Auto parts turnaround seen in 2011

Cost-savings measures undertaken over the past 18 months and a gradual recovery in the U.S. economy will allow Canada’s automotive parts industry to return to profitability next year, according to a report yesterday from the Conference Board of Canada.

After losing $674 million in 2009, largely because of a worldwide recession and virtual collapse of the domestic auto industry, the board forecasts the parts sector will turn a profit of $378 million in 2011 with gradual increases over the next three years until profits hit $894 million by 2014.

The industry is expected to lose another $41 million this year before the recovery takes hold.

According to the report, U.S. vehicle demand is gradually recovering and cost-cutting measures implemented during the recession are improving the bottom line.

According to the report, the parts industry benefits from a high degree of collaboration with vehicle assemblers, as the just-in-time assembly process minimizes inventory carrying costs and assures financial stability through long-term contracts.

However, the large decline in auto sales during the recession exposed the downside of this relationship.

Employment is also expected to rebound, having fallen from an estimated 120,000 in 2006 to a current estimate of 89,000.

The board projects that employment will increase steadily over the next four years and reach 108,000 by 2014.

There are about 750 auto parts suppliers in Canada, with 33 of them employing more than 500 workers and about 240 medium-size companies with 20 to 500 employees, while the rest have fewer than 20 employees.

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