Status of the Auto Industry

and a
Strategy to Make Canada a
Product Development Hub
Peter Frise CEO, AUTO21 Inc.
May 2013

Presentation Outline
Introduction:
Present Status of the Global Auto Industry;
Ontarios Place Within the Industry
The Value Chain Who Does What?
Major Technological and Commercial Trends

The Key Challenges We Face

The competition

A Solution for Consideration

Global & North

American Automotive
Sales & Production

~105M in 2020

Global vehicle assembly capacity is about

30M units too high!!

The Value Chain Who

Does What?

The Auto Parts Value Chain

Vehicle models are often assembled in multiple plants
around the world (ex. the Toyota Corolla is made in 13
different factories in every global region);
More than 80% of the parts in a given model are developed
and manufactured by the same companies which must
supply ALL of the assembly plants from parts factories
located near to each assembly plant;
Therefore, auto parts companies must be global but their
key activities in R&D and product development are vital
because they generate the highest value employment;
Building a business case in the auto parts sector to attract
those product development activities is the key to ensuring a
healthy manufacturing sector in the future.

Technological Trends and

R&D in the Automotive
Industry
Global and Canada

32 Years of Automotive Progress

1981 Ford
Escort

2013 Ford
Focus

Curb Weight

1100 kg.

1400 kg.

0-60 Time

15.1 sec.

8.3 sec.

EPA Fuel Economy

23 mpg

31 mpg

PLUS: the Focus has fuel injection, cam-phasing, airbags, ABS brakes, HID headlights,
air conditioning, PW/PS/PB, power seats, heated mirrors, satellite radio, Bluetooth
phone, etc. AND it starts every time, it goes, turns and stops better, it is quieter, it does
not rust and it costs less in 1981 dollars than the Escort cost in 1981.

CAFE REGULATIONS Complex but mandatory for future

light duty vehicles of all types & sizes

100% change in 15 years!

Global & Canadian Auto

Sector Innovation Metrics
How does Canadas auto sector
compare globally in R&D and product
development investment?

Growth in Global Automotive Product

Development Investments
Global automotive product development
investment growth is more than 25% of new
incremental spending which is second only
to the computing / electronics sector and
ahead of all other sectors.

Is Canada getting its share of this

new investment?

Data from Booz & Co. 2012 Global Innovation 1000

AUTO $13.2

Auto Industry Statistics - Global

2011
77.1 M

2012
81 M

Global Light
Vehicle & Parts
Production

OEM

Supplier

OEM

Supplier

Revenue

$ 1.9 T

$ 392.1 B

$ 2.0 T

$ 374.9 B

Profit

$ 103.1 B

$ 15.8 B

$ 95.7 B

$ 18.9 B

Margin

5.5%

4.0%

4.8%

5%

R&D & PD

$ 96.8 B

$ 100 B

$ / vehicle

$1257

$1235

The annual figure of approx. $1240 / vehicle in R&D and product

development costs is certainly going to increase dramatically going forward
to meet enhanced fuel economy, vehicle emissions and safety standards.
Source: Booz-Allen & Co.

Auto Industry Product Development Investments

Comparing Global & Canadian Data
2011
2012
Global

Canada

Light Vehicle Production

77.1 M

81 M

Product Development Expenditures

$ 96.8 B

$ 100 B

Product Development Investment $ / car

$1257

$1235

Light Vehicle Production

2.12 M

2.45 M

Product Development Expenditures (est.)

$ 425 M

$ 500 M

Product Development Investment $ / car

$ 200

$ 204

Product development investments in Canadas auto industry are falling

behind by a factor of more than six (approx. $200 / vehicle in Canada
versus more than $1230 / vehicle abroad).
Data from Booz & Co. 2012 Global Innovation 1000,
DesRosiers Automotive Consultants and Industry Canada

Auto Industry R&D in Canada & Abroad

Global auto industry: intense period of innovation to meet new fuel economy
requirements and enhanced safety standards;
Huge amount of investment in R&D as automakers struggle to meet these
challenges while recovering from the recession;
Vehicle product development cycle means that major investments are
required now to secure a place for new technology on the next generation of
vehicle models;
Product development investments in Canada have lagged other global
automotive nations significantly;
Canadian manufacturing operations are vulnerable to competition from
abroad and it also means:
Canadian investments in universities, colleges and public sector science
organizations are not being effectively leveraged;
Bright young people educated in Canada have fewer job prospects in R&D here.

Canadas Place in the

Global Auto Sector

Canadas Auto Industry Statistics

~ 8 light vehicle and 6 heavy vehicle assembly plants
across Canada (incl. cars, trucks & buses > 10 OEMs)
Approx. 400 parts supplier companies
Output approx. 1.8 - 2.5 million vehicles/year
Approx. $119 billion including parts & assembly
Canadian employment is approx. 130,000 people +
300,000 indirect
Canadian R&D investments approx. $500M-$1B/year
Several large R&D centres are located in Canada.

Canadas Auto Industry

8000
km

North American OEM HQ Locations

Chrysler LLC Auburn Hills MI
Ford Motor Co. Dearborn, MI
General Motors Detroit, MI
Honda N. Am. Marysville, OH
Toyota N. Am. Ann Arbor, MI
Nissan N. Am. Farmington MI

All of which are within

this little red circle

The Competition

2010 vehicle production was about 78

million units despite the slowdown in the US
and Western Europe

Canada
2.1 M

E. Europe

Korea

6.0 M

4.3 M

W.
Europe

U.S.
7.8 M

Japan

China

9.6 M

18.3 M

13.8 M

Mexico

India

2.4 M

3.5 M

Thailand
1.6 M
Indonesia
Malaysia

721K

568 K

S. America
4.4 M
S. Africa
449 K

Australia
249 K
Source:

Global Insight

By 2015 production is expected to exceed 90 million units driven by a

recovery in the U.S and continued growth in Asia.
At present Canada is the only region not showing a projected increase
in production we must change this picture!
E. Europe

Canada
2.1 M

Korea

7.8 M

4.6 M
U.S.

W. Europe

China

Japan

11.2 M

16.0 M

25.9 M

9.7 M

Mexico

India

3.4 M

6.4 M

Thailand
2.5 M
Indonesia
Malaysia

1.3 M

681 K
S. America
5.9 M

Australia

S. Africa

350 K

748 K

Source: Global Insight

Automotive Product
Development and R&D
a Strategy to Make Canada a
Product Development Hub

Innovation in the Canadian

Automotive Sector
Where in the R&D and product development
process does Canada fail to invest
adequately?

Innovation in Canadas Auto Industry

Increased Investment Needed

Conclusions and Take-Away Messages

Automakers must greatly improve the environmental and safety performance
of their vehicle offerings but 70+% of the vehicle technology comes from the
auto parts supplier companies;
Thus, auto parts suppliers must innovate to contribute to better safety and
environmental performance of future cars and they must do this now to be
included on next generation vehicle models;
Canadian investments in product development at $200 / car are a fraction of
the $1200+ / car global average - we are simply not competitive;
This work must be done in industry for reasons of speed and security and to
ensure valid outcomes and Canadian companies must participate or risk
being dropped as suppliers;
AUTO21 has surveyed 25 leading Canadian auto parts companies confirming
that a direct investment program supporting R&D would address these
issues.

Capacity for Growing R&D in Canadas Auto Industry

(data from a recent survey of 25 Canadian auto parts firms by AUTO21)
Question

Cumulative Response

Canadian automotive R&D expenditures over the next 5 years

$775.4 million

R&D expenditures abroad over the next 5 years

$3141.2 million

Ratio of R&D abroad / total company R&D

Varies from 0 to 92% (avg. = 30%)

Potential to move R&D to Canada with a direct assistance program

$141.5 million

Potential to grow overall R&D expenditures in Canada with assistance

$197 million

Anticipated growth/retention in R&D employment in Canada

Estimated amount of direct investment program funding requests

480 R&D jobs

$196 million / 5 Years

NOTE: No OEM data is included in the survey.

Proposed Rules of a new Direct Investment Program..

PROGRAM
PRIORITIES

Industry support & commercialization plan and capacity

building determine project selection;

FUNDING

50% industry & 50% program

RECIPIENT

Funds flow to industry for use in the project;

REPAYMENT

Most program funding will be in a repayable loan;

IP OWNERSHIP

Industry will own the intellectual property;

APPROVAL

Project review & approval in days / weeks;

DURATION

Projects normally 2 years but may be shorter or longer;

MONITORING
The companys own internal monitoring process with
external audits to trigger program investments;
ELIGIBILITY

Canadian corporations and local subsidiaries of foreign

companies which manufacture in Canada;

Applicants must commit to do the R&D here and present a plan that shows a benefit to Canada.

Project Activities & Proposed Repayment Rules

Supported R&D Activity
Build a Prototype Component
Hire New R&D Personnel in Canada

Program Funds Repayable?

Yes once the component or
process goes into production
No

Purchase New R&D Equipment in Canada

No unless the asset is used

in commercial production

Contract Research at Canadian Institution

No

Developing the best people and

the best technology for the future of
the automotive industry
www.auto21.ca

www.nce.gc.ca