Canada’s Auto and Auto Parts Industry: Industrial Outlook, Autumn 2005

Profits in the auto and auto parts sector are poised to tumble to $731 million this year. Demand for new vehicles is softening, especially in the United States, although the employee-pricing incentives offered by the Big Three manufacturers allowed sales to shoot up in July. This offered some respite to production in the third quarter and is now allowing for inventory rebuilding.

The employee-pricing program was, however, only a temporary shot in the arm for the Big Three, who are feeling cost pressure from record-high commodity prices and growing labour costs.

Next year, a rebound in revenues will reflect a small comeback in production combined with increasing prices as dealer incentives dwindle. Between 2006 and 2009, profits will range from $4 billion to $4.6 billion. Although this is an improvement over recent years, the sector is not expected to return to profits that were close to double that amount in the late 1990s.