Finance and Economic

The beleaguered auto industry is poised for a slow but steady turnaround in 2010 that will usher in an era of profitability and job growth after years of declines, according to a new industry forecast.

The Conference Board of Canada, a private-sector economic forecaster, said the auto sector isn't necessarily out of trouble but there are encouraging signs that profits will return in 2010 and strengthen each year through to at least 2014.

"The Canadian auto industry appears to have turned a corner in the second half of 2009 and is expected to return to profitability in 2010," economist Sabrina Browarski wrote in the report.

"However, production will remain below historical levels," Browarski added. "Manufacturers will have to make concerted and ongoing efforts to streamline product line-ups, control costs, and innovate to maintain profitability."

The Conference Board said the industry will close 2009 with a $2.3-billion loss before taxes, but Canadian auto assemblers including the Japanese carmakers Toyota and Honda will have a collective profit of $100 million in the final quarter.

Still, the Conference Board expects Canadian production for all of 2009 to be about half of what it was in 2007, due to a halt in production by Chrysler and General Motors at the beginning of 2009.

"In fact, real production this year will fall below levels not seen since the 1992 recession," the report said.

The forecast for 2010 sees the industry returning to the black with before-tax profits of $263 million, a number which will rise to just under $2 billion in 2014.

The Conference Board indicated that conditions south of the border will determine the pace of recovery for Canadian auto producers because 84 per cent of production is destined for the U.S. market.

In the United States, vehicle sales are expected to edge up to 11.6 million units in 2010, with industry revenues rising by nearly 38 per cent.

Tony Faria, co-director of the automotive research centre at the University of Windsor, said the report is on par with analysts' predictions that the market is slowly returning.

"The expectation is that 2010 (and) 2011 will be rather slow growth years in the auto industry," he said.

Faria said the North American auto market demand will rise from 12.3 million vehicles in 2009 to as much 14 million in 2010. In the years before the recession hit, the market had called for about 20 million vehicles each year.

"It's going to be a slightly better market next year than this year, although the market's going to be well below the level that we became accustomed to from 1999 through 2007, which were nine extraordinarily good years."

Auto analyst Dennis DesRosiers was less optimistic than the report, saying there is too much competing information that makes it difficult to tell whether or not the industry is taking a turn for the better.

"My independent assessment is that this industry is still in a lot of trouble and a lot of denial…(as to) how serious the issues still are," DesRosiers said.

"I see all kinds of positives, but I don't know whether it leads to profitability or not, or whether it leads to these companies' long-term survival or not. But I see an equal amount of negatives."

The report said cost-cutting measures, such as labour agreements between the Canadian Auto Workers union and subsidiaries of Chrysler, General Motors and Ford (NYSE: F) will aid in the return to profitability.

General Motors and Chrysler have also reduced costs in other ways, such as cutting dealership networks, and reducing the number of shifts in operation. They also received a total of $13 billion in loans from the Canadian and Ontario governments.

"As of today, the outlook for the Canadian, Ontario and U.S. governments getting a good chunk of their loan money back is a lot more optimistic than it would have been six months ago," Faria said.

The Conference Board projects employment to rise 2.4 per cent to 53,200 workers in 2010 from 51,900 this year, after falling 19.4 per cent from 64,400 employees in 2008.

Next year's predicted employment gains would come after four years of steady declines.

Faria said there will continue to be job losses in assembly jobs for a short period of time, as the Detroit Three work to get production capacity in line with sales volumes.

But he added, some automakers are beginning to call employees back to work, and the trend will continue as production ramps up through 2010.

Toyota Canada announced Dec. 10 it is hiring 800 more people to raise production of a popular SUV built in Woodstock, Ont. by introducing a second shift.

GM Canada said last month it will recall 150 laid-off employees to its CAMI facility in Ingersoll, Ont., to meet strong demand for its 2010 Chevrolet Equinox and GMC Terrain. The company will also bring back 600 workers to its Oshawa, Ont., plant in 2011 to begin production of the company's new Buick Regal.

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