Can Canada's auto industry survive the end of integration? RBC Thought Leadership maps four paths forward

The Canadian auto industry was born behind a tariff wall. Now it's trapped on the wrong side of one.

In the early 20th century, Canadian tariffs on American-made automobiles prompted Ford and GM to hop the wall and build factories here instead. By 1930, Canada was the second-largest auto producer in the world. In 1965, the Auto Pact replaced those walls with something more powerful: deep North American integration.

For much of the past six decades, integration worked well for Canada, delivering jobs, investment, and opportunity across Ontario.

Now, Trump's tariffs are dismantling the integration that the Auto Pact built — and Canada, having oriented its entire auto economy around North American interdependence, finds itself deeply exposed.

Man working on car

A century of integration — now under threat

It's a dynamic that RBC Thought Leadership has spent the past year studying.

“There's a strange historical irony at play," says Jordan Brennan, Managing Director of RBC Thought Leadership and lead author of a sweeping new report on the history and future of Canada's auto industry. "And it's underwriting a genuine inflection point.”

The real harm from the disintegration of the North American auto industry, he argues, won't show up in a single headline. Rather, it will manifest in investment decisions being made right now in boardrooms in Detroit, Tokyo, and Stuttgart — decisions with 10-to-15-year horizons that will determine whether Ontario's auto industry grows, stagnates, or gradually hollows out.

It's a fundamentally different challenge than the one Canada faced a century ago. Then, the industry was fragmented and protectionism was the tool that built it. Today, the industry is deeply integrated across borders — components cross the Canada-U.S. boundary multiple times before a vehicle is complete — and it's that integration that tariffs are now tearing apart.

The assets Canada still has

Canada didn't enter this crisis empty-handed. Toyota's Cambridge plant is, by Toyota's own assessment, the most productive auto assembly operation on the planet.

"Magna, Linamar, Multimatic, Martinrea — we have world-class parts makers," Brennan says. "We have what it takes to succeed."

The question is which direction the industry heads from here – and whether Canada will act quickly enough to influence the answer.

Brennan's report — Steering Through Uncertainty: Four Future Paths for Canada's Auto Industry, published this month by RBC Thought Leadership — lays out possible futures for the industry by 2040, ranging from revival to collapse:

Fast Lane: Duty-free access to the U.S. market is restored, Canada assembles 2 million vehicles by 2040, and investment flows into software, batteries, and advanced manufacturing.
On-Ramp: Canada uses its consumer market as leverage to attract non-American OEMs, linking market access to investment commitments in domestic production and R&D.
Slow Lane: Assembly holds but higher-value mandates migrate elsewhere — the easiest path to sleepwalk into, and the hardest to reverse.
Off-Ramp: Tariffs persist, investment dries up, and all Canadian assembly plants are shuttered by 2040 as Chinese EVs fill the demand gap.

Which path Canada heads down is dependent on choices made over the next 18 months — many of them outside of this country. However, Brennan is adamant that one variable matters more than the rest.

"Securing duty-free access to the American market is the most important single policy outcome for the future of Canada's auto industry," Brennan says. "That's the precondition for future growth."

The math of even a 5% tariff, Brennan argues, is unforgiving.

"If you average over the business cycle — capturing the downswing and the upswing together — you're looking at 6 to 8%," he says. "Top of the cycle, maybe 10%. Bottom, maybe zero or lower. Just do the math on what the tariff needs to be to make that viable long term."

The contagion risk

The deeper risk, the report argues, isn't any single plant closure — it's the industrial contagion that follows.

"You lose a lot of ecosystem density, not just in auto," Brennan says. "Auto assembly is a major demand anchor for Canadian steel, for aluminum, for chemicals, for plastics. If you lose that demand anchor, can the other advanced manufacturing industries — like space, like defence — absorb all of that? And the answer is potentially no. In which case, all of advanced manufacturing is threatened if we lose the assembly anchors."

Canada's tool-and-die sector, identified in the RBC report as among the best in the world, underpins aerospace and defence manufacturing well beyond auto. Lose the assembly anchors and the ecosystem built around them doesn't disappear overnight — but it becomes less capable, less investable, and eventually irrelevant.

The cascade risk isn't new. Long before Trump's tariffs arrived, the industrial foundation underneath Ontario's auto sector was quietly eroding. According to the Toronto Region Board of Trade's Technology Imperative report, Ontario's manufacturing GDP dropped 17% between 2002 and 2024, productivity lags at 70% of U.S. levels, and only 15% of Ontario manufacturers describe their technology adoption as advanced.

The leverage Canada hasn't used

The vulnerability is real. But Brennan points to a policy lever Canada has largely ignored.

Canadians are among the highest per-capita vehicle buyers in the world, favouring the large, expensive, high-margin platforms — SUVs, pickup trucks — where technology value is most concentrated. More than 90% of those vehicles are imported.

"We gave up using market access as leverage when we signed the Canada-U.S. free trade agreement in 1988," Brennan says. "A remissions framework would say to global automakers: if you want to sell your cars into our market, you have to invest and produce in some proportion equivalent to your sales."

Virtually every other major auto-producing nation does exactly this and the Carney government is now actively exploring this approach.

The path forward

For Brennan, it's one piece of a larger puzzle that still needs solving.

"The path is narrow," he says, "but it's navigable."

Navigating it, according to the report, will require getting the policy architecture right — on trade access, on technology investment, and whether to use Canada's consumer market as a negotiating asset that has never been fully deployed.

For Brennan, these aren’t abstract prescriptions. Rather, they’re the decisions that will determine the future of the auto industry, and the industrial ecosystem built around it.