Corporate restruc-turing at the Big Three automakers present both challenges and opportunities to Canadian auto parts companies.

Although auto parts firms will inevitably be affected by the resulting decline in production, they may pick up additional business from struggling competitors, increased outsourcing on the part of the Big Three and successful penetration of the Chinese market.

Yet, even though the restructuring has hurt Canadian assembly plants less than their U.S. counterparts — fewer than 6,000, or only about 8%, of the 70,000 layoffs announced by General Motors Corp. and Ford Motor Co. have occurred in Canada — this doesn’t insulate Canadian partsmakers, who supply U.S. plants as well.

Aurora, Ont.-based Magna International Inc., for example, will be doing more restructuring in light of its lower-than-expected 2007 revenue forecast..

In its Prospects for Canada’s Auto and Parts Sector report released in late January, TD Bank Financial Group expects a 6% drop in Canadian auto parts production in 2007 and an increase of only 3% in 2008 as a result of both the restructuring and ongoing competition from Chinese imports. That will leave production in 2008 at about 12% below the peak 2004 levels.

Furthermore, partsmakers face challenges on the wage side as a result of competition from both China and southern U.S. states. TD notes in the report that the U.S. operations of Michigan-based Delphi Corp. is trying to secure a union agreement before it emerges from bankruptcy protection that would reduce wages to about US$16-US$17 an hour from US$27-US$28.

Nevertheless, the TD report says, a number of Canadian parts producers “appear to be well positioned to grow their businesses over the next few years amid the exiting of the Big Three from some lines of businesses and further restructurings within the sector.

“Success in taking advantage of opportunities both at home and abroad will be vital to ensuring the sector’s sustainability over the longer run.”

TD believes the $7 billion in announced auto investment plans in Ontario over the past few years “is a vote of confidence in the Canadian auto and the parts sectors’ ability to live up to the challenge.”

– CATHERINE HARRIS