I s the future of Canadian auto market bleak? The suppliers are themselves suffering from shrinking orders because of the appreciating Canadian dollar, shrinking product lines from assemblers, stiff competition from low cost part manufacturers, and the rising market share of imported vehicles (Kar, 2006). The American market has for many years relied on light tracks market for growth, but this section’s total market share of the cars sold has been declining, not to mention the competitive entry of foreign products (Hargrove & Stanford, 2002).Kar further says that North American carmakers are introducing new models to deal with competition, but it will be a disaster if their new cars fail to capture the targeted market.
Domestic parts makers can also outsource low-skilled manufacturing jobs to low cost countries like china, whereas highly skilled jobs of research, design and management are left in Canada. This could give them even access to other markets of Europe and the expanding Asia instead of relying on just North American Market.In the age of globalization, Canadian automakers and their suppliers should put emphasis on expanding to the upcoming markets worldwide instead of looking for ways to protect their home turfs and local work force. It’s the failure to shift to low cost manufacturing areas and targeting upcoming markets that will destroy the future of the local motor industry. Relying on the bigger southern neighbor has been a bad omen to Canadian auto industry; this has to change.
It will further hurt the Canadian economy considering that the motor sector employs more that.5 million Canadians, provides a $40 billion market for autopart makers, and $167 billion of Canadian merchandise trade, 20% of the national total (Auto Days, 2006). The industry output has been rising in the past decade despite the bleak performance portrayed by Stanford. Indeed, Industry Canada (2006) statistics indicate that motor vehicle and associated autoparts exports have been rising: exports of assembled vehicles have risen from $47.
9 billion in 1996 to $59. 8 billion in 2006, whereas exports of motor vehicle auto parts rose from $21. 1 billion in 1996 to $28. 5 billion 2006.Number of motor vehicles produced by Canada during the same period increased by 7.
26 percent, whereas that of the United States decreased by 4. 83 percent. Government officials both at federal and provincial level have confidently asserted that the industry will finally recover because they have set Canadian economic fundamentals (balanced budgets, lower taxes and competitive labor laws) right (Hargrove & Stanford, 2002). Is Canada at risk of Dutch disease? Define Dutch disease? Canada has for few years been experiencing warning signs of Dutch disease; appreciating currency and rising share of primary commodities in the economy.A 2005 poll indicated that 57 percent of Canadians business leaders expressed fears that the economy was experiencing Dutch Disease, whereas 24 percent said they were not sure and only 19 percent said that those fears were far fetched (Compass, 2005). Does Dutch disease only affect countries with heavy government involvement in the economy, because it is Canadian corporations are getting commodity windfall that can be used to buy foreign companies to lower local production costs by, as detailed above, outsourcing low skilled manufacturing tasks.
Factors affecting industries like auto manufacturers are connected to increased global competitiveness, not the purported Dutch Disease. Comparing Canadian economy with that of Netherlands during the “Disease” is testament that North Americans have nothing to worry. Canadian government should therefore continue to do what they are doing bout the perceived threat, which is nothing more than purring economic fundamentals and investment climate right.Besides, argues Schrier (2005) “the slump in the Dutch manufacturing was short-lived and the country has remained an industrial nation.
Canada’s manufacturing sector is on the other hand more diversified and its productivity has been increasing, which indicates that effects of Dutch disease are overblown. The phenomenon of Dutch Disease is not new in Canada. One author (Looking the Gift Horse in the Mouth) identifies the generous wealth redistribution in Canada, especially between the entire country and Atlantic Canada as the cause of suppresses economic growth.Policy Makers and the Economy The threat of Dutch disease hasn’t affected policy-makers decisions; it has been business as usual and it should remain that way. If anything, they should concentrate on making Canada business environment more competitive to face the challenges posed by low cost producers in developing nations.
Stanford is asking for protectionist policies that are really hard to implement and actually leave local economy worse of, given competition posed by low cost producers.Canada’s dependence on commodity for economic growth is not new; it has rather been there since the federalization of the nation, a fact that’s is not likely to change in the near future (Standing Senate Committee on Foreign Affairs, 2003). The current phenomenon is therefore one of the many spikes that will come to pass once the increase in commodity prices slows down, not to mention the positive effects of federal tax cuts on goods and services and the appreciating dollar, which will control inflation (OECD, 2007).
