Canadian aftermarket keeps rolling as ‘a well-oiled machine’

April 5, 2017
President Donald Trump’s disdain for NAFTA has been directed mostly at Mexico, yet Canadian industry executives are a bit uneasy about business relations with their U.S. counterparts should Trump’s ire start targeting the northern neighbor.

President Donald Trump’s stated disdain for the North American Free Trade Agreement (NAFTA) has mostly been directed at Mexico rather than Canada, yet Canadian industry executives are a bit uneasy about business relations with their U.S. counterparts should Trump’s ire start targeting the northern neighbor.

Having been humming along in comfortable coexistence across the world’s longest unfortified international boundary since Canada began producing Ford Model Cs in 1904, a possible trade war could gum up the works for Canadians and Americans alike. According to KPMG, a given part or sub-assembly may traverse the Canada-U.S. border up to seven times before finally being affixed to a vehicle.

This rather astounding statistic, plus a recent encouraging meeting among Trump and Prime Minister Justin Trudeau, present further evidence “recognizing the partnership between the U.S. and Canada and how integrated the two countries are,” says Jean-François Champagne, president of the Automotive Industries Association (AIA) of Canada, which represents the north-of-the-border aftermarket.

Aftermarket businesses in Michigan and Ontario are especially intertwined. “Most of the distribution outlets are operating on both sides of the border,” he reports, creating concerns over the ramifications of a renegotiated NAFTA and/or American implementation of a BAT, the border adjustment tax proposal that has been floated by the Trump Administration. Canada could be compelled to react with in-kind economic penalties should any restrictive initiatives become reality.

“We don’t see that as a positive for either the Canadian or American auto industry,” says Champagne, reflecting on the BAT. “With our highly integrated economies it would impact U.S. jobs. It would impact manufacturing capabilities for both the U.S. and Canada,” resulting in higher prices for vehicle and component purchasers on either side of the border.

Global implications are in play as well with NAFTA and the BAT. “Parts come from all over the world” into the two nations. For example, Mexico – the other NAFTA signatory – is also heavily involved in the continent’s automotive network.

Regarding NAFTA, Trump’s tweets seem to suggest that a mere tweaking may be in the offing. “It might modernize the agreement,” Champagne observes. “It’s hard to articulate until we know more about the tweaking,” although a sense of unease remains.

In a widely disseminated report aired by the BBC on the issue, Flavio Volpe, president of Canada’s Automotive Parts Manufacturers Association (APMA), urged his colleagues to keep calm regarding Trump’s stance on U.S./Canada trade: “I think everybody in the industry should wait until we have something to react to on NAFTA.”

Widespread consolidations

NAFTA and BAT trepidations aside, the Canadian aftermarket “is a well-oiled machine,” says Champagne. “The distribution supply chain is very organized. The parts get to the right shop at the right time. We had a $21 billion aftermarket industry in 2015 and it continues to grow.”

Canada’s vast land mass, tough winter weather conditions and far-apart population centers have long been served with aplomb by reliable independent business owners. Although consolidation among warehouse distributors and jobbers is an ongoing trend as it is in the U.S., “a small distributor to distribute car parts is very much a part of the Canadian landscape,” Champagne says. “It’s a very healthy segment for the Canadian aftermarket. They’re continuing to play a critical role.”

In Canada there are 16,700 mechanical repair shops, both chain and independent operations, amounting to 107,000 service bays – roughly six per independent service center; seven at major chain outlets.

“The traditional shops, where they just install tires, for example, are becoming more diversified,” according to Champagne, with complications arising because of the increased complexities of today’s vehicles. “The technology is putting pressure on the repairers.”

There are some 4,000 collision repair shops in Canada, and Champagne reports that the smaller independents are finding it difficult to compete. Amid widespread consolidations, about 20 percent of the independent body shops are struggling to keep their bay doors raised.

With more than 250 locations in 10 of Canada’s 13 provinces, CARSTAR rolled out in March a call center initiative designed to smooth insurance claim processing for the nearly 20 million Canadians who tour the U.S. each year. In 2015 Canada’s snowbirds made 3.7 million trips to Florida, staying 23 nights on-average. CARSTAR’s upgraded call center serves as a centralized resource for coordinating all the procedures for Canadians who are involved in a crash while far from home on an American vacation.

“We want to make it seamless for these drivers to get a high-quality repair on their vehicle through their Canadian insurance carrier,” says company President Michael Macaluso “This program makes it much easier to handle the repair and helps take the stress out of the situation.”

Local engagement

Canadian dealership showrooms are experiencing an increased number of customers, and many of them are selecting high-end nameplates. “We’ve seen record purchases of new cars over the past two years,” says Champagne.

“The hot luxury auto market in Canada has accounted for nearly 60 percent of the year-to-date increase in overall volumes in the country this year, which is five times its normal share,” says Carlos Gomes, senior economist and auto industry specialist at the Toronto-based Scotiabank. “The strength of the luxury market is concentrated in British Columbia and Ontario, the fastest-growing provincial economies.”

These surging new-car sales bode well for future aftermarket business as it enhances the sector’s stability and potential for ongoing growth, according to Champagne.

“The average age of a vehicle is about 10 years old,” he says. “People are still keeping their cars longer, and we’re setting the stage for more repairs eight to 10 years from now.”

A trip to a driver’s original car dealer often involves a lengthy journey, and owners of high-end vehicles continue to seek out maintenance services and unique accessories just like motorists of more modest means. “Some of the shops specialize in luxury cars,” says Champagne. “It might open more niche opportunities for aftermarket distributors and repair shops.”

Canada’s lingering aftermarket challenges are similar to those found in the U.S.

“Hiring and retaining qualified, good employees throughout the supply chain” is becoming increasingly difficult, says Champagne. Attracting young people into the industry is an ongoing effort that the AIA is proactively addressing. “We have local engagement through job fairs,” along with visits to schools and providing volunteer instructors to assist teachers with the details of curriculum offerings.

“We continue to conduct research into disruptors. We make sure we understand the needs of the industry,” he says, citing the pattern of rapid technological changes that heighten the importance of staying on top of the latest training requirements.

“The right to repair movement in Canada took a slightly different turn than the U.S.,” Champagne recounts. “It strictly happened as a voluntary movement.” A case in point is CASIS, the Canadian Automotive Service Information Standard agreement that was ratified in 2009.

“CASIS may need a tune-up of its own after eight years,” he says. The AIA is currently surveying its membership, seeking answers to a key query: “Does CASIS in its current form ensure aftermarket shops have access to all the information they need when these latest vehicle models start hitting repair bays in a few years?”

Urging automakers to supply the latest repair techniques is a priority for keeping the country’s shop owners in the loop. “The future of the aftermarket is dependent on the capacity of repair shops to access the tools and information they need to service these vehicles,” says Champagne. “Otherwise, consumers have little or no choice about where they can have their vehicles serviced.”

E-commerce is another element, creating concerns among Canada’s brick and mortar parts-supply proprietors. “More and more, the consumer is relying on the internet,” he reports.

The prospects going forward for Canada’s overall aftermarket, however, instill confidence as Champagne assesses the road ahead: “It’s not all roses, but it’s creating opportunities.”

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