How did Mexico beat Canada in car production?

Automobile production in North America has declined over the past 20 years, led by the production declines in the United States (US). Canada and Mexico have also experienced production declines, but not as much (proportionately) as in the US. With hundreds of thousands of jobs tied to the automotive sector, declining production in North America will have a severe impact on labour markets and overall consumption.

Historically, Canada's automotive production paralleled Mexico's, with Canada often holding a slight edge. However, the economic turmoil of 2008 marked a turning point; Mexico's automotive sector surged ahead, embarking on a trajectory that has since outstripped Canada's, maintaining this lead over the past 15 years. The following chart traces the decline in national car production using data extracted from Haver Analytics .

The repercussions of the decline in Canada extend far beyond the automotive industry itself. The ripple effects are felt across the myriad supply chains tethered to auto parts manufacturing and vehicle assembly. The attenuation of these sectors can lead to a significant displacement within the job market, as thousands of jobs are inextricably linked to the health of automotive production.

Investigating the factors contributing to Canada's waning competitiveness in the automotive sector may reveal a complex tapestry. We hypothesize several reasons for Canada losing ground to Mexico in car production, including the latter's lower labour costs, more flexible labour laws, and extensive free trade agreements, which have been conducive to fostering an attractive environment for automobile manufacturers. Mexico's strategic geographic location, with direct access to the vast American market, may have further solidified its advantage.

The Canadian government has been aware of these developments and has endeavoured to mitigate the decline through various measures. Efforts have been directed towards securing investments, improving trade agreements to favour Canadian manufacturing, and offering incentives to attract and retain automotive businesses. But have these interventions delivered the desired results? Furthermore, the strategic approach to sustaining and revitalizing Canada's automotive sector must be holistic, extending beyond government intervention.

Collaboration between the private sector and universities is critical to securing the future of automotive manufacturing in Canada. The private sector, mainly existing automotive firms, must prioritize innovation, adopting new technologies, and improving operational efficiencies to compete globally. Investments in research and development (R&D) are crucial, particularly in areas poised for growth, such as electric vehicle (EV) and autonomous vehicle technologies.

Universities, as hubs of research and innovation, are integral to this ecosystem. They can contribute by aligning their curricula with the skills demanded by modern automotive manufacturing, fostering industry partnerships to create co-op and internship opportunities, and conducting cutting-edge research that propels the industry forward. Collaboration between industry and academia can lead to the incubation of technological advancements and the cultivation of a highly skilled workforce, tailored to the evolving needs of the automotive sector.

The?Automotive Centre of Excellence (ACE) ? at the Ontario Tech University in Oshawa is one such example. ?ACE "is the first climatic testing and research centre of its kind in Canada." The "multi-purpose, 16,300-square-metre facility, is owned and operated by [the] university as a truly independent, commercial operation. ACE was developed in partnership with the university, General Motors of Canada, the Government of Ontario, the Government of Canada and the Partners for Advancement of Collaborative Engineering Education (PACE)."

While subsidization strategies, like those aimed at EV battery manufacturers, can be supportive, they must be aimed at achieving industry-wide synergies and not merely firm-specific benefits. Furthermore, governments might be tempted to oversell the returns on their subsidy-laden incentives. For instance, the Parliamentary Budget Office estimated that "it will take 20 years for the federal and provincial governments to break even on massive subsidies to auto giants Volkswagen and Stellantis, not the five years that the government initially pledged."

Subsidies alone offer a temporary fix; a sustainable strategy demands investment in human capital, innovation, and infrastructure to create an environment where the automotive industry can thrive organically in Canada.

Universities can play a significant role in improving Canada's competitiveness in automobile production to match the fast-evolving technological landscape resulting from the proliferation of EVs, autonomous vehicles, and the changes in consumer preferences, such as shared mobility, and more.

Canada must accelerate building new bridges between industry and academia to help expedite building innovative and sustainable mobility solutions for the future.