Higher revenues and a stable Canadian dollar will boost profits in the auto and auto parts industry in 2004 and 2005, according to the Conference Board’s Auto and Auto Parts Industry: Industrial Outlook.

Profits in the industry, which were $2.1 billion in 2003, will increase slightly to $2.5 billion this year and accelerate to $5.3 billion in 2005.

“The rapid rise in the Canadian dollar in 2003 reduced the price of autos and parts that Canadian manufacturers sold in the critical U.S. market,” said Louis Thériault, associate director, industrial outlook, in a release. “Production slumped last year but is rebounding as the dollar is less of a factor. As a result, revenues are increasing in 2004. In 2005, costs will increase at a slower rate than revenues, giving profitability a major boost.”

The auto parts sector will generate significantly higher profit margins than vehicle manufacturing, particularly in the short-term. The Conference Board says the Big Three North American companies-General Motors, Ford and Daimler Chrysler-are facing increased competition from manufacturers in countries with lower costs and consumer incentives such as 0% financing have reduced their revenues. Parts manufacturers benefit from a more diversified customer base, helping to maintain profit margins above 6% over almost the entire forecast period.

In the medium term, total profits will range between $5.7 billion and $5.9 billion annually. Profit margins will reach 3.5%, but will remain below the 5% margins that prevailed in the late 1990s, due to increasing domestic competition from imported vehicles.

An updated forecast will be available in the winter of 2005.