WORKING PAPER 2018-07 Automobile production in Canada and implications for Canada’s 2025 passenger vehicle greenhouse gas standards Authors: Dan Luria, Occupy Dan, LLC, Alan Baum, Baum and Associates, LLC, Ben Sharpe, The International Council on Clean Transportation Date: April 10, 2018 Keywords: Canada, passenger vehicle manufacturing 1. Introduction of Transportation (DOT) to issue a the original target for 2025. Thirteen proposed rulemaking later this year other states, plus the District of The current U.S. regulations for passen- with weakened 2025 requirements. Columbia (hereafter, “CA+13”), have ger vehicle greenhouse gas (GHG) and opted to follow California’s lead on fuel efficiency were finalized in 2012 Canada’s regulation incorporates the vehicle emissions standard in lieu of and called for cars and light trucks U.S. EPA rule by reference and thus those at the federal level. These states collectively to achieve a projected fuel would have its standards rollback 1 include: Connecticut, Maine, Maryland, economy level of 54.5 mpg by 2025. automatically as soon as any adjust- Massachusetts, New Jersey, New Mexico, On April 2, 2018 the U.S. Environmental ments are made to the U.S. program. 2 New York, Oregon, Pennsylvania, Protection Agency (EPA) announced With Canada having a long history of Rhode Island, Vermont, Washington, that this regulation was “not appro- harmonizing its vehicle and fuel reg- and Delaware, plus Washington, DC. priate and should be revised.” We ulations with the U.S., the probable expect the EPA and U.S Department rollback of U.S. vehicle GHG standards Altogether, there were roughly 6.2 will immediately trigger a decision million passenger vehicles sold in 1 Using EPA and NHTSA laboratory point for the Canadian government: calculations, the 2025 emissions/fuel California and the other 13 states in economy target is often stated as 54.5 continue the policy of aligning with 2016. Adding an additional 1.9 million mpg. However, the target is sensitive to the U.S. and thus weaken its own 2025 vehicles sold in Canada, this combined the car-truck sales mix and, moreover, is regulation; or, break regulatory ties roughly one-third above the mileage actually bloc of 8.1 million units represents with the U.S. by maintaining the strin- experienced by drivers due to the testing roughly 41% of the total market for cars regime and a variety of credits. Changes in gency of the current 2025 standards. car-truck mix have already caused the 54.5 and light trucks in the U.S.-Canadian mpg target to fall to about 50, corresponding California, which has both a progres- market (19.8 million vehicles). to about 38 mpg in actual driving. Note that sive political culture and serious air in this paper we separate trucks into car-like This paper analyzes the Canadian trucks (“CLTs” or “crossovers” built on car pollution issues in many of its cities, vehicle manufacturing market and platforms) and true (i.e., framed) trucks (TTs) has announced3 that it will stick with built on truck-only platforms. sales patterns to illuminate the possible 2 US. Environmental Protection Agency, impacts if Canada weakens its green- “EPA Administrator Pruitt: GHG Emissions 3 California Air Resource Board, “CARB Chair Standards for Cars and Light Trucks Should Issues Response to EPA press release on house gas emission standards in order Be Revised,” news release, April 2, 2018. weakening vehicle standards,” news release, to align with the U.S. federal govern- https://www.epa.gov/newsreleases/epa- April 2, 2018. https://ww2.arb.ca.gov/news/ administrator-pruitt-ghg-emissions-standards- carb-chair-issues-response-epa-press-release- ment or maintains its existing stan- cars-and-light-trucks-should-be weakening-vehicle-standards dards and aligns with California and, Acknowledgments: This work is supported by the Bekenstein Foundation. Drew Kodjak and John German of the ICCT provided valuable input to the development of this paper. © INTERNATIONAL COUNCIL ON CLEAN TRANSPORTATION, 2018 WWW.THEICCT.ORG AUTOMOBILE PRODUCTION IN CANADA AND IMPLICATIONS FOR CANADA’S 2025 PASSENGER VEHICLE GHG STANDARDS most likely, 13 other U.S. states and the Table 1. Vehicles assembled in Canada, 2017 District of Columbia. Vehicle model Location of assembly Assembled only assembled in Canada plant in Canada in Canada? Vehicle type 2. Research questions and Chrysler 300 Brampton Yes Luxury car methodology Dodge Challenger Brampton Yes Muscle car Dodge Charger Brampton Yes Muscle car Canada’s pending regulatory align- Windsor Yes Minivan ment decision could potentially have Chrysler Pacifica impacts on its domestic auto manufac- Ford Edge Oakville Yes Crossover turing sector. This market assessment Lincoln MKX Oakville Yes Crossover is centered around addressing the Chevrolet Equinox Ingersoll No Crossover following research questions in order Toyota Corolla Cambridge No Midsize car to better inform policymakers and Honda Civic Alliston No Small car other stakeholders about the potential Honda CR-V Alliston No Crossover impacts to Canada’s manufacturing Toyota RAV 4 Woodstock No Crossover base if the country elects to maintain the stringency requirements in its Lexus RX350 Cambridge Yes Crossover current 2025 GHG vehicle standards. in Canada. For this analysis, we 2018, assembling the twelve4 vehicle 1. What is a current snapshot of procured data from IHS Markit, models summarized in Table 1. While Canada’s automobile manu- which is North America’s leading in recent years most automakers have facturing sector? Where are aggregator of sales, registration, been reducing their Canada footprint the assembly plants located in and production data. in favor of producing in lower-cost Canada? What are the brands and 2. Given project resource con- Mexico, auto manufacturing remains models being produced, and what straints, we were unable to pre- an important industry in Canada, are their market prospects over cisely track the ultimate sales accounting for a substantial share the next few years? location of the actual vehicle of the nation’s exports to its North 2. For the models produced in Canada, models that are produced in American Free Trade Agreement where are these vehicles sold in Canada. As a simplification, we (NAFTA) partners and beyond. All of the U.S. if we break the country make the following assumption: the twelve models are cars or car-like into two distinct sales geographies: Vehicles produced in Canada trucks (CLTs or “crossovers”); Canada California and the thirteen Section are sold in both Canada and the assembles no true trucks.5 Note that 177 states (CA+13 states) versus U.S. For those that are sold in the remaining 36 states? five of the vehicles assembled in the U.S., we assume that the dis- Canada are also assembled in the U.S. 3. For the models produced in tribution of sales of the actual and/or Mexico. Canada, what brands and models Canadian-made vehicles is are popular in the CA+13 states? exactly the same as the overall Table 2 displays how many of each of 4. For the models produced in Canada, distribution of sales for those the 12 models that are partly or wholly is there any difference in the fuel vehicle models, in terms of sales economy of the top-selling vehicles in the CA+13 states versus the 4 We have not included the Dodge Grand in the CA+13 states as compared to rest of the U.S. Caravan, as FCA’s product plans call for this model to be terminated by 2019. We have the rest of the country? 3. For the fuel economy analysis, also excluded the Ford Flex and Lincoln MKT, we used values from www. as they are low-volume and, based on Ford’s To explore these questions, we used product plans, likely to terminate by 2020. fueleconomy.gov. the following methodology for our In addition, a modest number of Cadillac XTS and Chevy Impala models are built in analysis. Oshawa, but GM’s product plan suggests that 3. Auto production in production there will likely terminate in 2020 1. We acquired vehicle production and 2019, respectively. data by manufacturer, brand, Canada 5 As we will see, this could briefly change at Oshawa under a temporary arrangement with and assembly plant location for Ontario has seven operating car and/ Unifor as part of the changeover for the T1xx every model that is produced or light truck assembly plants in update of the Silverado and Sierra. 2 INTERNATIONAL COUNCIL ON CLEAN TRANSPORTATION WORKING PAPER 2018-07 AUTOMOBILE PRODUCTION IN CANADA AND IMPLICATIONS FOR CANADA’S 2025 PASSENGER VEHICLE GHG STANDARDS assembled in Canada6 were sold in Table 2. Registration and sales totals for the 12 vehicle models produced in Canada 2016 or registered in the U.S. during 7 Units assembled the 12 months ending August 2017. Vehicle model Units registered in Canada and Units sold in Adding the not-quite-comparable8 assembled in the U.S. sold in the U.S. Canada second and fourth columns results in Canada (Sept 2016 – Aug. 2017) (2016) (2016) in a total of roughly 2.6 million units Chrysler 300 49,827 53,241 3,662 of the 12 models sold in the U.S. or Dodge Challenger 66,021 64,433 3,158 Canada. Of those, about 800,000 (or Dodge Charger 90,824 95,437 3,738 31%) were sold by the “Detroit Three” Chrysler Pacifica 110,282 62,366 2,650 (i.e., General Motors, Ford, and Fiat Ford Edge 135,802 134,588 20,517 Chrysler Automobiles) and the rest 30,941 30,967 3,551 (69%) by Toyota9 or Honda. Lincoln MKX Chevrolet Equinox 268,806 188,164 19,197 Note the difference in vehicle types Toyota Corolla 355,176 191,050 45,626 and market appeal of the vehicles Honda Civic 360,514 162,231 64,551 offered by the Detroit Three versus Honda CR-V 377,248 181,079 44,789 those offered by Honda and Toyota Toyota RAV 4 390,864 277,513 49,103 (including Lexus).