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Troubled auto industry could shift out of Canada


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by DAVID FRIEND - Canadian Press posted January 4, 2007

TORONTO (CP) - The troubled international auto industry expects that restructuring could shift facilities outside of Canada and into cheaper markets over the next five years, according to a survey of auto industry executives by KPMG.

A poll of 150 senior executives, of which 10 were from Canada, found that problems such as overcapacity and uncertain profits will likely see some companies filing for bankruptcy while others seek merger opportunities.

About 87 per cent of executives said they expect bankruptcies to climb or remain the same over the next few years, while 10 per cent see a decrease. Those numbers will be pushed by a declining global market share for North American automakers, said 71 per cent of respondents.

"If the trend of consolidations and global alliances continue, then the locus of decision making will shift away from one place to another and more likely that place will not be Canada," said Roger Bryan, an associate partner at KPMG's automotive practice.

Tier 1 and tier 2 commodity suppliers in Canada will consolidate and likely be taken over by international companies, he said.

Some major parts manufacturers like Magna International (TSX:MG.A) plan to stay in Canada, but "they too are having to follow the global supply chain," he said.

Executives signalled that the manufacturing shift to foreign markets could be fierce. Most of those surveyed anticipate manufacturing will rise in Asia (96 per cent) while South America and Eastern Europe was also seen as a growing market (60 per cent).

China was also seen as a growing market, with 75 per cent of the respondents saying that automakers will continue to invest in the country over the next five years. India was seen as the second-largest growth market.

Canadian 2006 auto sales numbers released Wednesday showed industry powerhouse General Motors' market share continued to decline, falling 2.8 percentage points to 25.9 per cent. Toyota sales rose one point to 12.1 per cent.

Overall, 2006 national sales was the second-best performance ever recorded. Over 1.6 million units were sold, up two per cent from 2005.

About 42 per cent of executives said industry profits will be flat or generally rise in the next five years. That was slightly more optimistic than the 39 per cent of the respondents last year.

A Scotia Economics report released in December said the industry is headed towards flat international growth after five years of record auto sales.

A slowing economy will weaken sales in Canada, the U.S., western Europe and Japan, it estimated, with China, India and Latin America seeing vehicle buys continue to rise.

Scotia Economics expects China to become the world's second-largest car market after the United States before the end of the decade.

i get the feeling Toyota, GM, Honda & Ford aren't going anywhere seeing as they've pumped billions into new plants or plant upgrades.

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