The aftermarket is attempting to grow their business, but couched in consumer protection language.

The issue of “Right to Repair” has been more visible of late for a variety of reasons not the least of which was the passage of Bill 29 – An Act to protect consumers from planned obsolescence and to promote the durability, repairability and maintenance of goods in early October by Quebec’s National Assembly.

That Bill went from introduction at the beginning of June to Royal Assent at the beginning of October. In the world of legislative progress, that is lightning fast; even more so when one considers that the National Assembly was on summer recess for three months between those two dates!    

Federally, Bill C-244 An Act to Amend the Copyright Act (diagnosis, maintenance and repair):  a Private Member’s Bill — received 3rd Reading in the House of Commons on October 18th and was introduced for 1st Reading in the Senate on October 18th. It remains to be seen how long this bill will take to make it through the upper chamber, but it is not expected to face many challenges.

One of the reasons why the Quebec bill, and to a certain extent the federal bill, have received such apparent broad support from legislators — regardless of political party — is the basic premise of both bills.

Both have simple and compelling narratives around ensuring that consumer goods such as cellphones, computers and white goods should be able to be easily and inexpensively repaired by either the manufacturer or some other qualified individual to avoid the situation of having to scrap the broken device or appliance and purchase a new one.   

There is significant, and I would suggest appropriate, concern about products which could otherwise be repaired, ending up in the waste stream which adds unnecessarily to the quantity of waste and e-waste being produced. Who could possibly be against legislation to ensure goods can be repaired and to avoid unnecessary waste?    

A corollary objective to the Quebec legislation is right in the title of the bill, and that is legislating against manufacturers who purposefully manufacture items with built in obsolescence.

The ironic thing about both bills is that neither one of them was originally focused on the automotive industry. True to form, and I suppose credit where credit is due, the automotive aftermarket aggressively lobbied to ensure that at the end of the day both pieces of legislation were very much focused on the automotive industry couching their arguments in even more simplistic and emotive language around the “consumer’s right to repair.”   

What politician wouldn’t be swayed by a compelling (but incorrect) narrative that seeks to preserve the right for consumers to repair their own vehicles or to have their vehicles repaired wherever they want to?

I suggest that this narrative — as compelling as it may be — is incorrect because, in the first instance very few consumers undertake their own vehicle repairs anymore simply because of the complexity of modern vehicles as they have largely changed from mechanical devices to electronic devices or — to use an overworked phrase — “computers on wheels.” Most of us have a hard time figuring out how to add windshield fluid let alone contemplating the undertaking of any type of repair.   

In the second instance, the inference from the aftermarket is that consumers do not have the ability to have their vehicle repaired by whoever, wherever they want. The reality is that both aftermarket and the vehicle manufacturers in Canada worked in a collaborative fashion over a decade ago to develop the Canadian Automotive Service Information Standard (CASIS). This agreement ensured that manufacturers provided to the aftermarket access to the same information, tooling, equipment and training as was being provided to their franchised dealers.    

It was acknowledged at the time by both sides that this access was not to be for free, given that it has commercial value that is also part of a dealer’s franchise agreement with their manufacturer.

That said, the primary goal of CASIS is to “provide access to Service Information, OEM Tools and Training Information to Service Providers for diagnosis and repair at Commercially Reasonable Prices.”    

Despite this agreement however, some of the trade associations within the automotive aftermarket continued to lobby for “the consumer’s right to repair” even before the ink was dry on the voluntary agreement. One of the contentions from the aftermarket has been that CASIS is somehow deficient because it does not deal with security information such as keys and immobilizer systems, yet it was acknowledged by both the manufacturers and the aftermarket at the time that security related information was appropriately outside of the scope of CASIS. The direct wording from the agreement is as follows:

The Parties recognize that there is currently no uniform widely available secure infrastructure in Canada for making security-related information available to Service Providers as necessary to reinitialize ignition keys and immobilizer systems for Motor Vehicles employing integral vehicle security systems in a manner that ensures Motor Vehicle security. The Parties also recognize that vehicle security and integrity is of paramount importance to the Parties and to other stakeholders, such as the federal, provincial and municipal governments, law enforcement agencies, the insurance industry, and the owners and operators of Motor Vehicles in Canada.

The Parties will endeavour to find a mutually beneficial solution to this issue, such solution likely requiring the creation of a supporting infrastructure.

When one considers the current epidemic of auto theft in Canada you can appreciate the sensitivity around having broad access to key codes and vehicle immobilizer initiation data.   

Nonetheless, the aftermarket, largely through the personal initiative of the late John Norris did develop, and was the administrator for, the Vehicle Security Professional designation. This allowed some technicians in the aftermarket to be thoroughly vetted through a security protocol, developed in conjunction with Canadian Police Information Centre, amongst others.

These measures were robust enough to persuade a number of manufacturers to provide those with the designation the security information to aftermarket technicians so they could appropriately repair these functions in vehicles. Regrettably, with John’s passing in 2019 this system floundered, but John’s work demonstrated the willingness of both parties to develop and embrace a viable solution.

At the end of the day, the continued push by the aftermarket for legislation, the likes of which we have just seen introduced in Quebec has little to do with a consumer’s right to repair and everything to do with the aftermarket looking to enshrine in legislation their ability to continue to grow their majority share of the automotive service and repair business in Canada, regardless of the potential safety implications for Canadian vehicle owners arising from the legislative initiatives they are pursuing.

The post What’s behind the so-called “Right to Repair”? appeared first on Canadian Auto Dealer.

A unified approach, that includes governments, is required to curb auto theft epidemic.

Almost every day on the news, in social media or elsewhere you will hear stories of Canada’s “epidemic” auto theft problem.

The question on the minds of many people is “Why has auto theft become such a big issue all of the sudden?” 

This question is often followed by corollary commentary along the following lines: “We can find and recover luggage anywhere in the world with an Apple Air Tag so how is it that we can’t find and recover stolen vehicles before they are exported?”

Another question that gets asked is: “Why are cars so easy to steal these days and isn’t this just a racket the automakers don’t care about because they get to sell another replacement vehicle?”

These questions and observations from consumers, while entirely understandable, represent a bit of shallow understanding of the complex problem of auto theft. Actually, the problem of increased levels of auto theft in Canada is not particularly complex — it comes down to supply and demand and Canada being a low risk, high reward jurisdiction in which organized crime can ply their trade. 

What is complex however, are the solutions to mitigate auto theft. There are a number of players involved, each having a role in addressing auto theft. These include: police authorities, insurance companies, auto manufacturers, auto dealers, consumer organizations, finance and leasing organizations, railways, trucking companies, port authorities, provincial and territorial governments and the federal government … to name a few. 

No single group or organization is going to be able to crack the auto theft nut, regardless of how good they are. Much like the star hockey player still needs a solid supporting cast of teammates to win games, all of the parties noted above need to work collaboratively and cooperatively together if we are going to make any real progress on the issue of auto theft. 

What we have witnessed too often on this file is that when everybody is responsible, no one is responsible. Further, unless everybody accepts responsibility for the role they need to play — we will not be optimally equipped to make any real difference on auto theft.

I am proud to say that the Global Automakers of Canada has been leading the charge in bringing together industry associations, police authorities, municipal leaders, insurance and consumer groups to create a comprehensive picture of the issue and some of the solutions needed to stem the flow of stolen vehicles out of the country.

It is clear from most of the discussions we have had — corroborated by most of the media pieces on this important issue — that one of the significant keys to reducing auto theft is to interdict the vehicles before they actually are put on a boat and leave the country because once they are on a boat they are very difficult and much more costly to recover. 

In this regard, it is well known that the Port of Montreal is the port of exit for stolen vehicles. It is also well known that these vehicles are arriving into the port in sealed containers — more often by rail than by truck and we know that stolen vehicles are often mis-identified on the manifest as some other goods or products. 

We also know that there are several specific countries of destination for these stolen vehicles — many of which were highlighted in a recent CBC exposé on auto theft. 

Knowing all of this information you would think that the Port of Montreal could do something to stop the export of these containers of stolen vehicles. However, in fairness to the Port of Montreal, they have no authority nor ability to open up sealed containers to investigate the contents. Instead they rely on collaboration with local police authorities and the Canada Border Services Agency to intercept and investigate containers that they believe may contain stolen vehicles.

What we have witnessed too often on this file is that when everybody is responsible, no one is responsible.

The challenge here is that local police forces and, frankly, police forces across Ontario and Quebec have better things to do with their scarce time and resources than to investigate stolen vehicles especially when the Canada Border Services Agency (CBSA) does not have adequate resources to deploy to inspect anywhere near enough of the containers to detect stolen vehicles bound for export to Africa or eastern Europe.

So it would seem that at least part of the solution to this problem is the federal government prioritizing auto theft as an issue of public safety and national concern such that federal Public Safety department — responsible for the CBSA — and the federal Transport department — responsible for the federal Port of Montreal are mandated to be part of the solution to the problem of auto theft with all of the other parties I mentioned earlier. 

Right now, the federal government is missing in action on this file and our CBSA agents are, perhaps rightly so, concerned about what’s coming into Canada as opposed to what is leaving Canada. However, what the federal government fails to realize is that the lucrative business of stolen automobiles is funding the growth of guns and drugs coming back into the country. 

So, if we want to put a dent in auto theft as well as the importation of guns and drugs we need to have the resources devoted to effectively shut down the supply of vehicles heading out of the country. If the vehicles cannot exit the country and get to the organized crime kingpins, then we should see theft levels start to fall.

For our part, can manufacturers make vehicles more difficult to steal? Yes, and they are hardening their anti-theft and vehicle tracking technologies all of the time. But we only ever end up being one step ahead of well-funded criminals who are motivated by the low risk, high payoff opportunity associated with auto theft in Canada.If a thief really wants to steal a vehicle, they will do so regardless of the anti-theft technology on the vehicle. 

Solving auto theft is a team sport and right now we are missing a few federal players from the team — the departments of Transport, Public Safety, and Justice — if we are going to win the battle against auto theft in Canada.

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Government policies and economic twists and turns are disrupting our industry.

If you are a dealer and are looking at the title of my column for this month you might be thinking that I have got the wrong end of the stick.

For the last two years or so, even if you haven’t had all the cars that you wanted to sell to your customers that definitely wanted to buy a car, chances are these last couple of years have been pretty good for you with respect to your profitability.

Even this year, if I were to hazard a guess, I think most of you are probably doing pretty well half way through the year.

Some of you, though, may have that little nagging thought in the back of your mind or in your gut, wondering how long this run is going to last. Now it is not my job to burst anyone’s bubble, or to be a harbinger of doom for the industry, but here are a few reasons why I believe the industry is currently under siege and why things are probably going to get worse before they get better.

Market dynamics:

Dealers will be in much better position to assess this than I am but from what I understand based on data from J.D. Power through April of this year (things may have changed), the following things are true:

• Dealer gross has gone down a bit on average, incentive spend has gone up dramatically, and average days to turn vehicles has more than doubled.   

I do a lot of driving and I’ve noticed that inventory levels on many, if not most dealers’ lots seem to be “better” than they were a few months ago. I put better in quotation marks because as you well know, lots of inventory on the ground is not necessarily a good thing.

It needs to be floor-planned and financed and could also speak to the consumer feeling a bit squeezed based on interest rates that seem to be going nowhere but up, and consistently persistent inflation holding on around 4 per cent.    

Affordability

Related to the last point, consider that the average price of a vehicle to the consumer at the beginning of 2020 was around $36,000. Three years later the average price of a vehicle at the beginning of this year was just shy of $50,000.

It doesn’t seem to me to be that long ago that Nissan was advertising the Micra for $9,999. We haven’t seen that, or even $19,999 or $29,999 for that matter, for a while.    The average new car payment these days is about $800/month, and the cost of borrowing has almost tripled!   

How will your customers continue to afford new vehicles?

Consider that the average price of a vehicle to the consumer at the beginning of 2020 was around $36,000. Three years later the average price of a vehicle at the beginning of this year was just shy of $50,000.

What about EVs?

Environmental groups and some within government have been purveyors of the fallacy that ZEV mandates will bring the prices of EVs down by forcing economies of scale.   Yes. Perhaps. Someday, but not any time soon.   

Again, according to J.D. Power the price of EVs has actually gone up! EVs are currently about $14,000 more expensive than their ICE counterparts.   

Federal, and in some cases provincial incentives, will reduce this gap but not eliminate it. I don’t need to tell dealers that there is a global supply and demand imbalance with respect to EVs, so you are stuck in a situation where you probably can’t tell your customers a definitive date when they will receive their vehicle because, the manufacturer likely can’t tell you when you will be getting your vehicles.

So far we haven’t really delved into the many pieces of public policy that are, or will soon be, making our collective auto sector a whole lot more challenging, leading to my original assertion that we are under siege.

ZEV mandates:

If you live in Quebec or B.C. you are familiar with the concept of ZEV mandate. Quebec has had their mandate since 2018 and B.C. since 2020.

If you are a dealer you have been advised by your government in either province not to worry about the ZEV mandates because it is only the manufacturer that is going to be regulated and it will have nothing to do with you.

Dealers in both provinces are awakening to the stark reality that the ZEV mandate may very much impact their businesses, especially as governments in both provinces will be making their ZEV regulations more stringent before the end of the year.

B.C. will be setting a 2030 target of 90 per cent ZEV sales, while Quebec’s 2030 target will be adjusted upward for 2030 to “only” 85 per cent. While B.C. and Quebec are leaders in EV sales penetration — 18.1 per cent of sales and 13.2 per cent of sales in 2022 respectively — getting to 90 per cent and 85 per cent in less than 7 years seems like a bit of a bridge too far.

The way this will impact dealers is if manufacturers cannot make their ZEV target and they want to avoid paying a $20,000 penalty, then they could choose to limit the denominator of the ratio — or the number of ICE vehicles they make available to their dealer bodies. Not an ideal situation for anyone.

Not to be outdone by Qubec and B.C., if the federal government gets its way, prior to the end of this year we will also have a federal ZEV mandate in place that will mandate that manufacturers meet 20 per cent ZEV sales by 2026, at least 60 per cent by 2030 and a full 100 per cent by 2035 — or 12 years or 2-3 product cycles from now.

For an experiment, ask your customers how many of them know that the federal government plans on banning gasoline engine cars in 2035.

Three different ZEV laws — all different — is a whole lot of regulatory compliance and potentially money spent to purchase credits from competitors (think Tesla) to be compliant.  All of this will at some point roll down to the consumer, who as we noted earlier, is already constrained from an affordability perspective.

Canada unique regulations

The automotive industry in Canada has always benefitted from both economies of scale and common safety and emissions regulations with the United States. This has allowed Canadians to enjoy amongst the widest variety of vehicles with the latest technology at the lowest possible cost.    

Our political leaders are moving to disharmonize on both the emissions and the safety front. We are going to get a federal ZEV mandate as well as following the American’s new EPA regulation that will deliver greater levels of ZEV penetration to Canada than Minister Guilbeault’s ZEV mandate. Why do we need both? Belt and suspenders.

Three different ZEV laws — all different — is a whole lot of regulatory compliance and potentially money spent to purchase credits from competitors (think Tesla) to be compliant.

There really is no rationale, other than the Minister and the Liberal government has expended so much political capital on introducing a ZEV mandate, that it’s not prepared to walk back from the cliff.    

On the safety side too, after being embarrassed by the auditor general after a series of high profile recall investigations over the last half dozen years, Transport Canada is now proposing to implement a significantly more aggressive and invasive reporting system for manufacturers in Canada than what is in place in the United States.   

Should this proposal go through, it will require a significant investment on behalf of the automakers in Canada to be able to log early warning data (i.e. prior to a recall being issued) that is far more extensive than what is required in the U.S.   

Logic dictates that in a market at least 10 times our size, any issues and concerns with vehicles are bound to manifest themselves there as opposed to a market that is a fraction of the size. Canadians may say that Canada should be doing this and, fine, but it all comes at a cost and these costs too will eventually flow down to the consumer.

Canada is a world leader with its Chemicals Management Plan. This is something we should all be proud of but what being a world leader means is that it often puts us out of sync with other markets, like the United States or Europe. If we were a bigger economy with broader influence, like the United States, this might make some sense, but as it stands right now Canada is looking to ban flame retardant chemicals used to prevent fires in vehicles and required under the Canadian Motor Vehicle Safety Act, with no viable alternative.

As you probably are aware, Canada is looking to ban plastics use too. Do you know how many types of plastic and plastic parts are in a typical vehicle? Neither do I, but what if one of the provisions was that all of these plastics needed to be identified and labeled?

Trust me, I could go on, but I am only allocated a certain amount of real estate for my column. Perhaps the next column will be a second installment, if that wasn’t enough to convince you that our industry is under siege.

The post The auto industry is under siege appeared first on Canadian Auto Dealer.

U.S. emissions changes shift the need for an EV mandate in Canada

I have a dog, like many of you do.   

Fortunately my dog is not one of those that loves to bark at and chase after cars.  Nobody really knows why they do it —other than instinct — but what would they do if they actually caught the car?  

The dog catching the car has come to epitomize those of us who have set big goals and finally achieved them and then we are left not knowing what to do with ourselves, because so much of our purpose and energy and satisfaction was derived from chasing the goal — not actually achieving it.   

I think in many ways, the  advocacy efforts of those pushing all levels of government to pursue Zero Emission Vehicle mandates — a subject of ongoing consultation currently with our federal government — have become like the dogs who have caught the car.   

The federal government launched its consultation on its draft zero emission vehicle mandate regulation on December 21st, a Christmas gift delivered to the automotive industry not by the Minister — despite taking every opportunity to highlight how important a ZEV mandate is, but rather by his Parliamentary Secretary, Julie Dabrusin.

In the intervening period between December 21st when the consultation was initially launched to the end of April, a lot has changed in the ZEV space. Perhaps the most important change to the ZEV regulatory environment since the federal government’s announcement of its draft ZEV regulation just before Christmas was the April 12th announcement in the U.S. of the proposed Multi-Pollutant Emission Standards for Model Years 2027 and Later Light-Duty and Medium-Duty Vehicles.   

This is a long title for a new regulation that would, amongst other things if adopted,  increase the level of sales of ZEVs to 67 per cent by 2032 — the last applicable year of the rule making.

However, some of you might be asking: “Why does it matter what the U.S. is proposing to do with its emission standards?” It is a good question.   

The proposed  U.S. standards are important to Canada and Canadians because the Canadian government had previously reaffirmed its commitment to harmonize its emission standards with the leading jurisdiction in the United States. This has been Canada’s official stance and position with respect to both safety and emission standards for years, and this position makes perfect sense given that the automotive industry operates in an integrated North American market at least as far as vehicle manufacturing is concerned.    

About 85 per cent of all of the light duty vehicles built in Canada are exported to the United States and, thus, have to be compliant with whatever safety and emissions standards are in effect there.

Canada also imports about 85 per cent of the vehicles sold here — and most of those imports are from the United States, so it makes sense that our regulations would be aligned. In the case of the current GHG emissions regulations, the U.S. regulations are actually incorporated by reference into our standards.

This proposed U.S. GHG regulation is important for Canada for a number of reasons but the two most important reasons in my mind are that it is a performance-based standard, which is maybe a fancy way of saying that it is “technology neutral” and lets the vehicle manufacturers figure out what technologies to deploy, when, to best meet the increasingly stringent GHG targets over that six year period from 2027-2032.    

Something the industry seems to have been unable to impress upon our federal government is the principle that if you focus on targeting emissions reductions, you will necessarily get ZEV deployment; because, the more stringent the GHG target the more likely it is that the only compliance pathway will be ZEVs.    

The key, however, is (or should be from our perspective) that emissions reductions are secured.

This same outcome is NOT guaranteed when governments focus on technology deployment — electric vehicles in the case of Canada’s ZEV mandate. It is entirely possible that you can have stringent ZEV targets under a mandate while still seeing increased emissions from the light duty vehicle sector.   

Quebec is a great example. 

Quebec was the first jurisdiction in Canada to implement a ZEV mandate in 2018, but the GHG emissions in Quebec in 2021 were the same as they were in 2016 according to the recently released federal National Inventory Report, from Environment and Climate Change Canada. So, a ZEV mandate does not guarantee emissions reductions.

The second reason why the U.S. regulation is so important is that, while it has no ZEV mandate, it will still achieve a better deployment of zero emission vehicle sales than Canada will with its ZEV mandate.   

In Canada, the target for ZEV sales under the proposed ZEV mandate is 60 per cent by 2030, and under the proposed U.S. rule the U.S. would also achieve 60 per cent ZEV sales by 2030, but these sales would be true zero emission vehicles i.e. battery electric vehicles, as opposed to the Canadian definition of ZEV which includes plug-in hybrid electric vehicles (PHEVs).

Therefore, if Canada can achieve better emissions reductions and better ZEV deployment by 2030 simply by applying our proven approach of adopting U.S. emission standards, one has to ask what the relevance is of a redundant ZEV mandate in Canada? At best it is belt-and-suspenders regulation, at worst it is a duplicative and unnecessary regulation that will distort the Canadian marketplace while both limiting the availability of vehicles in Canada and making those that are available more expensive.

Yet even knowing this the ZEV mandate advocates invoke the “yeah but” clause. The rationale seems to go like this: “Yeah, we’ll get more ZEVs following the U.S. rule, but a new administration could change those rules so we need to keep our ZEV mandate”.    

Look, anything can happen with any new administration in the U.S. but it would be refreshing to see ZEV advocates, which are mostly Environmental Non-Government Organizations (ENGOs)  admit that a ZEV mandate is no longer necessary rather than being like the dog that caught the car — I got my goal, now what do I do?

The post The dog who caught the car appeared first on Canadian Auto Dealer.

Over the last two years we’ve seen some impressive investment announcements in the Canadian automotive industry the size of which we’ve literally never seen before.

These investments are not just in the vehicle manufacturing sector but also in the supplier sector, and, in particular, in the battery supply and battery components sectors. Indeed, the two largest investments in Canadian automotive history (at the time of this writing!) are two battery plant facilities, one announced by Stellantis last March for the Windsor area and the other just recently announced on March 13, 2023 by Volkswagen Group.

While we don’t yet know the size of the overall investment of the Volkswagen battery manufacturing facility in St. Thomas, nor how many people it will employ, nor the government assistance provided from both levels of government to secure the investment; we do have some guidance.

The VW plant has been touted by Industry Minister François-Philippe Champagne as being the largest automotive investment in Canadian history, which obviously makes it bigger than the $5 billion invested by Stellantis.

We can also reasonably assume that if it is a bigger facility it will employ more than the 2,500 people that the Stellantis plant will employ. What will be really interesting to find out is how much both the federal and Ontario governments invested to land both the Stellantis battery plant and the Volkswagen battery plant.

We don’t know the numbers in either case at this point because they are deemed to be commercially sensitive as the two governments continue to work with other battery suppliers to try and land additional gigafactories in Canada.

Traditionally, however, both governments have typically partnered with about 25 per cent of the overall investment made by a vehicle manufacturer. In recent rounds of investment that number has trended higher with both levels of government contributing more than one-third of the $3.6 billion announcement made last May to transform Stellantis’ Windsor and Brampton assembly plants.

With respect to both the Stellantis battery plant and the newly announced VW battery plant, I think it is probably fair to say that the level of government investment in both of those facilities will be much, much higher than 30 per cent of the capital expenditure for each of those investments.

There are at least a few reasons why this is the case. The first reason is that there is global competition for these generational investments in battery plants to produce the batteries that will drive the electric vehicles of not only the present but the future.

These investments are landing plants that will likely be in operation anywhere from 3—50 years into the future, but there will only be so many of them while this current investment frenzy is underway to build out the new propulsion supply chain.

If we get a little closer to home and look at North America, things have become incredibly complicated and skewed towards the United States as far as any type of cleantech investment is concerned by virtue of new NAFTA (CUSMA/USMCA)  and the Inflation Reduction Act.

The CUSMA (in Canada!) requires that 75 per cent of the value of the battery (as of July 1, 2023) has to be from the North American region for EVs entering the United States to secure duty-free access. Otherwise, a 2.5 per cent tariff would apply.

Under the Inflation Reduction Act that was signed into law by President Biden last August, things became more complicated on two fronts, one, originally only batteries and battery parts sourced in the United States were going to qualify for the $7,500 consumer incentive to purchase an EV.

This incentive consisted of two pieces, one, a $3,750 chunk which was applicable to critical minerals coming from the United States  and the second $3,750 chunk which was applicable to the value of the batteries components.

In the first instance, in order to secure that chunk of the incentive, at least 40 per cent of the critical minerals had to come from the U.S. rising to 80 per cent in 2027.

In the second instance, at least 50 per cent of the value of the battery components had to come from the U.S. rising to 100 per cent in 2029.

Canadian industry and the Canadian government applied a full-court press to push the U.S. to include Canada and other countries with whom the U.S. has a free trade agreement under those definitions to ensure that EVs that will eventually be built in Canada, would be eligible for the EV tax credit.

If not, Canadian built EVs would have been at a $7,500 cost disadvantage in the U.S. market, which is essentially impossible to overcome. Given that Canadian plants export 85 per cent or more of their production to the United States, many called these provisions—if left in their original form—an existential threat to the Canadian automotive industry.

With that situation addressed, the other provisions of the IRA that flew under the radar were the production tax credits, investment tax credits and operational tax credits contained within the IRA resulting in incentives worth $35/kwh for battery cells, $10/kwh for battery modules ($45/kwh overall) along with 10 per cent of the production costs for battery components and 10 per cent of the cost of production for critical minerals.

All of these incentives combined resulted in orders of magnitude more government support being offered in the United States vis-à-vis Canada for these investments.

Dr. Bentley Allan of the Transition Accelerator and Michael Bernstein from Clean Prosperity have estimated that the federal and state support for a typical 45 GWh/year  battery plant was in the order of $48.41/kWh versus $2.36/kwh in federal and provincial grants in Ontario, meaning that there is a $2 B difference between what Canada is currently offering compared to the U.S.

This difference is sizeable and it is why the federal government acted in the recent Federal budget to address—in a targeted way these differences to ensure that Canada could still be in the game in securing additional investments.

Make no mistake though. The IRA subsidies are sizeable but it is only one piece of the puzzle. Access to a talent pool, access to market, access to renewable electricity, access to an automotive supply ecosystem, a stable and reliable political structure all likely factored into Volkswagen’s decision.

At some point we will know the quantum of the government support for the Stellantis and the VW battery plants but that support—whatever it is—will be worth it to lock down high paying jobs for a generation not only in the facilities themselves but in suppliers etc with an estimated multiplier effect of about eight for each job in the manufacturing facility.

Landing Volkswagen is key for Canada however, in that it is the first new automaker to set up shop in Canada since the late 1980s which sends a strong signal to the world that Canada has what it takes to be a major player in the electrified future moving forward.

The post Dawn of a new automotive era in Canada? appeared first on Canadian Auto Dealer.

It’s high time for the government to address the rampant exportation of stolen vehicles

While most of us might not like to admit it, we’ve probably all been taken advantage of at some point during our lives by those who prey upon vulnerability, weakness or simply naivety. 

In the movies, this is often referred to as being an “easy mark”, by those looking to exploit others. The benefit of having the experience of being an easy mark is that hopefully we have learned our lesson. We know what to look out for and we are more aware so that that never happens to us again.

In the context of this column, the easy mark I am referring to is not a person, but rather our country, Canada, as it relates to being a bastion of opportunity for organized vehicle theft rings, for a variety of reasons, according to INTERPOL. 

It is disconcerting to automakers, insurers, police authorities — and most of all victimized consumers, that vehicle theft, in Ontario and Quebec especially, has increased more than 45 per cent over the last year. Seemingly missing from the list of those concerned about auto theft is the federal government of Canada. 

If there is going to be a solution to the auto theft problem in Canada that is principally centred in Ontario and Quebec, then it is going to require a holistic solution involving automakers, insurers, police, ports and the federal government. The missing actor in this effort to date has been the feds. 

The federal government owns the Port of Montreal that has been perhaps unfairly maligned for being essentially a sieve for stolen vehicles exported to Africa and elsewhere. 

The federal government is also responsible for the Canadian Border Services Agency, under the auspice of the Minister of Public Safety and Emergency Preparedness, the Hon. Marco Mendicino. The CBSA, amongst other things, monitors all imports and exports into and out of Canada. Well, the CBSA does this in theory, because it would be impractical to monitor all imports and exports.

As a consequence, such monitoring is done on more or less a random basis, but also on the basis of intelligence gathering and tips, associated with potentially illegal imports or exports. 

However, we have a real problem and despite everyone — including the auto thieves and traffickers — knowing how easy it is to transport stolen vehicles in containers for export to and through the Port of Montreal, precious little seems to be actually being done to mitigate this issue by the federal government. 

The question is, why? Vehicle theft costs insurers and consumers millions of dollars not to mention the inconvenience to consumers of trying to secure a replacement vehicle in an inventory-constrained environment. 

It would seem that vehicle theft lacks the cache of drugs and guns, for which specific federal task forces have been set up, because it has traditionally been viewed as a “victimless” crime. Tell that to those who have been carjacked at knifepoint or gunpoint. Indeed, in Toronto alone, carjackings doubled from 2021 to 2022.

Carjackings, and some home invasions, are the result of vehicle manufacturers making vehicles more difficult to steal, but the real question remains, what will it take to bring federal government attention and action on this issue? 

Never mind the fact that Canada is a signatory to at least two United Nations declarations (the 1994 Declaration on Measures to Eliminate International Terrorism and the 1997 International Convention for the Suppression of Financing of Terrorism) that compel our leaders to take action to mitigate the funding of terrorism and terrorist activities. 

At least some of the vehicle theft in Canada is financing things elsewhere; yet not much seems to be happening. Likewise, back in 2010 the Criminal Code in Canada was amended to specifically address auto theft and trafficking. The Tackling Auto Theft and Property Crime Act, came into force on April 29, 2011, but what’s changed? Nothing really. It all comes down to a willingness to address the issue through enforcement of the laws and provisions that exist.

If there is any question as to the root cause and factors influencing a rise in vehicle theft, then how about setting up a special task force within the federal government to get to the bottom of the issue, in conjunction with other stakeholders? 

Additionally, how about amending the penalties and punishments arising from conviction under the Tackling Auto Theft and Property Crime Act? If the opportunity is great (it is estimated that a $100,000 vehicle stolen in Canada can fetch up to $250,000 in some foreign markets), the enforcement is light and the punishment is relatively light (18 months in jail for a summary conviction) it should not come as a surprise that auto theft runs rampant.

Our parliamentary committees look at a number of different issues of national importance. Why not a series of hearings in front of the Justice Committee or the Public Safety and National Security Committee of the House of Commons? Let’s hear from the experts about what can be done to address this serious issue and get on it!

Unless the issue becomes a priority for the federal government, and unless we all work together to stop the flow of vehicles out of the country, vehicle thefts will continue to increase.There is too much financial upside, and too little downside for vehicle thieves to give their actions a second thought.

The post The problem with being an “easy mark” appeared first on Canadian Auto Dealer.

In uncertain times, it’s best to “hope for the best, plan for the worst”

The last time Canada had vehicle sales results as low as they were last year was during the financial crisis in 2009. The question on everyone’s mind at this time of year is “What does this year look like for vehicle sales?”.

There are others far more versed in this space than I am. My only perspective is of one who has been around the industry for 35 years and one who has a bit of a “gut feeling” that things have substantially changed in the industry as we go through this wholesale disruption of our business.

To be sure, the outlook is murky at best.  

On the one hand, owing to the supply chain challenges that have created the inventory shortages of the last couple of years, it is anticipated that there is still some level of pent-up demand from consumers that has not been met over that same time period.   

When you combine that with the fact that we have only recently started going places and doing things again, it seems reasonable that many people have built up a bit of a pandemic nest egg over the course of the past couple of years that could just as easily be applied to a new car purchase as a luxury vacation.

Then there is Canada’s record level of immigration, with more than 430,000 people emigrating to Canada in 2022, up significantly from the typical volumes of roughly 300,000 per year. A large number of those people will require personal transportation.

All of these things bode well for increased vehicle sales in 2023. 

However, I hope I am proven wrong, but I would suggest that the 15 per cent or more increases that some OEMs have suggested they will achieve in 2023 seem to me to be far too aggressive.   

I would suggest that the overall market may grow something like five to seven per cent, for the following reasons.

Most economists are predicting a minor recession for most of the globe, the length and depth of which is indeterminate at this time, but everyone is hoping for a soft landing. 

In addition, all of us have been reminded on a daily basis—when we purchase virtually anything—of how expensive everything has become due to a phalanx of issues, from 40 year high rates of inflation to climate catastrophes impacting the price of everything from orange juice to coffee. And the response of most federal banks globally? Well, their reaction has been to try and tame inflation by methodically and consistently increasing interest rates seven times over the course of the last year. 

As a result, we have already witnessed a slowdown in the housing market with prices falling from their peak of a year or so ago.

If that wasn’t enough to give pause for reflection, consider that the microchip crisis is not entirely behind the industry either.   

While some manufacturers will certainly be in much better shape this year than others, with respect to inventory challenges caused by chip shortages, there seems to be a general consensus that this situation will not be resolved until the end of this year. 

If that’s the case, it would not be unreasonable to see manufacturers prioritizing the production of the vehicles on which they can make the most profit if the chip supply remains limited, which will consequently limit production output. This generally means pickup trucks, SUVs and higher trim levels of vehicles will be prioritized.    

From the consumer’s perspective, as we’ve experienced, if inventory remains constrained most of the vehicles that will be available will be at higher price points. 

In fact, new vehicle inflation is north of seven per cent on a year-over-year basis.   

However, as long as there is pent-up demand and too few cars for those that would like to purchase them, we can see a continuation of the scenario in which both dealers and manufacturers do not need to discount the purchase price of the vehicle in order to sell the vehicle.

The question is, will consumers continue to pay high prices for new vehicles and then be faced with finance or lease rates for those vehicles that are significantly higher than we have experienced since 2008? Some will, undoubtedly, but how many more will say, “I can get another year or two out of Old Betsy”?   

Another factor is the changing nature of work. I am not sure if people are paying as much attention to this issue as they probably should. 

While it’s clear that if you work in a factory, or in a team environment where the work is dependent on a team, then WFH is not really an option for you. 

However, for a large chunk of the population the pandemic revealed to all of us how much work could really be done away from a centralized office.   

If work from home, or some sort of hybrid work from home, becomes the norm, will families need two or more vehicles?  

There’s a steep price to pay for having a vehicle sit in the garage or the driveway for only occasional use. It would seem to be more likely that the WFH crowd may decide that Uber or Lyft is an easier and cheaper way to get around for the infrequent times that they need a vehicle—especially in tight and uncertain economic times.

And what about electric vehicles? Every day there seems to be an article in social media commenting on how the waitlist for most EVs is more than a year. 

Perhaps that’s a good thing because maybe by that time inflation will have returned to the more traditional range of about 2-2.5 per cent and interest rates may have stabilized. 

Otherwise, the reality is that those purchasing EVs are likely to receive no discount, will be paying $7,000- $20,000 more for an EV (depending on vehicle segment) and will have to finance this much higher capital cost at higher interest rates. 

While yes, the owners will save money over the duration of owning the vehicle compared to an ICE vehicle, most folks don’t purchase vehicles based on the savings that will accrue to them over time.    

Don’t get me wrong, I believe EVs are a superior technology but there is just so much work on infrastructure and general awareness that needs to be undertaken prior to most people saying, “Okay, I’m comfortable having my only vehicle be an electric vehicle.” 

I don’t believe there is any reason why a household’s second vehicle couldn’t be a ZEV, but as per my comments above, will as many families have second and third vehicles?

As we head into 2023 I am reminded of the old adage “Plan for the best and prepare for the worst”.

Somehow this seems apropos given these uncertain times, regarding vehicle sales for 2023.

The post New Year, different results? appeared first on Canadian Auto Dealer.

Canada is going to need every EV it can get—regardless of where the battery came from

The automotive industry has been going through a world of churn and change over the last couple of years and that churn and change seems likely to continue at an even more frenetic pace for the next few years at least. 

A lot of the churn and change has been driven by government policy aimed at not only reducing emissions but also putting more zero emission vehicles on Canada’s roads.

Despite passing its Zero Emission Vehicles Act in May 2019 it took British Columbia another fourteen months to pass the operationalizing regulation in July of 2020.   

However, B.C. then became the second province following Quebec to establish a provincial zero emissions vehicle mandate.

On top of that, earlier this year, the federal government formally announced its intention to introduce a national Zero Emissions Vehicle Mandate with targets of 20 per cent ZEVs by 2026, “at least 60 per cent” by 2030, and 100 per cent by 2035 as part of its 2030 Emissions Reduction Plan.

While the ERP was expected by industry, the completely new 2026 target was not, nor was an increase in the stringency of the target for 2030 from 50 per cent (aligned with the United States) to 60 per cent.    

So the churn and change in this space will continue as industry strives to contend with a national ZEV mandate in addition to two provincial ZEV mandates—all the while trying to maintain a commitment to align our GHG emissions regulations with those of the U.S.   

The federal Environment and Climate Change Minister, Steven Guilbeault, has for all intents and purposes drawn a line in the sand indicating that the Canada Gazette Part 1 Notice—essentially the draft regulation of the zero emission vehicle mandate—will be issued prior to the end of the year.

However, the United States will not have the EPA issuing its formal Notice of Proposed Rule Making (NPRM) on its post 2026 emissions regulations until sometime in the early spring of 2023. The question becomes how will Canada align with these regulations, while jumping out ahead of the United States with the draft of its ZEV regulation (which the U.S. does not have)?

Nor does the industry have much indication with respect to what the federal ZEV mandate parameters might look like other than to be told “it will look like California”.    This is all well and good, but for companies to appropriately plan they need specifics—actual details.

The problem with this fix is that—in the short to medium term—it drastically reduces the number of EVs that are eligible to earn the incentive because critical materials/minerals and battery development in North America is still in its nascent stages.

The  Global Automakers of Canada has accepted that the federal government has made the decision to pursue a national zero emission vehicle mandate, despite our skepticism about the ability to meet the stated targets, along with introducing a lot of unintended consequences. It will be interesting to see when we receive the framework for the regulation, especially considering the fact that any manufacturer’s product planning horizon is about five years.

In addition to these regulatory provisions aimed, ostensibly, at attempting to guarantee ZEV supply into the Canadian market, we have churn and change going on as countries and regions within countries vie for foreign direct investment in the new supply chain for zero emission vehicles (batteries, battery components, critical minerals etc.) in addition to the electric vehicle product mandates for the assembly facilities.

In this regard, it is important to give credit where credit is due. Federal Industry Minister, Francois Philippe Champagne and Ontario Economic Development Minister Vic Fedeli have been tireless proponents of Canada’s strengths on the global stage and have leveraged more than $16 billion in electric vehicle, battery, and battery component investment into Canada in Ontario and Quebec over the course of the last 18 months.   

This is unprecedented, and hopefully there is more to come, but this is by no means guaranteed and is presently under threat by the latest protectionist measures from the United States that are wrapped up in the Inflation Reduction Act (IRA) that was passed in August.

On the one hand, the IRA fixed the EV incentive provisions from the previously proposed Build Back Better bill, which would have ultimately seen $12,500 worth of EV incentives going only to vehicles built in the United States.

This would have dealt Canadian EV manufacturing a fatal blow, given that 85 per cent of Canadian vehicle production is destined for the U.S. market. The “fix” in the IRA was to allow the new $7,500 incentive to be applied to any EV built in North America with the proviso that increasing levels of North American critical materials and the battery production were met.

The problem with this fix is that—in the short to medium term—it drastically reduces the number of EVs that are eligible to earn the incentive because critical materials/minerals and battery development in North America is still in its nascent stages. As a result, out of the more than 70 EV models available in the U.S. only about 25 will qualify for the rebate given the current restrictions.     

While it is perhaps understandable that the U.S. is using every tool at its disposal to try and decrease reliance on China for batteries and battery components, the economic development tools with significant incentives attached for the production of batteries, their components, and the mining and processing of critical materials within the United States, make it difficult for Canada to compete for that same investment because of the quantum of the credits and subsidies. While this might be seen as good U.S. industrial policy it is probably not, in the short and medium term, going to assist in the uptake of EVs and this is what I am referring to in the title of this column regarding disruption dichotomies.

First, the EV consumer incentives will actually slow EV uptake because they will apply to fewer models—at least until the U.S. critical minerals and battery ecosystems evolve. 

Secondly, this reshoring of batteries and other critical EV components comes at a price, making these components far more costly for EVs being built in the U.S. which, again, is not conducive to EV uptake.

Despite the allure of trying to support our own economic development in these areas in Canada, we should avoid at all costs following the US example of tying our EV incentives to domestic content requirements, because, unlike the United States, Canada will soon be releasing draft regulation for its national zero emission vehicle mandate.

In this mandated context where manufacturers will face financial penalties if they do not meet their EV targets, Canada is going to need every EV it can get—regardless of where the battery came from—in order to meet the aggressive ZEV targets the government has set.

This is indeed a disruptive dichotomy.

The post Disruption dichotomies appeared first on Canadian Auto Dealer.

How Canada’s Chemicals Management Plan needs to better align with our global reading partners policies

Everyone, every now and then, likes to differentiate themselves by standing out from the pack. Clothes, hairstyles, tattoos, body piercings — you name it, are all expressions of individuality and ways for people to claim their own uniqueness.

Like people, countries and sub-national jurisdictions also like to differentiate themselves by taking what some would call leadership stances on various issues, for a variety of reasons. For instance, California was the first jurisdiction to put in place tailpipe emissions standards in 1966 for valid geographical and photochemical smog reasons. In a similar fashion, Canada has pursued a world leading Chemicals Management Plan for the good and valid reasons of looking to reduce and eliminate toxic substances from our environment. 

However, California’s unique role in the regulation of pollution, that subsequently morphed into the mitigation and elimination of greenhouse gas emissions, is significantly different from Canada’s unique leadership role on chemicals management.   

California has a larger population than all of Canada, and there are more vehicles on the road in California than all of Canada, but part of California’s unique waiver from federal emissions regulations is that other states can choose to follow California’s regulations or they can choose to follow federal emissions control regulations. 

Right now, seventeen other states have committed to follow the California standards with different dates for the implementation of some of those provisions out to 2025. There are two sets of California standards, LEV provisions — which cover criteria air contaminants, and GHG emissions and ZEV provisions — which are similar to the ZEV mandate that the Government of Canada is seeking to impose on a national basis. 

If you look at the percentage of motor vehicle sales in the States that copy California’s ZEV provisions, that covers about 36 per cent of all of the vehicles sold in the United States. In this case, California has set itself up in a leadership role on emissions reduction that cannot be ignored by any automaker.   

On the other hand, Canada’s world-leading Chemicals Management Plan (CMP) is problematic because it is not aligned with Canada’s major trading partners — the United States and Europe. 

While I think the CMP is well-regarded on the international stage, the reality is that Canada is a relatively smaller, middle power economy that does not have the same persuasiveness to drive other countries to adopt its unique program as, say, the United States or Europe or even California. 

The end result is that when Canada decides to ban a chemical like DBDPE — a flame retardant for which there is no known alternative — it has significant ramifications for a number of different industries, including the automotive industry where this chemical is used in a variety of automotive parts. 

While this has obvious implications for vehicles that are being built in Canada that have — for instance — performance standards the vehicles must meet regarding the flammability of interior materials,  this ban on DBDPE also would prevent vehicles from  other countries from entering Canada if those vehicles contain the chemical. As no other country has  sought to ban DBDPE, this seems entirely plausible.

Canada’s automotive industry is primarily highly integrated on a North American basis, but also secondarily part of a globalized industry from a sales perspective. In this regard, we are not unlike many other industries. 

As a Canadian I could look objectively and agree that it is great to see Canada taking a leadership/unique role on the international stage on an issue, but given our reliance on other countries and other jurisdictions as a highly trade-exposed economy, any leadership/unique position needs to be pragmatic and thoughtful as well. 

The failure for a country like Canada to be pragmatic in any leadership activity in this regard is not without consequence either. Being unique can often lead to either limited product selection or higher prices — or both, and this does not make for a robust market, especially in the current economic environment.

The post What’s wrong with being unique? appeared first on Canadian Auto Dealer.

The title for this column may be a bit anachronistic given that for a lot of modern vehicles there are no more “gears” per se. 

It’s probably obvious, however, that if you did have gears in your vehicle’s transmission, or you if you are a cyclist, or if you are using any other mechanical device with gears, the last thing that you want is any contaminant in the gears that prevents their smooth operation and which could cause immediate or eventually breakdown.

From my vantage point, the transition to electrified vehicles is becoming a little bogged down by sand in the gears; perhaps well-intentioned sand in the gears, but sand in the gears nonetheless. Let’s look at a few examples so that you can better understand what I mean.

The governments of both British Columbia and Quebec have proposals currently out for consultation that will make their respective ZEV mandates significantly more stringent for automakers.   

They share a number of similar proposals (clearly the two provinces are talking — not only with each other but with California as well) such as restricting the credits available to manufacturers for BEV and PHEV vehicles and increasing the penalty for companies associated with missing your target.  

In both cases, it is proposed that that penalty would increase four-fold from $5,000 per vehicle to $20,000 per vehicle. The intention seems to be to try and force manufacturers to put more zero emission vehicles on the road as opposed to using credits as a compliance mechanism, and then to make it very costly for manufacturers who do not maintain their ratio of ZEV sales to total sales.   

So, while this may be a very good intention to get more ZEVs on the road, the reality will likely be that manufacturers will be very aggressive on managing their vehicles for sale to consumers through dealerships to ensure that they don’t have to pay those sizable penalties.    

It also seems plausible (especially in a micro-chip constrained world) that manufacturers may opt to skew their new vehicle offerings to the vehicles for which they make the most profit (larger vehicles, SUVs, pick-ups, higher trim levels etc.) to hedge in case they have wind up having to pay such penalties, not to mention maintaining a revenue stream to continue to fund the transition to electrification.    

The end result? There is less selection and fewer affordable models of new ICE vehicles available to consumers. So, we end up with more,  generally less fuel efficient, new vehicles going on the road with a from a more restricted selection of newer vehicles, leaving consumers with the only option of purchasing used, generally less fuel efficient vehicles to get either the vehicle they want or a vehicle they can afford.  All of which will increase overall transportation GHG emissions. Sand in the gears.

At the same time, both provinces in their own ways, are restricting access to vehicle incentives, which in our view are necessary to facilitate consumers’ transition to a ZEVs.    

In Quebec’s spring budget the government announced that it was reducing the provincial incentive for BEVs from $8,000 to $7,000 and from $8000 to $5000 for PHEVs. 

This decision was, according to budget documents, to “reflect the reduction in additional costs of electric vehicles on the market relative to comparable internal combustion models while encouraging the acquisition of vehicles with greater electric range and GHG emission reduction potential.”  

But what’s been happening to EV prices? They’ve been going up, not down, for a variety of reasons. 

In the case of B.C., the government recently announced that they would be increasing the provincial incentive from $3,000 to $4,000 which sounds great until you look at the fact that the incentive will be available on the basis of individual or household income.   

If you make more than $100,000 or your family makes more than $165,000 — no rebate for you. The maximum rebate occurs for individuals earning $80,000 or less or $100,000 as a household.  

Again, while the intention of trying to provide rebates to individuals and households of more modest means is laudable, with the average EV being about the same price as the average annual income in Canada, it is dubious as to how many of these targeted individuals will make the plunge for an extra $1,000 from the government.   

Additionally, it remains the case that the government has effectively removed the incentive for the folks that are actually purchasing EVs in B.C. — the relatively better off.   

While some might say the so-called “rich” don’t care about incentives and will purchase EVs anyway, I would only say that is a huge assumption. 

Further, when you combine lack of incentives with record high inflation eating into everyone’s disposable income, and higher interest rates disproportionately impacting the carrying costs of higher-priced EVs (vs ICE) vehicles I don’t think I’d be taking the bet that ZEV sales will continue to tick along. More sand.

Another complicating factor here is that folks interested in purchasing a vehicle will first have to obtain an official certification of their income by submitting an application through a somewhat convoluted process on a Government of B.C. website that they can then take to a dealer. Yet more sand.

It is really difficult to see how all of these efforts are going to assist in moving the needle on EV uptake. What  we really need is for governments to significantly reduce the friction for consumers and businesses getting into an EV, as opposed to making it more difficult, complicated, or less compelling.

The challenges aren’t just related to our own country, however, as the United States recently passed the Inflation Reduction Act which includes EV incentives that will be necessary for the U.S. to meet its own goals and ambitions for ZEV adoption (50 per cent by 2030).   

Fortunately for Canadian manufacturers, EVs built here will also qualify for the rebate, but the rebate may well be irrelevant, owing to the caveats around battery and battery component sourcing and production that would need to be done in North America.  

While again, it is laudable to want to build up North American security of supply and have all of that work done here, the reality is that those requirements ramp up more quickly than such production and sourcing can be brought on stream. 

So while the EV incentive is great — the fact that 70 per cent or more of EVs would not be able to qualify for it doesn’t really help. Very sandy.

The new U.S. credit will also mean that Canada will need to increase its incentive — from the current $5,000 — to about $9,600 to match the U.S. incentive, otherwise we run the risk of ZEV arbitrage across the Canada U.S. border where the vehicles attract a higher incentive.    

Given that it seems we will have a national ZEV mandate and that our targets are higher than those of the U.S. (at least 60 per cent by 2030)  we need to ensure that we can get all of the ZEVs we can into the hands of Canadian consumers and therefore, we need to avoid any consideration of adding the same battery and critical minerals caveats to incentive eligibility.   

For one, such caveats run afoul of WTO requirements and secondly they represent — you guessed it — more sand in the gears of ZEV adoption in Canada.

Sand on a beach in the summer is wonderful. Sand in the gears of EV adoption is trouble. Let’s keep the sand where it belongs.

The post Sand in the gears appeared first on Canadian Auto Dealer.

There’s a disconnect between government mandates and the support needed to achieve them

This is because most of the announcements related to the auto sector had been previously telegraphed through the 2030 Emissions Reduction Plan (ERP), released with much fanfare by Environment and Climate Change Canada Minister, Steven Guilbeault, at the GLOBE conference in Vancouver on March 29th.

The ERP included $1.7B to re-fund the Incentives for Zero Emission Vehicles (iZEV) program through to 2025. This program is administered by Transport Canada, and while funding has been extended, changes to the program, including both increases to the MSRP eligibility limits and overall incentive amount, were not contained within that document. Despite suggesting that the budget would provide more details, there was only a further promise in the budget that details would be forthcoming.

Now, the government will be spending $200 million more in incentives and $200 million more for charging infrastructure to install the same 50,000 chargers—which had been the platform’s original goal.

The ERP also included two tranches of spending for ZEV infrastructure—EV chargers and hydrogen fuelling stations. The Canada Infrastructure Bank will provide $500 million in urban and commercial fuelling and charging infrastructure while NRCan will spend $400 million to build out suburban and remote infrastructure.

That said, the Liberal platform trundled out ahead of last fall’s election noted that their intention, if re-elected, was to spend $1.5 billion in incentives and $700 million to build 50,000 charging stations.

Now, the government will be spending $200 million more in incentives and $200 million more for charging infrastructure to install the same 50,000 chargers—which had been the platform’s original goal.

I guess the extra $400 million in iZEV incentives and money for charging infrastructure is to somehow attempt to deflect from the fact that the ERP also made ZEV targets significantly more stringent as well.

Now, Canada will have a “mandated” 20 per cent ZEV target for vehicle sales in 2026 and a target of at least 60 per cent by 2030. This target was increased from 50 per cent ZEV sales by 2030 as announced last November at the UN Climate Change Conference of the Parties in Glasgow, and that target substantially increased the previous target of 30 per cent ZEV sales by 2030.

So, in a very short period of time Canada has essentially doubled its target for ZEV sales by 2030. While things are moving very fast in the EV space, it is crazy to believe that the basic fundamentals have been altered that much over the course of less than a year that warrant a doubling of a ZEV target that has also gone from a 30 per cent “aspirational” target to a 60 per cent “mandated” target.

We don’t know what a “mandated” target means either.

The government signaled its intent to introduce a national zero emission vehicle sales mandate in the ERP but we have no further elaboration with respect to what that might look like at the moment, or when it might actually be implemented but, based on the wording of the ERP, it would need to be in place for 2026.

That may seem like it is a long way out, but 2026 is essentially tomorrow in the automotive industry. Product plans for 2026 are already locked and loaded, and companies’ product planners are currently working on 2030 model mixes. Thus, lead-time is one thing that the industry and government are going to need to dialogue on if there is to be any reasonable hope of meeting these targets.

The ERP also outlined a plan that would also move the medium and heavy-duty vehicles towards zero emissions by establishing a 35 per cent ZEV sales target by 2030 and a regulated 100 per cent ZEV sales target for medium and heavy-duty vehicles by 2040—depending on feasibility.

This effort will be supported by a $547.5 million purchase incentive program for medium and heavy-duty vehicles along with almost $200 million to retrofit vehicles currently on the road and almost $34 million for hydrogen trucking demonstration projects.

In my view, the focus on the medium and heavy duty space is one where the vast majority of the resources available for the transition to decarbonized transport should be focused. If we consider that a consumer opting to get rid of their reasonably efficient ICE vehicle to take advantage of the $5,000 federal incentive which is also stackable on top of any provincial incentive, to purchase a ZEV—the reality is that either way that vehicle is going to sit parked somewhere 95 per cent of the time.

The $1.7 billion for incentives will only support the sale of 340,000 ZEVs through 2025 and when applying reasonable market growth and reasonable ZEV adoption growth, we could anticipate 869,500 ZEVs being sold between now and then, but that’s based on ZEVs either still being incentivized or ZEVs being cost competitive with ICE vehicles.

Thus, the real opportunity to reduce emissions is to focus ZEV technology and uptake on the medium and heavy-duty commercial fleets that actually have an incentive to look at the total cost of ownership—unlike passenger vehicle consumers. Commercial vehicles also tend to have a much higher utilization rate than passenger vehicles meaning that the opportunity to reduce emissions is that much greater.

That said, there is no reference to “feasibility” in relation to the mandated targets that have been set for the passenger car and light-duty trucks. And while the numbers in the 2030 Emissions Reduction Plan echoed in the budget seem impressive—$1.7 billion for incentives, and $900 million in charging and fueling infrastructure, the real question to ask is—compared to what?

The $1.7 billion for incentives will only support the sale of 340,000 ZEVs through 2025 and when applying reasonable market growth and reasonable ZEV adoption growth, we could anticipate 869,500 ZEVs being sold between now and then, but that’s based on ZEVs either still being incentivized or ZEVs being cost competitive with ICE vehicles.

Cost parity is not expected until very late this decade so the $1.7 billion earmarked for incentives sounds like a lot, but it is only going to support about 40 per cent of the vehicles that will need to be sold over that period or on the road to get to the mandated 20 per cent of all sales by 2026.

Likewise, the $900 million to put in place 50,000 EV chargers and fueling stations seems like both a lot of money and a significant number of charging stations (considering Canada only has about 16,000 right now) but consider that if we take a widely accepted ratio of having one charging station available for every 10 EVs on the road (more advanced jurisdictions have ratios of 1:7), that still means we’ll need about 87,000 charging stations for those vehicles that will be sold between this year and 2025, and if you are looking to accommodate the existing EVs currently on the road in Canada, that number is over 100,000 charging stations.

So once again, the government is supporting less than 50 per cent of the infrastructure that will be required to accommodate all of the ZEVs the government is going to require vehicle manufacturers to put on the road.

In the end, while the industry is committed to 100 per cent decarbonization of their products, the government has created aggressive, mandated targets for the industry that it is less than 50 per cent committed to supporting in terms of addressing the two key barriers that are keeping consumers out of the transition to ZEVs—price, and reliable, available Infrastructure. I don’t like those odds.

The post What the budget didn’t tell us appeared first on Canadian Auto Dealer.

More charging infrastructure is needed to meet EV sales targets, but Canada’s basic infrastructure needs an overhaul too.

Given that a lot of my recent columns, which have focused on vehicle electrification and the challenges around reaching Canada’s (and Quebec’s and British Columbia’s) ambitious ZEV sales targets, you could be forgiven if you thought this article was going to be about Canada’s EV charging infrastructure deficit.

Make no mistake, there is an urgent need to get shovels in the ground right now to exponentially increase the EV charging infrastructure to accommodate the number of EVs that the government is desirous of having on the road in just eight years. 

You may recall that the federal government is looking to mandate zero emission vehicle targets of 50 per cent of sales by 2030 and 100 per cent of sales by 2035. That’s not a lot of time when one considers that nationally we reached about five per cent ZEV sales in 2021 and it has taken us about 10 years to hit that mark.

Currently, in Canada there are about 240,000 EVs on Canada’s roads after about 10 years of ZEV sales.

However if we look at the government’s target for 2030, that would mean there would be 800,000-850,000 ZEVs sold in 2030 alone.

More recently we have witnessed the impact of the CP rail strike and its impact on the Canadian economy—certainly adversely impacting the automotive industry but even more so for the fertilizer and agriculture industries in Canada.

Therefore it is not an unreasonable assumption that we could have 4 million ZEVs on Canada’s roads in 2030. If we look at having a ratio of 1/10 in terms of charging stations to ZEVs, that means we’d need 400,000 public chargers to support that number of ZEVs.

So while it is great that the federal government has allocated $1 billion for 50,000 charging points, we would need to spend 8 times that much, or $8 billion by 2030 in order to adequately build out the charging infrastructure to accommodate the number of ZEVs on the road in 2030. 

That is a big number … but that’s just to roughly accommodate the ZEVs that the government wants to ensure are on the road in 2030 (50 per cent of new care sales). 

The other reality is that the building out of the charging infrastructure needs to be front-end loaded such that more charging infrastructure is built out earlier, to provide consumers with the confidence that they can drive their vehicle anywhere and charge it in a reasonable amount of time. 

As a result, the pressure really is on—or should be on—federal, provincial and municipal governments to build out the infrastructure now.

While governments are not the only entities investing in charging infrastructure, they are the most significant entities. The reality is we are not only setting consumers up for a terrible experience with EVs—which will make the transition to EVs even longer, but at the same time we will be putting in jeopardy the ability to achieve the government’s EV sales targets as well.

But… I said this article is not about the EV charging infrastructure deficit, but rather the larger infrastructure deficit that currently exists in Canada. I am talking about our highways, our railways, our ports and our international border crossings.

Some of these infrastructure deficits and vulnerabilities have been highlighted by very recent events.

The privately-owned Ambassador Bridge between Windsor and Detroit is responsible for about 28 per cent of Canada’s trade with the United States and about $40 million in automotive two-way trades goes over that bridge daily. 

The illegal blockade of this bridge in February shut down assembly facilities of all five vehicle assemblers in Southern Ontario for a period of time along with assembly facilities in the United Stated that relied on parts and components from Canada.  Predictably, this blockade emboldened protectionist shills in the United States declaring that all auto manufacturing should be repatriated back to the United States to avoid these types of shut downs.

It is a fair question to ask how the government can rely on one, privately-owned piece of infrastructure, for that much trade. The events of February simply exposed the vulnerabilities.

In fairness however, the Canadian governments (yes, I think there have been three Canadian governments overseeing the construction of a new bridge) have committed to building, and fully paying for Gordie Howe bridge that has been in the works for years.  This bridge will add some much needed redundancy, but we will still have to wait another two years and likely more—given all of the delays to date to getting all of the approvals in place and construction started.

While it is not related to the automotive industry, the illegal blockade of the border crossing at Coutts, Alberta highlighted how even a relatively isolated road border crossing can bring components of the Canadian economy to its knees.

More recently we have witnessed the impact of the CP rail strike and its impact on the Canadian economy—certainly adversely impacting the automotive industry but even more so for the fertilizer and agriculture industries in Canada.

Canada’s ports on the east coast and the west coast are always challenging as well. In fact, I would argue that COVID, the chip shortage and other supply chain issues have actually masked the underlying infrastructure issues and deficits at the ports and elsewhere because vehicle sales volumes have been about 80 per cent or so of what they would have been, meaning less traffic at the ports etc.

The reality is that Canada is a trading nation and relies highly on its ability to trade with other nations for its economic prosperity. 

All of the trade agreements we sign, all of the economic development incentives we put in place, all of the talent we cultivate will be for naught if we cannot get the parts and components that we require to make goods in Canada, or if we cannot ensure reliable, timely and road and rail infrastructure into and out of the country.

Recent announcements in the automotive industry have been focused on making Canada a key cog in the North American electric vehicle and battery development infrastructure. Let’s not put all of this at risk by not hardening and securing the key components of our national road, rail and port infrastructure.

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