Woe, Canada: USA's economic chill spreads north

The past year, Canada lost more than 113,000 manufacturing jobs; auto parts companies cut about 13,000 positions over that time, says analyst Carlos Gomes of Scotiabank. This year, an additional 7,000 parts jobs could evaporate.

At Maxtech, the 300-person workforce has shrunk from a 2001 peak of around 500 employees. Vasudeva has slashed overhead by consolidating two plants into a single facility. To conserve cash, he's delaying investments, including the purchase of a $400,000 robotic inspection unit for his assembly line.

The belt-tightening represents a painful retrenchment for Vasudeva, 62. The son of an accountant and a homemaker, he grew up in the northern Indian city of Ludhiana, a center of textiles and light manufacturing. One of six children, he emigrated to Canada in 1971 looking for the opportunities not easily found amid that era's stagnant socialism in India.

Soon after, he launched his first business in Canada with $2,000, a single machine and a garage for a factory. By 2001, Maxtech reached its peak annual sales of around $100 million, roughly twice the current level.

Among its signature products are small stainless-steel fittings that monitor the amount of unburned gas in a vehicle's exhaust system. Vasudeva says he's been able to out-compete rival firms thanks to innovation that's driven the unit price of such parts from 82 cents in 1990 to about 38 cents today — despite rising raw material costs. But he frets that such ingenuity won't be enough to offset the headwinds buffeting manufacturing. "I think Canadian industry is going to suffer dramatically," he says.

Companies such as Maxtech are especially vulnerable because of their near-total reliance on orders from GM, Ford and Chrysler.

For years, Vasudeva's customers have been losing market share to more nimble Asian rivals. Like many Canadian parts makers, Maxtech has had limited success in winning orders from Japanese or South Korean carmakers, who have a reputation for bringing their home-country suppliers with them when they establish factories abroad.

New markets help

One company that has diversified beyond North America is Samco Machinery of Scarborough, an industrial neighborhood on the outskirts of Toronto. A maker of factory equipment for automotive and construction companies, Samco was forced to seek out new markets outside the USA when the steep downturn in construction eviscerated its sales.

The company's machines transform coiled steel into metal studs used in construction, as well as components for large rooftop air conditioners. But last year, as demand for new apartment and commercial buildings nosedived, about $10 million in Samco's U.S. orders vanished.