The news that Toyota is moving production of its popular Corolla vehicle from Cambridge, Ont., to Mexico is further confirmation that Canada has slipped to third place in North America's auto sector, but don't go writing the obituary of Canadian car manufacturing just yet.

Canada still makes about 2.4 million vehicles a year, about 80 per cent of which are exported, mainly to the U.S. While that's down from a peak of three million in 1999, auto manufacturing still contributes about $16 billion annually to the country's GDP and employs 120,000 people directly (plus an additional 280,000 in related industries) — compared with more than $21 billion and 175,000 workers at its height.

Two record years for auto sales — and a third one on the way — fuelled by the U.S. economic recovery, have boosted production, but there's been bad news, too, even before Wednesday's Corolla announcement. GM is moving production of the Camaro to Lansing, Mich., from Oshawa, Ont., this year and in 2016 will shut down one of two production lines at its Oshawa facility.

There is no doubt that Canada's auto manufacturing sector has been in steady decline from its heyday in the 1970s to late '90s when the Auto Pact between Canada and the U.S. guaranteed that for every car sold in Canada, one had to be built here and that a majority of the parts were North American built.

"There was an emphasis on Canadian-built, valued-added vehicles that required a lot of labour, and there was a shift in the '70s and '80s to source a lot of bigger vehicles up here — and trucks," said Dimitry Anastakis, a Trent University history professor who specializes in the auto sector.

Mexico cheaper for smaller cars

The Auto Pact, signed in 1965 and later superseded by NAFTA, was dissolved in 2001. In subsequent years, the 2008 financial crisis would decimate the auto industry and close several plants while stricter fuel efficiency standards prompted a shift to smaller cars.

"Low-cost jurisdictions like Mexico can produce small vehicles much cheaper than Canada, and as consumers embrace these vehicles, we are not well aligned with the market," said automotive industry consultant Dennis DesRosiers.


About 20 models of cars and light trucks are still made at Canada's main assembly plants in Ontario. (Industry Canada)

As Toyota, Honda and other car companies move smaller models like the Corolla south, they're having to switch Canadian manufacturing plants over to higher-end cars that bring bigger profits.

"If consumers don't embrace these higher-value-added products, then production in Canada will fall, and that is our vulnerability," DesRosiers said.

Mexico has been aggressively and successfully courting the auto sector, attracting $7 billion US in investment last year — to Canada's $750 million, according to the Center for Automotive Research. Its rise to the position of second-largest auto producer on the continent has come at Canada's expense, said Mark Nantais, president of the Canadian Vehicle Manufacturers' Association.

"From 2011 through 2015, there were about 3.5 million new units of assembly capacity that were added in North America," he said. "Canada got less than three per cent of that. Sixty-three per cent went to the U.S., and 34 per cent went to Mexico."

Canada falls to 10th

Globally, Canada ranks 10th in auto production, behind not only Mexico but also Brazil, India and, as of last year, Spain. Leading the pack are China, the U.S., Japan, Germany and South Korea.

These plants won't be able to compete in the long run with greenfield plants being built in the U.S. South and Mexico. - Dennis DesRosiers, automotive industry consultant

It's likely to slip even further, says DesRosiers, since its "near impossible" to get new assembly plants built in Canada, meaning it will have to rely on upgrading existing plants.

"These plants won't be able to compete in the long run with greenfield plants being built in the U.S. South and Mexico — not just because of labour costs but because of the incredibly advanced production technology in these new plants," he said.

But Nantais says that even if Canada can't provide the kind of financial incentives that Mexico has been offering, there are areas in which it can compete, such as low corporate taxes, a skilled workforce, quality manufacturing facilities with a proven track record and a sophisticated supply chain, which includes world-class, home-grown parts manufacturers like Magna, Linamar and Martinrea.

"We've got a lot of good things we can capitalize on here, but things like the regulatory burden, the cost of utilities and unreliable rail service [are potential obstacles]," he said.

Compete with U.S., not Mexico

Nantais says the industry should focus on remaining competitive with production centres like Michigan, Ohio and the southern U.S.states rather than Mexico, which has labour cost advantages that we are unlikely to beat.

US Autoshow Chrysler Minivans 20140113

The Windsor Assembly Plant has the kind of global contract that many auto plants covet. It has been producing Chrysler's minivans since 1983. (Geoff Robins/Canadian Press)

To do that, he said, Canada, will have to tread carefully when it comes to implementing things like the new cap-and-trade scheme announced by Ontario, where the bulk of auto manufacturing happens, and new vehicle emissions standards

The holy grail for auto manufacturers is the global contract, said Nantais, and Canada has obtained at least two such deals recently: Ford's new Edge crossover, made at the Oakville Assembly Plant for the world market, and Honda's next generation CR-V, which will be made in Alliston, Ont., for export to the European Union.

"These are all good things that bode well, but there's no guarantee beyond that current product cycle, which is roughly five years," he said.

Honda Harper 20150330

Prime Minister Stephen Harper and Labour Minister Kellie Leitch visit the Honda assembly plant in Alliston, Ont., which will benefit from a recently signed EU-Canada trade deal and produce next-generation CR-V crossover vehicles for export to the European Union. (Nathan Denette/Canadian Press)

The Windsor Assembly Plant also remains the sole producer of the Chrysler minivan, an oft-overlooked success story of Canadian manufacturing that has lasted over three decades, says Anastakis, although next year's phasing out of the Dodge Grand Caravan might signal its end.

He says that thanks to the tariff-free movement of auto parts across the U.S., Canada and Mexico borders that began with the Auto Pact, the notion of "Canadian made" cars is now moot.

"People buy vehicles made in Mexico all the time — they don't even realize that," he said. "You might have an engine that's built in the U.S., a frame that's built in Canada and other parts that are built in Mexico, and final assembly gets built in Mexico."

Cars made in Canada

Company Plant Vehicle
Fiat Chrysler Brampton Assembly Chrysler 300, Dodge Challenger, Dodge Charger, Lancia Thema
Windsor Assembly Dodge Grand Caravan (to be discontinued in 2016) and Chrysler Town & Country, Ram Cargo Van, Lancia Grand Voyager
Ford Oakville Assembly Ford Edge, Flex, Lincoln MKT, MKX
General Motors Oshawa Vehicle Assembly
(Consolidated Line - closing in 2016)
Chevrolet Equinox, Impala
Oshawa Vehicle Assembly
(Flex Line)
Buick Regal, Chevrolet Camaro (moving to Lansing, Mich., this year), Impala, Cadillac XTS
Cami Automotive, Ingersoll, Ont. Chevrolet Equinox, GMC Terrain
Honda Plant 1, Alliston, Ont. Honda Civic Sedan, Si, Coupe
Plant 2, Alliston, Ont. Honda Civic Sedan, CR-V
Toyota South Plant Cambridge, Ont. Lexus RX350, Lexus RX450h hybrid
North Plant Cambridge, Ont. Toyota Corolla
West Plant Woodstock, Ont. Toyota RAV4

Source: Industry Canada, Ford, GM, Honda, Toyota, Fiat Chrysler