Strained Trade Relations—The Trump administration’s recent (and pending) protectionist import tariffs will feed into higher prices for Canadian manufactured vehicles. This could, in turn, could take a substantial bite out of the sector’s exports.
Softening U.S. Vehicle Sales—U.S. vehicle sales are projected to remain above 17 million units in 2018. While sales will remain above pre-recession levels through the forecast, they will begin to decline as rising interest rates and the increasing tariff strife between the U.S. and its trade allies—which raises prices—weigh on vehicle purchases.
Capped Production Growth—The capital utilization rate for the sector has been increasing, reaching 85.6 per cent in the first quarter of 2018. However, investments in new capacity have been slow to materialize. As of late, original equipment manufacturers (OEMs) have invested in facilities to meet changing consumer preferences for light trucks, but foreign direct investment has been shifting out of Canada to Mexico and the Southern United States.