Auto parts makers to shed 36,500 jobs this year, Conference Board forecasts
June 18, 2009
TORONTO -
Canada's auto parts sector will cut its workforce by one-third this year as it undertakes a "massive restructuring" to cope with the global slump in vehicle sales, a new report says.
The Conference Board of Canada says the industry will lose $173 million in 2009 and will respond by laying off 36,500 workers.
Sabrina Browarski, an economist with the Ottawa-based think tank and author of the report, said the forecast would mean the largest single-year decline in employment in Canada's auto parts industry since the Conference Board started tracking the data in 1987.
She said the job losses, combined with an estimated 13,400 layoffs in the auto assembly sector - mainly at GM Canada, Ford and Chrysler - mean Canada's auto industry will lose approximately 50,000 jobs this year alone.
Although vehicle sales have slumped around the globe in response to the recession, the United States has been particularly hard hit, and Browarski said this is primarily what's hurting Canadian suppliers, as 62 per cent of parts and 80 per cent of finished vehicles manufactured in Canada are exported to the U.S.
Plunging vehicle sales mean auto suppliers have little choice but to slash costs to stay alive, Browarski said.
"This year alone, we're looking at about $7.5 billion in nominal cost cuts for the motor-vehicle parts sector, and going forward to about 2013, I would say these cuts in the parts sector, and also in the vehicle sector as well, are necessary changes that need to take place so profitability can be a reality again going forward," she said.
The report also predicts that "many" small and medium-sized suppliers will go out of business this year, opening the door for larger manufacturers like Magna International (TSX:MG.A), Linamar Corp. (TSX:LNR) and Martinrea International (TSX:MRE) to increase their market share.
"It looks like the vast majority of small parts producers are facing significant financial pressure, and bankruptcy may be an option for the majority of small and medium-sized firms in the sector," Browarski said.
Southern Ontario will feel the brunt of the parts industry's restructuring, as most Canadian suppliers are located there.
Production is estimated to fall by 39 per cent in 2009, but the effects of cost cutting, combined with an anticipated rebound in U.S. auto sales, will allow the industry to reverse its losses next year.
The report forecasts an industry-wide profit of $222 million in 2010, with profit margins returning to "historical norms" by 2013 - assuming General Motors exits bankruptcy protection and Chrysler restructures successfully under a new partnership with Fiat.
The sector is expected to start needing more workers starting in 2011.
The Conference Board forecast is far more dire than previous estimates of the effect of the auto crisis on the Canadian parts industry.
Scotiabank economist and auto industry analyst Carlos Gomes has predicted the Canadian parts industry will lose another 15,000 jobs before it finishes restructuring. Gomes said the number of supplier jobs has already declined from a high of 100,000 to about 75,000 in 2008.
Temporary shutdowns at Chrysler and GM plants in both Canada and the U.S. have been an added blow to an already struggling parts sector.
Statistics Canada data shows employment in the Canadian parts industry shrunk by almost 24 per cent in March year over year to just over 62,000 people.
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Auto parts makers to shed 36,500 jobs this year, Conference Board forecasts | Macleans.ca - Canada - wire - Features
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