Vehicle production is plunging worldwide, and it’s especially severe in Canada

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Vehicle production is falling around the world as automakers struggle to get their hands on critical computer chips, leading to lengthy downtime at assembly plants and posing a challenge to economic recovery.

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Still, Canada’s recession is particularly severe.

Light-vehicle production in Canada fell 38 percent in August from a year earlier, according to data from research firm Wards Intelligence. Production fell 16 percent in the US and 20 percent in Mexico during the same period.

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Canada was not always backward. In the early months of the COVID-19 pandemic, trends in Canadian production were largely marked by plant closures in the spring, and a quick rebound in the summer, in North America and elsewhere in Europe.

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This year, however, chip shortages have halted production. And while the cuts are wide, they are also deep in Canada, which is on track to produce fewer vehicles this year than in 2020, when the industry came to a standstill.

Analysts and industry veterans say the reason for Canada’s weak trend is quite simple: With tight supplies of chips, automakers are prioritizing their highest-margin vehicles — and those made in other markets.

“The way automakers decide to divest their short supply of microchips is by choosing their most profitable lines,” said Flavio Volpe, president of the Automotive Parts Manufacturers Association. “Usually, this means pickup trucks or large [sport utility vehicles]. …obviously, those are not the lines that are made in Canada.”

The auto industry is an epitome of what the global economy is facing as it recovers from COVID-19. In the early days of the pandemic, with automakers canceled orders and no longer getting enough computer chips, the situation has been worsened by the recent Delta variant outbreak in Southeast Asia. Those supply issues have been exacerbated by a shortage of shipping containers and delivery delays. The manufacturers were left with no option but to curtail the production.

Ultimately, there is less inventory at car dealerships, forcing consumers to shell out more money for vehicles, whether new or used, and feeding into high inflation that is the subject of debate among economists, investors and central bankers. has become the focal point. Many frustrated consumers are simply holding onto their cash.

The decline in the Canadian labor market is evident. About 10,000 jobs are yet to be returned in auto manufacturing, and places like Windsor, Ont. have a high number of people seeking jobless benefits through employment insurance.

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It is a major obstacle on Canada’s path to recovery, especially for parts of southern Ontario where the auto industry plays a large role in the local economy.

“Canada has always been, as it relates to the car industry, at risk of decisions made in other countries, whose membership includes thousands of autoworkers,” said Unifor President Jerry Dias. “We have no control over our industry. Not there.”

Supply chain disruptions have been brutal for US automakers. General Motors Co., Ford Motor Co. and Stelantis NV (which owns Chrysler, Jeep and other brands) have prolonged shutdowns at Canadian assembly plants this year. GM’s CAMI plant in Ingersoll, Ont. has been largely closed since February.

Even Japanese automakers have not been spared, despite having a huge stockpile of parts. Toyota Motor Corp and Honda Motor Co Ltd have cut production, including at Canadian plants.

Those decisions have resonated in Canada’s auto-parts industry, which in terms of GDP is much larger than vehicle manufacturing.

“There’s a huge trickle-down effect here,” said Mr Volpe. “If an assembly plant is down, all its feeder plants are also down. That’s why everyone is feeling the pain.”

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Its effect is clearly visible on the car dealership. In September, vehicle sales in Canada were down 20 percent from a year earlier, which analysts attributed to a lack of supply. With fewer cars available, the price of new vehicles rose 7.2 percent over the previous year, according to the latest inflation data from Statistics Canada. Light used vehicles are often selling for more than they are new.

“The demand is very strong, and the willingness to pay is really high,” said Rebekah Young, director of fiscal and provincial economics at the Bank of Nova Scotia. “But it is the lack of supplies that is hurting things.”

The approach to production is somewhat ambiguous. A recent Scotiabank report said it “looks increasingly optimistic” that global vehicle production will pivot in the fourth quarter, hitting capacity sometime next year. However, with such high demand for vehicles, the supply shortfall in North America may persist until 2023.

The Canadian region should get a boost later this year. Auto assembly is set to return to the GM plant in Oshawa – this time with the Chevy Silverado and GMC Sierra pickup trucks. “They are…

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