC.
I am the sector advisor for automotive at EDC. I lead the development and execution of EDC’s corporate strategy for supporting Canadian companies operating in the automotive sector. Aside from strategy development and execution, I also work with EDC’s business development team to support its clients in automotive, and I work on events designed to create export opportunities for Canadian suppliers.
2. What kind of companies export in this sector?
The companies you see all over the world — Magna, Martinrea, and Linamar, to name a few. These are some of Canada’s top-notch global exporters. They have plants in multiple markets, on multiple continents and they are selling to most, if not all, of the automakers in some way, shape or form.
Equally important, we do a lot of work to support small- and medium-sized enterprises (SMEs) as well. We support these companies as much as possible through our insurance and financing programs. The automotive sector is capital intensive and the demands on working capital are high, so it’s important for us to do all we can to support Canadian SMEs in automotive.
Aside from the export programs we offer, we also advise companies entering foreign markets. For instance, we tell them about the importance of being close to your customer. In Mexico, for example, automakers are pushing their suppliers to open local facilities, and, in some cases, they’re saying if you’re not local, they don’t want to do business with you.
3. Where are the export opportunities for companies in the automotive sector now?
When you look at big opportunities for Canadian companies, Mexico is one. Many of the world’s largest automakers have made new investments in Mexico recently. When a new plant comes online, they need a wide array of capital equipment, parts, tooling and automation.
4. Are there supply chain opportunities for Canadian companies in this sector?
As I mentioned earlier, there is a lot of ongoing investment in connected vehicle and autonomous driving technologies. Canada is home to a number of innovative technology clusters that have strengths in this area and could see very good opportunities in future vehicle development.
5. What are the characteristics of companies in the automotive sector that do well at exporting?
Most of those who have invested in Mexico seem to be doing very well. Companies doing well in foreign markets make the effort to be on the ground. It’s difficult in some of these markets to build the necessary relationships by email and phone from Canada. There are lots of great trade shows in the U.S. and Mexico if that’s where you’re focusing. Whether you’re a parts or tooling supplier, or have developed innovative vehicle technologies, there are lots of great events that bring decision-makers together. The ones that are doing best are investing in travel and time to build local relationships.
At EDC, we work closely with the trade commissioners at Global Affairs Canada. I can’t say enough about the work that they do. In automotive, we work as one team, helping Canadian companies work in foreign markets. The trade commissioners are on the ground in these markets, focused on automotive and building local business relationships and they’re always eager to meet Canadian companies visiting their markets.
Whenever I speak with a company asking me for advice in a foreign market, the trade commissioner service is the first thing I mention. It’s a very valuable resource.
6. What are some of the mistakes that companies in the automotive sector make?
Some companies don’t do their homework before they go into the market. It might be as simple as not studying who you’re meeting with, or it might be around rules and regulations in the market. My advice? Do your homework on foreign markets long before you go. Perfect your “pitch” — think about what benefit an automaker would get from working with you. These buyers likely hear from hundreds of suppliers a week.
Clearly defining who you are and who else you do business with in the automotive world works well. Saying “I sell to Toyota and Honda in Canada” can go a long way with Ford or GM in Mexico. Bring examples and testimonials that will tell them you know how the game works, how the industry works and show them that other customers see value in what you’re selling. Things like that — especially if they’re leave-behinds — can leave a valuable impression.
7. What should companies in this sector know about exporting that they don’t know?
I think the theme has become widely understood, but I’ll come back to the importance of “being local.” Automakers and parts manufacturers are placing increasing importance on it for an array of reasons. If your key customers in foreign markets aren’t asking you about it yet, it’s likely they could soon. The same export customers you have today may insist that you be local to continue supplying them, and it’s important that companies have had those strategic discussions to be prepared to make that decision when the time comes.
8. How can EDC help companies in this sector?
With automotive suppliers, we try to make a difference in three ways: peace of mind, working capital and connections in foreign markets.
The automotive industry has unique and extended payment terms. EDC offers credit insurance solutions that protect Canadian suppliers against non-payment and can serve as a financing tool with banks to support their growth. We also provide financing programs that help support the working capital needs of Canadian exporters, either in partnership with their bank or directly with suppliers.
Lastly, one of the most important things SMEs look for in export markets is connections. To this end, we provide interest-bearing, repayable financing to buyers of Canadian goods and services. We have financial arrangements with 12 global automotive players. In return for that loan, these borrowers agree to collaborate with EDC during the term of our financing on the introduction of new potential Canadian suppliers. In support of this activity and often in collaboration with our partners at the Automotive Parts Manufacturing Association (APMA) and Global Affairs Canada, we lead or participate in foreign trade missions. For example, we may bring 15 Canadian companies to Mexico to visit three automakers, or bring automakers from Mexico to Canada and arrange meetings with five to 10 companies we think would be a good fit for them. It comes down to us leveraging our networks to bring new opportunities to Canadian exporters.