North America

Demographics, Drivers, and Dreams

On The Future of the Canadian Auto Sector 

There is a profound difference between Canadians, Americans, and Chinese, both in their demographics and in their dreams.

In the US, the largest population group is 20-35 year olds. Many of these Americans will, in the years ahead, be looking to pursue the American Dream: to buy a home and start a family. Indeed, just like the Baby Boomers before them, many of these Millennial Americans have been moving to suburbs and buying SUVs. 

In Canada, in contrast, the largest group is 50-60 year olds. In the years ahead, many of these Canadians will be looking to cut back their work hours, or retire, or transition from manual labour to less physically strenuous jobs. Many will also pursue the Canadian Dream: having a cottage to host one’s grandchildren at.

In China, the largest group is 40-55 year olds. Most of this group works in physically demanding industrial or agricultural jobs. Most of them, particularly in China’s rural areas and inland provinces, still earn between 2-10 dollars a day. The Chinese Dream is to let these aging manual labourers transition to less strenuous work, while also bringing the country’s impoverished rural areas and inland provinces out of poverty.

Ontario’s Position

These demographic trends are not alien to the auto sector in Ontario. A city like Windsor is, in a certain sense, situated in a delicate borderland, between the vast American consumer market on the one hand, and the smaller domestic market of Canada but larger global market on the other hand. This is a risky, though often rewarding, position to be in. When successful, it has allowed Ontario to attract investment from global firms seeking a way to access to the American market without investing too much in the US directly. In the wake of the recent Valiant deal, such investment is increasingly expected to come from China.

Obviously, however, global firms cannot rely for certain on continued favourable access to the American market, regardless of whether or not these firms have investments just across the US-Canada border within Ontario. It is up to Ontario to determine to what extent it wants to orient its production around markets in the United States, and to what it extent it wants to focus on Canadian or global consumers instead.

Motor Vehicle Production

A Possible Divergence

This is where trends such as demographics become relevant. As a result of such trends, it may be the case that consumer demand in the United States will diverge sharply from that of countries like Canada and China in the years ahead. While Americans continue to buy cars and SUVs, in Canada and in global markets it may be instead that auto sector demand will become increasingly dominated by busses and by trucks:

1. The Supply of Drivers 

The global Baby Boomer bulge, of 50 and 60 year olds in the West and of 40 and 50 year olds in China, is likely to create the largest labour shift in human history: manual labourers transitioning to less strenuous work. In spite of what some politicians may claim, these labourers will not often be retrained to become software engineers. Nor will they all move into retail jobs at companies like Walmart, as out-of-work labourers have often done during the past generation. Too many of these retail jobs are being automated out of existence. Rather, the single biggest job these labourers are likely to switch to is driving a motor vehicle.

Not only is driving a bus, truck, or taxi something that can be done by a person who has, say, a bad back, it is also becoming far less strenuous than ever before, as a result of technological additions to modern vehicles. Driving large busses and trucks has been somewhat difficult in the past, particularly in tasks such as parking, turning, or driving on country roads during challenging weather conditions or in the dark of night. Modern vehicles, on the other hand, equipped with cameras, sensors, and high-tech safety features, are in the process of making the job of driving relatively comfortable and safe even for 60 or 70 year olds.

If the Baby Boomers create a glut of drivers globally, the costs of using trucks, busses, mini-busses, etc., will fall.

2.  The Night Moves

Of course, there has also been plenty of discussion in the media about the possibility of self-driving vehicles. If such vehicle actually do become commonplace anytime soon, they will have the largest impact on places and at times in which there is today a scarcity of human drivers. Namely, they will the largest impact on late-night driving (when human drivers are mostly asleep) and on areas such as, for example, Canada’s far northern regions, where — particularly during long, cold winter nights, or in snow storms, or on dangerous ice roads that require almost constant maintenence  — there are few human drivers around.

Autonomous capabilities would have a much greater impact on trucks than on cars, then; and in particular, on short trucks, where labour costs per unit of cargo are much higher than for heavy trucks or transporters. They would also have a greater impact on places with challenging geographies, such as Canada. And they would be especially useful for slow-moving overnight vehicles, like plows, de-icers, and pavers.

Trucks, finally, may experience the benefits of autonomous driving earlier or more than other vehicles  will as a result of government regulation. While governments may be hesitant to allow autonomous cars in general at first, they are far more likely to allow a truck driver to turn on an autonomous cruise control system late at night, when relatively few cars are on the road, so that he or she can get some sleep.

3. More Time, Less Money 

These two trends we have discussed thus far — demographics and automation — may also lead to a phenomenon in which Canadians’ free time will increase at a much faster pace than will their income levels. This could occur because of an aging Canadian worker entering into full or partial retirement, or it could occur because of a Canadian worker losing his or her job to a software system or machine. Either way, Canadians are likely to have more time to fill up their schedules with leisure activities — say, spending more time in cottage country — but will also have to economize on costs in order to afford them.

One way to economize on leisure spending would be to forgo car ownership (or at least, to share a car with a spouse instead of owning two cars per couple) and using transit more. Busses, for example, are slower than cars — as they often make stops to pick up and drop off passengers along their routes —  but also cheaper than cars, particularly once you factor in the cost of car ownership. If the cost of bus drivers declines (which, as we have discussed above, we think it will), busses would become cheaper still. As Canadians’ free time increases faster than Canadians’ incomes, busses might therefore see greater use.

4. The Transit Revolution 

Apart from their sometimes being slow compared to cars, another major reason many people do not use transit regularly is because of the “last-mile” problem: how to get from a transit station to one’s destination, without a car. Also problematic is the “first-mile” problem: how to get to the transit station if the station’s parking lot is full, or if you do not own a car.  Yet these “first-mile/last-mile” problems are likely to be solved—or at least, made far less problematic—in the near future, as a result of technological changes.

One technology to overcome the first-mile/last-mile challenge is that of services like UberPool, wherein passengers and drivers easily co-ordinate door-to-door carpools through their smartphones. This same system could be used by busses or mini-busses too, which would make the rides cheaper but also longer—see the More Time, Less Money section above. Systems like UberPool work best in markets that are “liquid”; i.e. big-city markets, where there lots of passengers and drivers around. The US, being highly suburban, may be less suited to this than Canada (where more people live in large cities) or most global markets.

Another way to overcome the “last-mile” challenge is via car-sharing services, such as Car2Go or Zipcar. These allow people to take a car from the transit station to reach their destination. Use of car-sharing services in Canada is growing. It may eventually make it easier for some people to forego car ownership entirely.

As services like car-sharing and ride-sharing advance, then, transit’s “first-mile/last-mile” problems may be overcome.

5. The Canadian Shield 

If transit really does become more common relative to car usage, it will in many places be dominated by rail transit. Similarly, railways will continue to transport more freight than trucks. Trains are, after all, more efficient than trucks and busses. They will remain more efficient even if the cost of hiring a bus or truck driver falls.

Where trucks and busses will be utilized most, then, is in locations where it is difficult for railways to function. We have already mentioned one location where railways are difficult: Canada’s far north, where permafrost impedes rail construction and maintenance, and ice roads are sometimes the only economical option.

Another region where railway construction is expensive is the Canadian Shield, the result of the Shield’s enormous size, exposed rock shelves and over-abundance of lake (the latter being proble  matic given that trains cannot easily make sharp turns to bypass them, as trucks can). If Canadians, armed with more free time than ever before, seek the Canadian Dream in the lakeside cottages of the Shield, they will have to rely on trucks to transport bulk necessities like food (as the Shield is not suitable for agriculture) and fuel.

Canadian Shield .png

Railways networks are also under-built in mountainous areas, as trains cannot handle either sharp turns or steep inclines well. Three of Canada’s four major cities — Vancouver, Montreal, and Calgary — are located a very short distance from mountains, in contrast to US population centres which tend to be located in spatious coastal plains or the even larger Midwestern/Central Plains. It might be expected that, as a result of having more free time to spare, Canadians will spend more time pursuing leisure activities in mountains.

Meanwhile, countries like China are now actively trying to develop their impoverished inland regions, many of which are mountainous and have relatively little access to either railways or to coastal shipping—and will therefore have to rely on trucks and busses for their transportation. Many other developing economies, in South Asia, Latin America, and Africa, are also mountainous and landlocked. The largest city in NAFTA, Mexico City, is the highest-elevation in the world among cities with at least four million residents. Still, it is China which is the king of highlands. China’s Tibetan Plateau and Himalayan region occupies roughly one-fifth of China’s landmass, and is similar to the Arctic in its permafrost risks, sparse population (it has less than one half of one percent of China’s population), low rail access, and resource wealh.

Conclusion — Canada and the World 

Canada typically has one foot in the American market and one foot in the Canadian and global markets. Canadians companies often wonder what trade regulations or barriers the Americans will insist upon, either for Canadian firms or for foreign-owned firms invested in industrial facilities within Canada. But if, also, markets diverge — if Americans continue to use conventional four-seater cars and SUVs and trains, while Canadians and global market players like China increasingly look to buy busses and trucks — then Canada’s auto sector could also have to answer a more basic Canadian question: just how American are we?

As usual, there are no easy answers here, only risks and rewards.

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