OTTAWA – With Canadian auto exports to the U.S. falling in 2018 and the new USMCA trade agreement between the U.S., Mexico and Canada still unratified (only Mexico has done so), the Canadian auto sector has been eyeing Europe for overseas sales.
A report from the Canadian government’s chief economist released in June gave grounds for optimism about future European Union sales. While overall global value of Canadian automotive exports fell 3.1% last year (down $2.5 billion) – with sales to key trade partners the U.S. and Mexico declining – auto sales to the EU were up 89.3% year-on-year. Notable increases were to Germany (+87.6%), Belgium (+317.6%), Italy (+295.7%) and Spain (+255%).
In terms of raw numbers from Statistics Canada databases, 2018 Canadian passenger-vehicle exports to the EU (excluding buses and other public transport) generated C$827.6 million ($632 million) in 2018, up from C$387.6 million in 2017, C$246 million in 2016, and C$192.9 million in 2015.
Parts sales to the EU also have been significant, although these receipts have been steadier: C$210.6 million ($160.8 million) in 2018, down from C$219.1 million in 2017, up from C$192.9 million in 2016, and C$168.4 million in 2015. These exclude engines, bodies and chassis, of which Canadian export sales to the EU are insignificant.
One reason for the increase in exports, admittedly from a low base, may be the fact that the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU was approved by the European Parliament in 2017 and, pending final ratification by all EU member states, is being implemented provisionally (apart from some contested sections on investment protection).
This means tariff barriers on Canadian cars of 10% will have started to fall (they will be phased out over seven years) and other restrictions previously impeding auto trade between Canada and the EU already are gone: CETA also will allow Canada to export up to 100,000 vehicles annually to the EU that are partially made in other countries. This is important, given the integration of Canada’s auto sector with America’s.
Canadian Vehicle Manufacturers Assn. President Marc Nantais (below, left) stresses there is potential for Canadian automakers who, like Ford, may design vehicles to meet the safety standards of all major markets worldwide. With European markets having strong demand for premium and smaller (especially in the future) electric vehicles, plants such as Ford’s in Oakville, ON, which produce lots of higher-end autos, potentially could succeed in Europe, he says.
But manufacturers still need to demonstrate type-approval compliance to enter the EU, which involves monitored tests of autos to demonstrate they meet EU vehicle-safety standards based on UN Economic Commission for Europe (UNECE) World Forum for Harmonization of Vehicle Regulations agreements.
“This paperwork can, for lower-volume vehicles, add costs that can undermine the business case” for exports, Nantais says. And, given it is more likely that mass-market vehicles will be made in the EU for European customers, it is these niche markets that could well be the target of Canada-to-Europe auto exporters.
“Some cases will be better than others,” Nantais says. “You need to be selective where you send these vehicles.”
David Adams, president of Global Automakers of Canada, a body representing all Canada-based manufacturers other than the Detroit Three, agrees there is opportunity for Canadian automakers to sell more product in Europe, but companies first need to “adopt a different mindset” from focusing on the North American market exclusively.
Adams’ group would support exploring mutual recognition of EU and Canadian safety standards, rather than attempting to harmonize UNECE and North American rules, which would be too complex. In his view, “if you go down to the granular level of standards, there’s no hope of any harmonization.”
Even without a mutual recognition deal, should North American sales ease for Canadian plants, and they are left with excess capacity, manufacturers could assess whether investing in securing EU type approvals for European sales makes commercial sense. And it might, Adams says, with “economies of scale” making such a strategy more profitable as they sell more autos in Europe.
CETA, commentators speculate, is one reason Toyota announced plans in May to start building Lexus NX and Lexus NX Hybrid compact luxury CUVs at its Cambridge, ON, plant in 2022 – the first time it will produce that model outside Japan. This followed Toyota saying in March it was transferring some its RAV4 production from Cambridge to its Kentucky plant.
Flavio Volpe, president of Canada’s Automotive Parts Manufacturers Assn., wrote in Canada’s National Post newspaper that this indicates Toyota could profitably make NXs in Canada and sell them to EU markets.
Scott MacKenzie, senior national manager-external affairs, Toyota Motor Mfg. Canada, tells Wards that while it has no current plans to export to the EU “we are always evaluating our opportunities.”