Even as market forces and mobile capital are pushing auto companies to build plants in Mexico and the southern U.S., the Canadian Auto Workers (CAW) union has a better idea: “We need a National Auto Policy,” argues the Toronto-based union in a policy paper released last week.
Not a chance. The Harper government has shown little interest in a co-ordinated industrial policy of any sort in Canada. It is a conservative government bent on lowering taxes, balancing budgets, boosting defence spending and letting market forces have their way with the economy.
Just as Nero fiddled while Rome burned, so is the CAW singing horribly off-key as jobs in the auto sector head south – where wages and benefits are lower and workplace rules are more flexible. This is especially true for Mexico, the place auto analyst Dennis DesRosiers calls “the new darling of the North American automotive production scene, reaching 20 per cent of N.A. production in 2011”. Canada? Our country’s share of North American production fell to 15.9 per cent last year, a nine-year low, says DesRosiers.
The CAW notes that 50,000 auto sector jobs have disappeared in the last decade, leaving 112,000 directly employed in auto manufacturing. The bulk of all-new investment in auto manufacturing is going to Mexico. Nissan is building a new plant there. Mazda is, too. And last week Audi, the Volkswagen Group’s immensely profitable luxury brand, announced plans to build a plant in Mexico to assemble SUVs and perhaps other vehicles.
“Good infrastructure, competitive cost structures and existing free trade agreements played a significant role in the choice of Mexico,” said Audi CEO Rupert Stadler.
Canada has excellent infrastructure and is part of the North American Free Trade Agreement and others. But competitive cost structure? That would be Mexico.
“As an established car-making location, Mexico offers an excellent economic basis for Audi production operations,” said Stadler.
Unfortunately, the CAW 10-point policy program for the auto industry does not begin to address Stadler’s concerns, nor those of other auto executives looking for cost-effective places to invest mobile capital. So while the CAW has put forward some interesting and discussion-worthy ideas, they arrived stillborn and here’s why (with my reasoning in italics):
- Implement an Integrated National Auto Policy: As I said, a non-starter with the Harperites.
- Negotiate Canadian Manufacturing Footprint Commitments: Again, this calls for a national policy which will never happen under this federal government.
- A Consistent and Transparent Auto Investment Program: See 1 and 2.
- Public Minority Equity Shares in OEMs: See 1 and 2. There is, in fact, little reason to believe the public in general has an appetite for significant investments in car companies. Yes, during the economic crisis in 2009 we saw Ontario and the feds move in with taxpayer cash to rebuild the then-bankrupt Chrysler Corp. and General Motors. But that was a special circumstance.
- Investigate the Possibility of Building a Canadian OEM: Pure fantasy. No Canadian government will backstop a start-up car company. Ever.
- Rethink Automotive Trade Policy: Canada is in NAFTA and still most of the big new investments are going to Mexico and the U.S. South. Should Canada withdraw from NAFTA? How will that boost the auto sector?
- Intervene to Reduce the Canadian Dollar: How, exactly? That aside, the Harperites are as likely to intervene in currency markets to lower the Canadian dollar as I am to win the Nobel Peace Prize.
- Building a Green Auto Industry: Again, this is part of the National Auto Policy idea and it won’t fly. Even as governments in the U.S., Europe, Japan and China have hurled billions at so-called “green” auto initiatives, the Harper government has resisted.
- A Buy-Canadian Vehicle Procurement Strategy: This suggests there is such a thing as a Canadian vehicle or one at least made up primarily of parts made in Canada from Canadian know-how and built by Canadians in manufacturing plants in Canada. Need I say more?
- Investing in Human and Physical Infrastructure: This might help, though we already have roads and airports, universities and technical schools.
Nowhere in this 10-point plan is the CAW willing to discuss costs. The union does this in the larger document, though. And while it’s true that the high Canadian dollar is a problem for manufacturers in general, just as true is the fact that Canadian auto workers cost car companies more than Mexican ones, or non-union workers in the U.S. South or even in unionized plants in Michigan and elsewhere.
The CAW is right to draw attention to the importance of auto manufacturing to Canada’s economy. We do have an efficient and productive auto sector in Canada, but it’s shrinking. By engaging in fantasy thinking, the union risks being dismissed out of hand. Any solution or package of solutions must address the fundamental issue on the minds of car company executives who decide where to invest in auto manufacturing: cost.
Just ask Audi’s Rupert Stadler.