Trends and complementarities in the Canadian Automobile Industry

Three issues have deeply influenced the Canadian automobile industry in the last decades. Proliferation of models and vehicle-types has reduced the average sales per vehicle with important consequences on the manufacturing side. Manufacturers have responded by adopting flexible production technology in their assembly plants. One of the most important features of the flexible technology is the ability to build a variety of different models on the same assembly line. Many firms also reorganized their supply chain. Increased outsourcing of components, even sharing the burden of research and development with preferred (tier 1) suppliers, and just-in-time inventory management are the most visible exponents of this transformation. These three trends are discussed with an eye to their interrelatedness, the impact on industrial performance, and policy options available to Canada. The importance of each trend independently and taken together is evaluated using plant and firm-level data. * University of Toronto, Department of Economics, 150 St. George Street, Toronto, ON M5S 3G7, Canada, Tel. 416 946 5795, E-mail: [email protected]. Jonathan Hendricks and Angela Singh provided research assistance. I benefited from comments from the editors, an anonymous referee, Thomas Klier, and seminar participants at the Industry Canada workshop in Ottawa, the University of Montreal, the IIOC 2004 in Chicago and the EC conference in Marseille. Financial support from Industry Canada, the Connaught Foundation, CFI, OIT and SSHRC is gratefully acknowledged.