THE AUTOMOTIVE AND CONSTRUCTION EQUIPMENT INDUSTRY CANADA Fact Pack

Swedish Trade Council in Canada 2006

1

CONTENT

Overview Canadian Manufacturing Industry Canadian Automotive Industry Canadian Construction Equipment Industry Recommendations References Appendices

Notes: 1. The exchange rate in this report is: 1CA$ = SEK 6.5669 (as of June 1st, 2006) 2. See Appendix 1 for definition of automotive terms used in this report.

THE AUTOMOTIVE INDUSTRY ACCOUNTS FOR 18.6% OF TOTAL MANUFACTURING SHIPMENTS IN CANADA
Canadas 5 largest manufacturing industries (2005)
Shipments value, SEK billions
Automotive (Assembly & Parts) Agri-Food Petroleum/Coal Products Chemical Primary Metals

Total shipments of the Canadian manufacturing industry are more than SEK 4,015 billion (2005) The average wage for a manufacturing industry worker in Canada is SEK 135.34/hour (2005) There are approximately 97,860 companies* within the manufacturing industry in Canada (2005)

749.57 449.79 359.90 314.23 304.36

40,000 firms are directly tied to the automotive industry (manufacturing, sales, distribution, repair)

Manufacturing employs 1.9 million workers (2003)

200

400

600

800
SEK billion

Automotive manufacturing assembly and parts directly employs 231,800 thousand workers (2005)

*Includes 37,275 owner-operated (non employers) and indeterminate

The Automotive Industry is Canadas largest manufacturing sector

Sources: Statistics Canada; Desrosiers Automotive Consultants
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CONTENT
Overview Canadian Manufacturing Industry Canadian Automotive Industry

Passenger cars and commercial vehicles Commercial vehicles Suppliers

Canadian Construction Equipment Industry Recommendations References Appendices

THE CANADIAN PRODUCTION OF LIGHT AND HEAVY VEHICLES TOTALS SEK 458 BILLION
Canadian Automotive Industry Shipments
600 SEK billion 500 400 300 200 100 0 2001 2002 2003 2004 2005
58%

Automotive Production by Sector in Canada (2005)

Heavy Vehicle
(Heavy Trucks, Buses)

SEK 39.6 billion

5% 33%

4%

Auto parts and components SEK 240.5 billion

Light Vehicle (Passenger Cars, Light Trucks) SEK418.5 billion

Motor Vehicle Body and Trailer SEK 26.8 billion

Value of Shipments

Total Exports

Total Imports

Canada exports about 76% of total automotive production, primarily to the U.S.
Sources: Desrosiers Automotive Consultants; Industry Canada; KPMGs Guide to International Business Costs, 2006 edition
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2.7 MILLION VEHICLES WERE PRODUCED IN CANADA IN 2005

VEHICLE VEHICLE MANUFACTURERS MANUFACTURERS

COMMERCIAL COMMERCIAL VEHICLES VEHICLES (1,332,165 (1,332,165 vehicles) vehicles) LIGHT LIGHT TRUCKS* TRUCKS* (1,267,353 (1,267,353 vehicles) vehicles) (Weight < 6.35 t) Key manufacturers GM Daimler-Chrysler Ford Toyota Honda CAMI Automotive
*Minivans, SUVs and pick-up trucks are categorized light trucks in Canada although they are mainly for non-commercial use. Sources: R&I; Estimate of bus vehicles based on manufacturer websites and telephone interviews

PASSENGER PASSENGER CARS CARS (1,356,198 (1,356,198 vehicles) vehicles) Key manufacturers GM Daimler-Chrysler Ford Toyota Honda CAMI Automotive

HEAVY HEAVY TRUCKS TRUCKS (64,812 (64,812 vehicles) vehicles) (Weight > 6.35 t) Key Heavy Truck mfrs. Canadian Kenworth International Truck & Engine Corporation Sterling Trucks Hino Motor Ltd BUSES BUSES (Estimated (Estimated 20,000** 20,000** vehicles) vehicles) Key Bus manufacturers Canadian Bluebird Coach Entreprise Michel Corbeil Motor Coach Industries Orion Bus Industries Prvost Car Incorporated Novabus Corporation New Flyer Industries A. Girardin Inc.
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**In Canada bus production is included with heavy trucks

CONTENT
Overview Canadian Manufacturing Industry Canadian Automotive Industry

Passenger cars and commercial vehicles Commercial vehicles Suppliers

Canadian Construction Equipment Industry Recommendations References Appendices

TOTAL PASSENGER CAR PRODUCTION IN CANADA IS STABLE - Decline of North American Big Three against the rise of foreign OEMs
Passenger Car Production in Canada
Vehicles

Development the last 5 years Market share loss of North American Big Three (GM, Ford, Daimler-Chrysler) matched by gain of foreign OEMs

1,500,000 1,200,000 900,000

Foreign OEMs (Toyota, Honda) surpassed the Big Three sales of light vehicles (cars and light trucks) in Canada in 2003 Big Three are undertaking major restructuring to combat shrinking market share

600,000 300,000 0 2001 2002 2003 2004 2005

Government stepping up automotive investment promotion, especially to Japan and Europe

SEK 6 billion in federal and provincial government aid from 2004-2006 Capital investments in Ontario at an all-time high Recently announced expansions by major auto makers and parts suppliers (see Appendix 3)

Sources: R&I; Desrosiers Automotive Consultants

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FOREIGN HEADQUARTERS MAKE PURCHASE DECISIONS OF BIG 3, WHILE JAPANESE AUTO MAKERS DELEGATE TO LOCAL PLANTS
Manufacturer
GM

Employees
20,000

Business
Passenger cars and light trucks Passenger cars and light trucks Passenger cars and light trucks Passenger cars Passenger cars and light trucks Passenger cars and light trucks

Purchase decisions
Partly GM Worldwide Purchasing / Partly Canadian HQ, Oshawa, Ontario Corporate HQ, Auburn Hills, Michigan (U.S.A) Corporate HQ, Dearborn, Michigan Toyota Motor Manufacturing Inc., Cambridge, Ontario Partly North American HQ, Ohio (U.S.A.) / Partly Honda plant, Alliston, Ontario Partly GM Worldwide Purchasing / Partly CAMI plant, Ingersoll, Ontario

Market Share*
28.7%

Foreign Ownership
100%

Passenger Cars

DaimlerChrysler Ford Toyota Honda

11,000 13,000 4,500 4,900

13.7% 13.4% 11.1% 9.8%

100% 100% 100% 100%

CAMI Automotive (GM-Suzuki)

2,300

(Incl. with GM; Suzuki is separate)

100%

*Market share = % of vehicles sold in 2005 (does not add up to 100% due to share of market for other imported vehicles)
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ONTARIO IS CANADAS AUTOMOTIVE POWERHOUSE AND HOME TO ALL LIGHT VEHICLE ASSEMBLY PLANTS
Manufacturer Plant Models and focus Unit production volume (2005) 314,032 251,161 312,482 165,256

GM

Oshawa #1 Oshawa #2 Oshawa (Light Truck)

Impala, Monte Carlo, Allure/LaCrosse, Grand Prix Silverado, GMC Sierra Torrent, Equinox, Suzuki XL-7 300M, Magnum, Charger Grand Caravan, Town & Country, Pacifica Freestar and Monterey New Flex Mfg. Plant (completion 2006) Crown Victoria, Grand Marquis Lexus RX330 Corolla, Matrix Plant under construction (completion 2008) Civic, Acura EL Acura MDX, Pilot, Ridgeline

CAMI (GM-Suzuki joint venture) DaimlerChrysler

Ingersoll #2

Brampton Windsor Oakville St. Thomas

291,888 350,368 118,112 150,450 66,783 214,353

Ontario is North Americas top producer of light vehicles. Ontario accounts for 97% of Canadas total automotive production (2005) and has the highest concentration of the countrys population (see Appendix 2). Canada ranks 8th in the world for light motor vehicle production (2003).
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Ford

Toyota

Cambridge #1 Cambridge #2 Woodstock Alliston #1 Alliston #2

Honda

192,853 202,705

Source: Automobil Produktion

SOUTHWESTERN ONTARIO LIGHT VEHICLE* ASSEMBLY PLANTS

Light Vehicle Plants
1 2 3 4 5 6 7 8

CAMI Automotive DaimlerChrysler Brampton DaimlerChrysler Windsor Ford Oakville Ford St. Thomas GM Oshawa Car 1-2; Oshawa Truck Honda Alliston 1-2 Toyota Cambridge 1-2
8 2 4 7 6

Toronto

Mi ch iga (U n S SA ta te )

*Light Vehicle = Passenger Cars, Light Trucks

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OEMs FOCUS ON IMPROVING PRODUCTION EFFICIENCY & SUPPLY CHAIN INTEGRATION

Trends within the Canadian passenger car industry
Fierce Fierce competition competition

Competition between OEMs for market share is keeping profitability under pressure

The Big Three are struggling remain competitive against foreign OEMs that are rapidly gaining market share in North America OEMs are putting the squeeze on their suppliers in an effort to reduce costs, as raising prices is out of the question

Buyers Buyers market market

Outsourcing of high-value design and engineering by OEMs is on the rise

Growing collaboration between automakers and suppliers on parts and vehicle design Synchronized planning and execution (OEM Tier 1 Tier 2) Integrated R&D with OEM using concurrent engineering

R&D R&D Outsourcing Outsourcing

Automotive OEMs are facing an increasingly consumer-driven market

Fragmented vehicle market means firms must be able to react rapidly to changes in demand OEMs are investing in flexible assembly plants that allow for quick change-over in production by building a number of models on a single platform

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CONTENT

Overview Canadian Manufacturing Industry Canadian Automotive Industry

Passenger cars and commercial vehicles Commercial vehicles Suppliers

Canadian Construction Equipment Industry Recommendations References Appendices

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GROWING DEMAND HAS RESULTED IN STEADY CLIMB OF HEAVY TRUCK PRODUCTION

Commercial Vehicle Production in Canada
Vehicles 1,400,000
1,350,000 1,300,000 1,250,000 1,200,000 1,150,000 1,100,000 1,050,000 2001 2002 2003 2004 2005
Light Trucks Heavy Trucks (incl. Buses)

Development the last 5 years

High levels of freight movement and a strong economy are driving increased demand

In terms of value, 60% of Canada/U.S. trade is moved by truck (2005) Over 37,000 trucks cross the Canada/U.S. border each day

Hino Motors Canada recently became the first Japanese truck maker to locate an assembly plant in Canada (June 2006) Canadian and U.S. governments passed regulations in 2002 to virtually eliminate heavy truck emissions of particulate matter by 2007, and nitrous oxides by 2010

NOTE: Light trucks data includes an estimated 70% non-commercial vehicles including mini-vans, SUVs, and pick-up trucks. Reported under commercial vehicles for the purposes of this report. Sources: R&I; Canadian Trucking Alliance
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PURCHASE DECISIONS OF SOME LARGER FIRMS MADE BY FOREIGN HEADQUARTERS, BUT MANY OTHERS MAKE DECISIONS LOCALLY

Manufacturer

Employees
1,500

Business
Heavy trucks

Purchase decisions
Corporate HQ, Cantera, Ohio (U.S.A.) Paccar Corporate HQ, Belleview, Washington (U.S.A.) Business Unit HQ, Redford, Michigan (U.S.A.) Woodstock plant, Ontario

Commercial vehicles Heavy Trucks

Foreign Ownership
100%

International Truck and Engine Corporation (Owned by Navistar) Canadian Kenworth (Division of Paccar of Canada Ltd.) Sterling Trucks (owned by Freightliner, a division of DaimlerChrysler) Hino Motors Ltd. (Division of Toyota)

758

Heavy trucks

100%

1,100

Heavy trucks

100%

45*

Light and Heavy trucks

100%

*Present number of employees, plant is to be completed 2006.

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BOTH FOREIGN- & DOMESTIC-OWNED CANADIAN BUS MANUFACTURERS MAKE KEY PURCHASE DECISIONS LOCALLY
Manufacturer
Canadian Bluebird Coach Ltd.

Employees
3,000 300 2,000 550

Business
School buses School buses Highway (coach) buses Urban transit buses

Purchase decisions
Corporate HQ Fort Valley, Georgia (U.S.A.) / Brantford plant, Ontario St Lin-Laurentides, Quebec Winnipeg, Manitoba Mississauga plant, Ontario / Some through central purchasing of HQ, Greensboro, North Carolina (U.S.A.) Sainte Claire, Quebec, Canada St. Eustache plant, Quebec / Growing coordination with Volvo Bus Group Purchasing, Gteborg, Sweden HQ, Winnipeg, Manitoba HQ, Drummondville, Quebec

Foreign Ownership
100% 0% 100% 100%

Commercial vehicles Buses

Entreprise Michel Corbeil Motor Coach Industries Orion Bus Corporation (sub. of DaimlerChrysler) Prvost Car Inc. (sub. of Volvo Bus Corp.) Novabus (division of Prvost, a subsidiary of Volvo Bus Corporation) New Flyer Industries Ltd. A.Girardin Minibus Inc

1,435 550

Highway (coach) buses Urban transit buses

100% 100%

2100 200

Urban transit buses Mini school buses

100% 0%

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MOST HEAVY TRUCK MANUFACTURERS ARE LOCATED IN SOUTHWESTERN ONTARIO AND QUEBEC
Canadian Kenworth Manac International Truck and Engine Corporation (owned by Navistar) Canadian Kenworth (Division of PACCAR of Canada Ltd.) Sterling Trucks (owned by Freightliner, a division of DaimlerChrysler) Hino Motors Ltd. (division of Toyota) Trailmobile Chatham, Ontario Class 7-8 trucks 40,000 Manufacturer Plant Models and focus Unit production volume (2005)

Ste. Therese, Quebec St. Thomas, Ontario

Class 5-8 trucks

14,200*

A-line, Lline, Acterra

24,000**

Hino Motors Sterling Trucks International Truck and Engine Sources: 2006 APMA Directory, Company websites and contacts

Woodstock, Ontario

Class 4-7 trucks

2,000

*STC Estimate (based on production of 71 trucks/day; 200 days/year) **STC Estimate (based on production capacity of 120 trucks/day; 200 days/year) Plant under construction for completion in 2006
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BUS MANUFACTURING IS FRAGMENTED INTO SCHOOL BUSES, URBAN TRANSIT BUSES AND COACH BUSES
Manufacturer Novabus Girardin Minibus Canadian Bluebird Coach Ltd. Entreprise Michel Corbeil Motor Coach Industries (MCI) International Inc Orion Bus Corporation (sub. of DaimlerChrysler) Prvost Car Inc. (subsidiary by Volvo Bus Corporation) Novabus (division of Prvost, a subsidiary of Volvo Bus Corporation) New Flyer Industries Ltd. Motor Coach Industries New Flyer Industries Canadian Bluebird Orion A. Girardin Minibus Inc. Drummondville, Quebec Brantford, Ontario St Lin-Laurentides, Quebec Winnipeg, Manitoba Mississauga, Ontario Ste. Claire, Quebec Plant Models and focus Unit production volume (2005) 12,000 2,500 1,200 1,000 600

Michel Corbeil

School buses School buses Highway (coach buses) Urban transit buses Highway (coach buses) Urban transit buses Urban transit buses Mini school buses

Prvost

St. Eustache, Quebec Winnipeg, Manitoba

Private information 1,500 capacity* Private information

*Unit capacity does not reflect actual production numbers, which were not available. Sources: 2006 APMA Directory, Company websites and contacts
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CONSOLIDATION OF THE COMMERCIAL VEHICLE INDUSTRY AS LARGE GLOBAL PLAYERS ACQUIRE DOMESTIC PLAYERS
Trends within the Canadian commercial vehicle industry

Demand Demand Growth Growth

Increasing production of commercial vehicles the result of demand growth (2001-2005)

Commercial vehicle production growth rate has been much higher than for passenger vehicles* Cyclical nature of truck market demand is expected to lead to some decline in 2007

Globalization Globalization // Consolidation Consolidation

Global manufacturers have entered the North American bus market through acquisition of several domestic bus manufacturers

Volvo AB brought Novabus and Prevost under the same ownership Daimler-Chrysler acquired Orion Bus Industries along with other U.S. bus manufacturers

Pollution Pollution Regulation Regulation

New generation of smog-free heavy trucks will begin introduction to the market in 2007

Increased costs and payload penalties will be associated with the new equipment Negative impact on truck sales in 2007 expected to arise from a related pre-buy mentality

*Production of medium/heavy trucks grew 32.5% in 2004 and 26.3% in 2005, compared with -0.3% in 2004 and 1.6% in 2005 for passenger cars. (Souce: Wards AutoInfoBank)
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CONTENT

Overview Canadian Manufacturing Industry Canadian Automotive Industry

Passenger cars and commercial vehicles Commercial vehicles Suppliers

Canadian Construction Equipment Industry Recommendations References Appendices

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THERE ARE OVER 900 AUTOMOTIVE SUPPLIERS IN CANADA - Magna International is the worlds 9th largest auto parts supplier
Canadian automotive suppliers

Geographical concentration of automotive suppliers

There are 900+ auto parts suppliers in Canada (T1 and T2) Ontario-based Magna International is one of the top 10 largest automotive suppliers in the world There is a very high concentration of automotive suppliers in Southwestern Ontario Many of the companies have less than 500 employees, including subsidiaries of foreignbased companies Canada is a world leader in:

Concentration:
High Medium Low Automotive suppliers are highly concentrated in Southwestern Ontario, where all of Canadas vehicle manufacturers are located!

Injection and blow molding Hydroforming Ferrous and non-ferrous casting Powder metal coating and facbrication Systems and component integration Stamping
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Sources: Ontario government; Statistics Can; Industry Canada

MAGNA INTERNATIONAL IS CANADAS LARGEST AUTO PARTS SUPPLIER

T1 T1 SUPPLIERS SUPPLIERS

Electrical Electrical systems systems

Interior Interior equipment equipment

Propulsion Propulsion

Body Body

Running Running gear gear Suspension, brakes, axles, steering, tires Magna International Linamar Corp. TRW Canada ThyssenKrupp Arvin Meritor Canada Tenneco Automotive Affinia Brake Parts

Power train, exhaust Cables, sensors, semi Body, roof, glass, doors, Cockpit, seats, dashsystems, engines lighting etc. conductors, control units board, air conditioning Magna International Magna International Magna International Magna International Siemens VDO ABC Group Linamar Corp. Linamar Corp. Automotive Spectra Premium Dana Canada ABC Group Industries Affinia Brake Parts Siemens VDO Flex-N-Gate Automotive Solectron Invotronics Woodbridge Group Dana Canada Omron Dualtec Lear Canada Wescast Industries ThyssenKrupp Automotive Denso Mfg. Canada Arvin Meritor Spectra Premium Electronics Inc. Canada Industries Tenneco Woodbridge Group Automotive

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MOST MAJOR T1 SUPPLIERS MAKE PURCHASE DECISIONS IN ONTARIO

Manufacturer
Magna International Linamar Corporation ABC group

Employees
22,000 8,087* 4,000 3,482 3,000 2,355 1,900 1,900 1,900 1,200 1,115 1,000 1,000

Business
Stamping, interior/exterior systems, trim, electrical/ electronic systems and parts, powertrain components Machined components and modules for engines, transmissions and chassis Plastics, blow and injection molded for interior / exterior systems Body moulding for exterior systems Chassis components Steering, suspension components Electronic/electrical controls, manifolds, fuel modules Exhaust manifolds, powertrain components Chassis component assemblies, bumper and light truck frames Metal stampings, tubular assemblies, weldments and systems Fuel tanks, radiators and air conditioners Seating foam and other interior foam parts Steering and suspension components; emissions control
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Location
HQ, Aurora, Ontario HQ, Guelph, Ontario HQ, Toronto, Ontario 13 mfg. locations in Ontario (decisions made locally) St. Catharines, Ontario / Corporate HQ, Farmington Hills, Michigan (U.S.) St. Catharines, Ontario 4 plants in Southern Ontario (decisions made locally) HQ, Brantford, Ontario HQ, Troy, Michigan HQ, Windsor, Ontario HQ, Boucherville, Quebec HQ, Mississauga, Ontario Cambridge, Ontario

T1 Suppliers

Flex-N-Gate Dana Canada TRW Canada Siemens VDO Automotive Wescast Industries Inc. ThyssenKrupp Budd Canada ThyssenKrupp Fabco Spectra Premium Industries Woodbridge Group Tenneco Automotive

* An additional 3,000 new jobs over the next 5 years was recently announced on May 12, 2006.

SOME OF THE KEY GLOBAL T1 SUPPLIERS HAVE SMALL- TO MEDIUMSIZED MANUFACTURING OPERATIONS IN CANADA
Manufacturer
Affinia Canada Corp.

Employees
750 750

Business
Electrical equipment components including connectors, ignition systems, wiring components, and brake parts Motion controls, electronic control modules, instrument clusters and displays, actuators, telematics modules, driver interface switches Seating and interior trim Switch/electrical control units (switch assemblies for power seats/windows, instrument panels, moon roof limit switches, other micro-switch based assemblies) Brake system parts Air conditioners

Location
Mississauga, Ontario Scarborough, Ontario

T1 Suppliers

Solectron Invotronics

Lear Canada Ltd. Omron Dualtec Automotive Electronics Inc. Arvin Meritor Canada Denso Manufacturing Canada, Inc.

700 400

Kitchener, Ontario Oakville, Ontario

375 300

Tilbury, Ontario Guelph, Ontario

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T1 SUPPLIERS ARE STRATEGICALLY LOCATED TO PROVIDE JUSTIN-TIME DELIVERY TO MAJOR ASSEMBLERS IN CANADA & THE U.S.
Southwestern Ontario
Linamar Spectra Denso Solectron Flex-N-Gate Magna

Tenneco Automotive Lear ThyssenKrupp Budd Siemens

Southern Ontario is at the doorstep of Michigan State, the 2nd largest producer of light vehicles in North America!
ThyssenKrupp Fabco
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Wescast Arvin Meritor

Woodbridge Affinia Brake Parts

Omron Dualtec ABC

Dana TRW

SOME OF THE LARGER T2 SUPPLIERS ARE FOREIGN-OWNED SUBSIDIARIES IN CANADA

T2 T2 SUPPLIERS SUPPLIERS

Electrical Electrical systems systems Cables, bus systems, embedded systems Magna International ATS Automation Tooling Sytems Inc. Dupont Canada 3M Canada Company Tyco Electronics Canada Ltd.

Interior Interior equipment equipment

Propulsion Propulsion

Body Body Body, roof, glass, doors, lighting etc. Dupont Canada Waterville TG AGS Automotive Systems ThyssenKrupp Fabco Spectra Premium Industries Techform Products

Running Running gear gear Suspension, brakes, axles, steering, tires ATS Automation Tooling Sytems Inc. Martinrea International TRW Canada Schaeffler Canada ThyssenKrupp Fabco

Cockpit, seats, dash-board, Power train, exhaust systems, engines air conditioning Dupont Canada ATS Automation Tooling Systems Inc. Martinrea International Valiant Corp. Stackpole Ltd. Spectra Premium Industries Valiant Corp. Van-Rob Schaeffler Canada Guelph Tool Maxtech Manufacturing Bend All Automotive

NOTE: In Canada, T1 and T2 terms refer to products/components rather than companies, as many of the key T1 suppliers are also T2 players.
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PURCHASE DECISIONS OF KEY T2 SUPPLIERS ARE MADE LOCALLY

Manufacturer
ATS Automation Tooling Systems Inc. Dupont Canada Martinrea International TRW Canada

Employees
4,100 3,300 3,000 2,355 2,050 1,800 1,750 1,500 1,400 854 850 750 700 700 660 330

Business
Electrical/Electronic systems and components (starters, alternators, instrument clusters, swithces, fuses and circuit breakers) Electronic products, fuel cell parts, liners, plastics, paint and coatings Fluid Handling Systems, hydroforming parts, metal fabrication, stamping Steering, suspension components Electrical and Electronic connectors and cables Body sealing systems (rubber weather stripping) Metal stampings, metal painting, control parts Powder metal parts for engines, transmissions Hyrdoforming and Tool & Mold components for interior/exterior Deep groove ball bearings (transmission, wheels, axles) Stampings, welded and mechanical assemblies Metal stampings Hose assemblies, wire products Rods (door lock, torque) Metal products (screws, brake parts) Electrical/Electronic connectors, switches, circuit breakers
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Location
HQ, Cambridge, Ontario Cdn. HQ, Mississauga, Ontario HQ, Vaughan, Ontario St. Catharines, Ontario Cdn. HQ, London, Ontario HQ, Waterville, Quebec HQ, Toronto, Ontario Mississauga, Ontario HQ, Windsor, Ontario Stratford, Ontario Aurora, Ontario Guelph, Ontario HQ, Ayr, Ontario HQ, Penetanguishene, Ontario Waterloo, Ontario Markham, Ontario

T2 Suppliers

3M Canada Company Waterville TG AGS Automotive Systems Stackpole Ltd. Valiant Corporation Schaeffler Canada Inc. Van-Rob Stampings Inc. Guelph Tool Bend All Automotive Techform Products Maxtech Manufacturing Tyco Electronics Canada

AUTOMOTIVE SUPPLIERS ARE TAKING ON HIGHER LEVELS OF RESPONSIBILITY IN R&D AND DESIGN
Trends within the Canadian Automotive supplier industry (T1 and T2)
Consolidation Consolidation

Process of integration in the automotive parts industry apparent throughout North America

A few larger, more diversified companies are acquiring the smaller players and offering a broader range of products (ie Magna, Linamar) Number of firms in the North American automotive supply chain has declined from 30,000 to 8,000 over the past 15 years

Growing Growing Delegation Delegation of of Tasks Tasks

Increasing delegation of responsibilities (R&D, design, assembly) from OEMs to suppliers

Emergence of Tier 0.5 suppliers (Magna) who assemble Tier 1-level products, essentially assuming responsibilities that were once the domain of the OEM Each tier looks to its suppliers to assume new responsibilities

Global Global Localization Localization

Production has been shifting toward where the sales are made

Foreign suppliers are relocating to Canada*, with 100+ Japanese and European parts suppliers in Canada and growing Traditional local suppliers find it difficult to compete with non-unionized foreign suppliers that have new facilities, low legacy costs, new technologies, and young well trained workers

*See Appendix 4 for overview of Canadas attractive business environment.

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CONTENT
Overview Canadian Manufacturing Industry Canadian Automotive Industry Canadian Construction Equipment Industry

Manufacturers Suppliers

Recommendations References Appendices

29

CANADIAN CONSTRUCTION EQUIPMENT PRODUCTION TOTALED SEK 11.6 BILLION IN 2003

Construction Equipment Shipments in Canada
SEK billion

Imports satisfy most of Canadas demand for construction equipment. Canadian market is highly fragmented, with few manufacturing plants across Canada.
Mainly small- to medium-sized companies Most of larger manufacturers are foreign-owned

35 30 25 20 15 10 5 0 2001 2002 2003 2004 2005 Construction Equipment Manufacturing Shipments Construction Equipment Exports Construction Equipment Imports

The United States is the largest exporter of construction equipment to Canada (2005).

U.S. accounts for 62% of Canadas total imports, followed by Japan (13.8%) and Sweden (4.6%).

Source: Statistics Canada (data on Construction Equipment Manufacturing Shipments not available for 2004 and 2005 as of yet)
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HEAVY CONSTRUCTION EQUIPMENT IS MAINLY IMPORTED* DOMESTIC MANUFACTURING IS LIMITED TO SMALLER FIRMS**
CONSTRUCTION CONSTRUCTION EQUIPMENT EQUIPMENT

EARTH EARTH MOVING MOVING (Est. (Est. 5,700 5,700 vehicles) vehicles)
Excavators, wheel loaders, backhoe loaders, Skid steer loaders, haulers

MINING MINING (Est. (Est. 520 520 vehicles) vehicles)

Wheel loaders, drills, haulers

LIFTING LIFTING (Est. (Est. 1100 1100 vehicles) vehicles)

Mobile cranes, forklifts

ROAD ROAD (Est. (Est. 1600 1600 vehicles) vehicles)

Graders, asphalt pavers, asphalt mixers

Key manufacturers: Thomas Equipment Komatsu International Canada Inc.

Key manufacturers: Mining Technologies Intl Lovat Inc. Sandvik Boart Longyear Inc. Breaker Technology

Key manufacturers: Skyjack Inc. Weldco-Beales Mfg. Liftking Industries Kaverit Steel and Crane

Key manufacturers: Volvo Motor Graders London Machinery Inc.

*Major manufacturers, such as Caterpillar and John Deere, operate their own dealerships in Canada and import all products. **Each sub-sector has several small and locally-based players with under 100 employees.
31

MOST CONSTRUCTION EQUIPMENT PLANTS PRODUCE RELATIVELY LOW VOLUMES & MAKE PURCHASE DECISIONS LOCALLY
Manufacturer
Skyjack Inc. (division of Linamar) Volvo Motor Graders Limited Weldco-Beales Manufacturing Inc. Mining Technologies International Thomas Equipment Boart Longyear Inc. Komatsu International Canada Inc. Lovat Inc. Sandvik Mining and Construction Canada Inc. Liftking Industries Inc. Breaker Technology Ltd. Kaverit Steel and Crane London Machinery Inc. (sub. of OshKosh Truck Corp.)

Employees
900 800 500 480 400 400 300 250 200 150 130 125 120

Models and focus

Scissor lifts Motor Graders Truck-mounted cranes Drills, loaders Mini skid steer loaders Drilling equipment Small- and mediumsized wheel loaders Tunnel boring machines Loaders Forklifts Loaders, breakers, mining equipment Cranes Concrete Mixers

Plant
Guelph, Ontario Goderich, Ontario Edmonton, Alberta Sudbury, Ontario Centreville, New Brunswick North Bay, Ontario Candiac, Quebec Etobicoke, Ontario Burlington, Ontario Woodbridge, Ontario Thornbury, Ontario Edmonton, Alberta London, Ontario
32

Production vol.
Private information 1,500 Private information* Not available 4,000 250 1,500 Private information 100-150 60 Not available 300 Private information**

Purchase decisions
HQ, Guelph, Ontario Goderich plant, Ontario HQ, Edmonton, Alberta HQ, Sudbury, Ontario Centreville plant, New Brunswick Canadian HQ, North Bay, Ontario Partly HQ, Japan / Partly Candiac plant, Quebec HQ, Etobicoke, Ontario Burlington plant, Ontario HQ, Woodbridge, Ontario HQ, Thornbury, Ontario HQ, Edmonton, Alberta Corporate HQ, Oshkosh, Wisconsin (U.S.) / Cdn. HQ, London, Ontario

*SEK657 million sales revenue (2005); **SEK355 million sales revenue (2005)

MANY OF THE LARGER MANUFACTURERS OF CONSTRUCTION EQUIPMENT IN CANADA ARE LOCATED IN SOUTHERN ONTARIO
Mining Technologies Intl Boart Longyear Thomas Equipment

Kaverit Steel & Crane Weldco-Beales Breaker Technology

Komatsu

Liftking Industries

London Machinery Inc.

Volvo Motor Graders

33

Skyjack Inc.

Sandvik

Lovat Inc.

CONTENT
Overview Canadian Manufacturing Industry Canadian Automotive industry Canadian Construction Equipment Industry

Manufacturers Suppliers

Recommendations References Appendices

34

CONSTRUCTION EQUIPMENT MANUFACTURERS IN CANADA RELY ON IMPORTS AND/OR SMALL, LOCALLY-BASED SUPPLIERS
SUPPLIERS SUPPLIERS

Electrical Electrical systems systems Cables, sensors, semi conductors, control units

Propulsion Propulsion and and running gear running gear Power train, engines, exhaust systems, axles

Steel Steel construction construction

Hydraulics Hydraulics

Accessories Accessories All kind of hydraulic cylinders Cascade Canada Ltd.

Undercarriage and body All kind of hydraulic cylinders Bosch Rexworth Gerdau Ameristeel Canada Corp. Manitoba Metal Hyco Canada Pullmaster Winch Corp.

Due to a lack of publicly available data / industry associations / company listings for construction equipment vehicle manufacturers or their suppliers in Canada, it was not possible to provide more information for the purposes of this report. However, Canada has a number of manufacturers of attachments and accessories for the construction equipment vehicle market, which are listed in Appendix 5.
35

SMALL-SIZED CONSTRUCTION EQUIPMENT SUPPLIERS MAKE PURCHASE DECISIONS LOCALLY

Manufacturer
Gerdau Ameristeel Manitoba Metal Bosch Rexworth Canada Corporation Cascade Canada Ltd. Hyco Canada Pullmaster Winch Corporation

Employees
500 240 200 120 50

Business
Steel components manufacturer for earthmoving and road vehicles Hydraulic power units and manifolds for construction equipment Forklift accessory parts (hydraulic valves, stop drop valves, clamps) Hydraulic cylinders and valves for cranes, material handling equipment and road vehicles Hydraulic planetary winches and drives for mining and earthmoving vehicles

Purchasing decisions
Selkirk, Manitoba Welland, Ontario Guelph, Ontario St. Wenceslas, Quebec Surrey, British Columbia

Suppliers

36

SUPPLIERS OF CONSTRUCTION EQUIPMENT ARE WIDELY DISPERSED IN CANADA

Hyco Canada

Pullmaster Winch

Gerdau Ameristeel Manitoba Cascade Canada

37

Bosch Rexworth Canada

THE CONSTRUCTION EQUIPMENT SECTOR IS DOMINATED BY IMPORTS - Increasing share of imports are coming from Sweden
Trends within the Canadian Construction Equipment industry
Demand Demand growth growth

Canadian construction equipment market experienced rising demand from 2003-2005

Strengthening of Canadian economy Renewed growth in the industrial, commercial and institutional (ICI) construction sector, especially in the oil and gas sectors (many new large-scale projects)

Import-based Import-based

Growing Canadian demand for construction equipment is increasingly met by imports

American manufacturers dominate imports of construction equipment to Canada The number of major construction equipment manufacturing facilities in Canada is declining Sweden has ranked as the 3rd largest exporter of heavy equipment into Canada since 2002 with 4.6% share in 2005 (USA had 61.6% and Japan 13.8% share of imports in 2005).

Market Market fragmentation fragmentation

Construction equipment is a highly fragmented market with a diverse customer base

Larger global manufacturers like John Deere and Caterpillar dominate the Canadian market, operating their own dealerships in Canada that import all products Canadian manufacturers are small and tend to be specialized
38

CONTENT
Overview Canadian Manufacturing Industry Canadian Automotive industry Canadian Construction Equipment Industry

Manufacturers Suppliers

Recommendations References Appendices

39

RECOMMENDATIONS FOR DOING BUSINESS WITH THE CANADIAN AUTOMOTIVE INDUSTRY

Country specific
1. 1.

Consider Canada due to its similarities in geography, climate and business environment to that of Sweden Benefit from geographic proximity to USA and a well-integrated market within North America. Use Canada as a gateway to the larger U.S. market. Invest in Canada, where the overall cost of doing business is the lowest among G7 Countries*

2. 2.

3. 3.

Industry specific
1. 1.

Utilize competitive advantages as a new foreign entrant over less efficient domestic automotive players that have higher legacy costs, unionized work force, older facilities and technology, etc. Establish a diverse customer base beyond Big Three and target growing foreign auto assemblers & suppliers in Southern Ontario Focus on opportunities in high-value design and engineering, as automakers increase outsourcing to suppliers

2. 2.

3. 3.

*Competitive Alternatives: KPMGs Guide to International Business Costs, 2006 edition.

40

CONTENT
Overview Canadian Manufacturing Industry Canadian Automotive Industry Canadian Construction Equipment Industry

Manufacturers Suppliers

Recommendations References Appendices

41

HOW CAN STC IN CANADA SUPPORT COMPANIES TO DO BUSINESS IN CANADA

Country specific
Market Market Check Check Distribution Distribution search search Customer Customer Aquisition Aquisition Pre Pre Aquisition Aquisition analysis analysis Supplier Supplier search search Company Company establishment establishment Legal Legal To investigate market dynamics, players, potential and competitiveness for Swedish firms

To scan the market for potential candidates and to narrow down the search into a few interesting and intereted distributors / partners for a face to face meeting with Swedish firms To assist with business development and sales before, during and after the market entry & establishment

To assist with identification of potential companies for acquisition in a confidential manner (without disclosing the identity of the Swedish client at initial stage) and to help with background checks and legal matters To assist with identification of potential suppliers based on a profile defined by Swedish clients

To assist with incorporation of a company, immigration and management transfer, site selection, staffing, opening bank accounts and to provide referral to business service providers To provide referral to reputable law firms or experienced lawyers with expertise on the subject matter, when needed. Among examples are assistance with contracts/agreements, trademarks, patents, and incorporation.
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CANADA IS AN ATTRACTIVE MARKET AND STC HAS HELPED MANY SWEDISH COMPANIES TO ENTER OR ESTABLISH
WHY CANADA?

Ontario is an automotive powerhouse and at the door step Big Three and also home to other Asian car makers Sound economy and politically stable Excellent infrastructure Among most competitive countries to do business in G7 with 5.5% cost advantage over USA* Talented and skilled workforce with the lowest labor cost among G7 countries* No significant trade barrier for majority of products/services Still within reach by phone during business hours to communicate with clients/partners No significant cultural barrier compared to many other countries The largest U.S. trading partner with more than $1billion trade / day!

*Competitive Alternatives: KPMGs Guide to International Business Costs, 2006 edition.

43

CONTENT
Overview Canadian Manufacturing Industry Canadian Automotive Industry Canadian Construction Equipment Industry

Manufacturers Suppliers

Recommendations References Appendices

44

APPENDIX 1: DEFINITIONS

Shipments (value of)

Summation of value of shipments produced by establishment, receipts of custom and repair revenue. Vehicle weighing less than 14,000 lbs (or 6.35 tons) Vehicle weighing from 14,001 to 26,000 lbs (or 6.35 to 11.79 tons) Vehicle weighing from 26,001 to 33,001 lbs (or 11.79 to 14.97 tons). Also included off-highway trucks.

Light truck

Medium-duty truck

Heavy-duty truck

Truck class: In Canada, truck manufacturers also use a class system to designate trucks of various gross vehicle weight ratings:

Class 1 and 2 vehicles: Less than 10,000 lbs. (or 4.54 tons) Class 3, 4, and 5 vehicles: 10,001 to 19,500 lbs. (or 4.54 to 8.85 tons) Class 6 vehicles: 19,501 to 26,000 lbs. (or 8.85 to 11.79 tons) Class 7 vehicles: 26,001 to 33,000 lbs. (or 11.79 tons to 14.97 tons) Class 8 vehicles are 33,001 lbs. (or 14.97 tons) or more.

Sources: http://strategis.ic.gc.ca/epic/internet/inauto-auto.nsf/en/h_am00614e.html#T and http://www.tc.gc.ca/pol/en/report/TruckActivity/Chapter3.htm

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APPENDIX 1: DEFINITIONS (continued)

Tier 1 Supplier

Manufacturer to the vehicle assemblers who are responsible for delivery of the finished assembly, product development and continued technology renewal.

Tier 2 Supplier

Producer of parts providing value-added to minor sub-assembly.

Tier 3 Supplier

Supplier of engineered materials and special services, such as rolls of sheet steel, bars and heat treating, surface treatments.

NOTE:

In Canada, T1 and T2 tend to define products/components rather than companies, with many of the key suppliers considered both T1 and T2.

Source: http://strategis.ic.gc.ca/epic/internet/inauto-auto.nsf/en/h_am00614e.html#T
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APPENDIX 2: CANADAS POPULATION DENSITY (2001)

High population concentration along Canadas southern border with the U.S., especially in Southern Ontario & Quebec

Area: 9,984,670 km2

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APPENDIX 3: NEW INVESTMENTS IN CANADAS AUTOMOTIVE ASSEMBLY SECTOR

Recent string of major investments contributes to favourable outlook of Canadas automotive sector Over SEK 46 billion in new auto investments in Ontario announced since 2004 Canada is consistently receiving 20% of new North American assembly investments Government is highly proactive in investment promotion to automotive manufacturers, with SEK 6.6 billion in government aid since 2004
Company General Motors Ford Project value SEK 16.4 billion SEK 7.2 billion SEK 7.2 billion SEK 7.2 billion SEK 5.0 billion SEK 1.8 billion SEK 1.0 billion SEK 657 million SEK 427 million SEK 46.9 billion Government aid SEK 2.9 billion SEK 1.3 billion SEK 292 million SEK 820 million SEK 806 million SEK 427 million SEK 99 million SEK 39 million Not available SEK 6.7 billion

Ontario auto investments

(2004-July 2006)

Linamar Toyota DaimlerChrysler Navistar Honda Nemak Toyota Boshoku (parts supplier) Total
Source: Federal and Ontario governments

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APPENDIX 4: CANADAS BUSINESS ENVIRONMENT

Canada ranks second in the G7 as a low-cost investment location for the automotive sector.

Compared to the U.S., lower construction costs (-8%), lower office lease costs (-15%), lower transportation costs (28%), and lower energy costs.

Canada has an attractive business environment for foreign investment

Budget surplus and low inflation Lowest interest and depreciation costs in the G7

Canada offers the lowest labour and benefit costs in the G7, with a nearly 12% advantage over the U.S.

Wages generally lower than most U.S. states

Canada is well-integrated into the U.S. transportation system

Canadas OE parts sector has always found it easy to work with overseas-based parts suppliers.
Dennis Desrosiers, Desrosiers Automotive Consultants Inc.

Source: Competitive Alternatives: KPMGs Guide to International Business Costs, 2006 edition
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APPENDIX 5 (1/2): MANUFACTURERS OF CONSTRUCTION EQUIPMENT ATTACHMENTS

Manufacturer
Black Cat Blades Ltd. CWS-IMAC Weldco-Beales Manufacturing Lovat Inc. Sandvik Mining & Construction Canada Inc. Thiessen Equipment Ltd. (subsidiary of Atlas Copco) Breaker Technology, Inc. Pro Mac Manufacturing Craig Manufacturing Valley Blades Ltd. Garier Inc. Nye Manufacturing

Employees
380 360 300 250 200 200 130 80 75 75 50 35

Business
Blades and other parts for earthmoving vehicles Buckets, couplers, blades, and forks for earthmoving and road vehicles Attachments for earthmoving, lifting, and road vehicles Parts for underground vehicles Parts for underground loaders Rockbreaker equipment accessories Attachment for underground vehicles Attachments for earthmoving vehicles and cranes Attachments for earthmoving and road vehicles Blades for earthmoving and road vehicles Loader, excavator and forklift attachments Loader and excavator attachments

Purchase decisions
Edmonton, Alberta Surrey, British Columbia Edmonton, Alberta Etobicoke, Ontario Burlington plant, Ontario Langley, British Columbia Thornbury, Ontario Duncan, British Columbia Hartland, New Brunswick Waterloo, Ontario Mirabel, Quebec Mississauga, Ontario

Construction equipment attachment manufacturers tend to be small, locally-based players in Canada

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APPENDIX 5 (2/2): MAKERS OF CONSTRUCTION EQUIPMENT ATTACHMENTS ARE LOCATED THROUGHOUT CANADA

Garier

CWS-IMAC

Pro-Mac Thiessen Equipment Black Cat Blades Weldco-Beales Breaker Technology Valley Blades Sandvik
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Craig

Lovat Inc. Nye Mfg.