While automakers are sourcing globally, the Canadian auto parts sector continues to think locally and remains almost exclusively focused on the domestic and U.S. markets, according to the latest Global Auto Report released by Bank of Nova Scotia Economics on Monday.

General Motors, Ford and Chrysler still account for almost 90% of all shipments from Canadian auto parts facilities, almost double their 55% share of overall Canadian and U.S. vehicle sales.

The value of Canadian auto parts in each North American built vehicle declined to $1,869 last year, more than 7% below the 2004 peak of $2,019. Suppliers of brakes, engines, electrical and steering systems are facing the greatest pressure, with their content per vehicle slumping by almost 20% over the past two years, double the drop-off of the entire industry.

In contrast, companies concentrating on seating, transmission and power trains, and, to a lesser extent, metal stamping are outperforming, with 2006 shipments above the industry-wide peak of two years ago.

“Canada has several world-class auto parts companies that are continuing to gain market share, even in the current turbulent environment,” says Carlos Gomes, Scotiabank’s auto industry specialist. “For example, we estimate that since the new millennium, Canada’s two largest auto parts suppliers have boosted their content in North American vehicles by more than 70% to $880 per vehicle. However, during this period, the rest of the Canadian supply base has seen its content decline by roughly 10%, with the drop-off accelerating last year.”

Canadian auto parts shipments have declined sharply over the past two years, a significant reversal from more than a decade of consistent market share gains. This reflects lower vehicle production at the traditional Big Three in North America, the impact of a rising Canadian dollar, which has eroded the industry’s competitiveness and virtually no exports to the rapidly growing emerging markets of Asia and Latin America. As result, while global vehicle production continued to scale new heights in 2006, the value of Canadian auto parts shipments slumped below $30 billion, the lowest level since the 2001 economic downturn.

A similar trend is evident in the United States, with U.S. suppliers capturing less than 60% of their home market in 2006, for the first time on record. As recently as 1999, U.S. suppliers garnered more than 70% of the U.S. market. As in Canada, low-wage countries are posting the strongest gains.

“Despite the recent shift in vehicle production to the U.S. South, the traditional vehicle-producing states, Michigan and Ohio, remain the destination for almost half of all Canadian auto parts exports to the U.S.,” says Gomes. “As a result, vehicles produced in the U.S. South have only one-third of the Canadian content of those assembled in Michigan.”