The strong Canadian dollar and stiff foreign competition, combined with declining U.S. consumer demand for new vehicles, are expected to cut profits for Canada’s auto parts manufacturers in 2008, according to an outlook from the Conference Board of Canada.

“Given that the U.S. accounts for the majority of Canadian auto parts exports, factors such as the strong Canadian dollar and weak American demand will continue to negatively affect the industry’s performance in 2008,” says Sabrina Browarski, and economist with the Conference Board.

Despite aggressive price cuts and sales incentives, American motor vehicle sales this year are expected to decline to their lowest level since 1998. As a result, auto parts production in Canada is forecast to fall by eight% in 2008, the third consecutive year of declining production.

However, with the opening of Honda’s Alliston, Ont. engine plant later this year and increased production associated with Toyota’s new RAV4 plant in Woodstock, Ont. the industry as a whole is positioned for a rebound in 2009. Production is forecast to jump by 6.9% in 2009, and is expected to increase by an average of 2.2% between 2010 and 2012.

In line with declining production this year, profits are expected to fall by 14.7% to $1.5 billion, before rebounding beginning in 2009.