April 5, 2007

Capital expenditures in the automotive sector forecast to decline, analyst says

Richmond Hill, Ontario – Total capital expenditures in the automotive sector are forecast to decline by 14.2 per cent in 2007 as the vehicle assembly industry retrenches after a decade of very strong investment activity, says industry analyst Dennis DesRosiers. Total new and repair capital expenditures are forecast to be $4.2 billion in 2007, down from $4.9 billion in 2006.

DesRosiers says that new capital expenditures in the assembly sector are forecast to decline from $3.0 billion to $2.0 billion, while new capital expenditure in the automotive parts sector and the truck body and trailer sector are both forecast for strong growth, but not enough to offset the decline in vehicle assembly.

“Although down by a billion dollars, the assembly sector has been investing in new plants and equipment at a near-record pace, so some cooling-off was expected,” DesRosiers says. “New capital expenditure has averaged $2.4 billion per year this decade as the OEMs renew and flex their assembly plants in Canada. And understand these higher investment levels have been in the face of plant closings and/or downsizing in Canada by GM, Ford and DaimlerChrysler. With one or two exceptions, all vehicle assembly plants have been renewed this decade, so Canada is very well-positioned to maintain its share of North American vehicle production, if not increase it slightly. Indeed, for the most part, Canada has withstood some of the restructuring in the assembly side of the industry and has a very strong and healthy assembly sector, partially because of the strength on investment in its plants.”

DesRosiers also says that the auto parts sector is also returning to higher levels of investments, which he says “will serve it well in the future. We believe that the parts sector became too dependent on a low dollar and didn’t grow their capital expenditures in Canada to the level they should have when the dollar was low.” He says the sector’s investment levels were up 25.2 per cent in 2007 to $1.2 billion. “There may be fewer players in the future, but by pouring money into their factory floors they will be much stronger players,” he says. “Expect employment levels, though, to drop as much of this investment focuses on productivity initiatives.”

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