Appreciating currency slashes Canada’s auto trade surplus

TORONTO (July 15, 2003) — During the first four months of 2003, Canada’s trade surplus on vehicles and parts slumped to an annualized $2.7 billion, the lowest level in more than a decade, according to a Scotia Economics report.

Flagging car and light truck sales in the United States, market share losses by the Big Three, and a dip in vehicle production have all contributed to the lower surplus, said Carlos Gomes, Scotiabank’s auto industry specialist.

“However, most of the deterioration in the nominal trade performance reflects this year’s sharp appreciation of the Canadian dollar,” he said.

Vehicles shipped to the United States — the destination for more than 95 per cent of Canadian exports — are priced in U.S. dollars, significantly reducing export receipts so far this year.

The drop in Canada’s trade surplus stands in sharp contrast to most other industry statistics, which, while moderating, indicate that Canada’s auto sector continues to outperform its much larger U.S. counterpart, Gomes said.

Canada’s auto parts trade balance also continues to improve, as suppliers gain share in North America. Canada’s long-standing deficit in auto parts has averaged $18.1 billion so far this year, down from a $19.3 billion shortfall in 2002 and a peak of $22.9 billion in 1999. Canadian auto parts exports to the United States have advanced 1% year-over-year through April, at a time when shipments from U.S. and Mexican suppliers edged lower.

“Despite gains by Canadian suppliers, Mexico still retains the title as the largest auto parts exporter to the United States, with annual sales of roughly $20 billion US — a $2 billion US advantage over Canadian parts makers,” adds Gomes.

Automakers have scheduled a 7% quarter-to-quarter increase in North American production for the third quarter, even in light of disappointing new vehicle sales in the United States in recent months, continued high inventories, and periodic plant shutdowns. Vehicle output in Canada, the United States and Mexico is scheduled to climb to an annualized 17.6 million units in the third quarter, up from only 15.6 million in the second quarter.