Canada's largest export is cars and car parts; and our largest import is also cars and car parts. It shows how tightly we're connected with the North American and the global automotive industry.
But there was a time in the early 1980s when the "smokestack industries" like auto manufacturing were in steep decline with the Japanese capturing about 20 per cent of the North American market with cars made in Japan.
Former U.S. president Ronald Reagan declared that "Japan is part of the problem" and demanded that the "deluge of cars" from Japan be stopped. He forced Japan into "voluntary" quotas, which limited Japanese automotive exports to the United States for the next five years.
Twenty-five years later, the Canadian auto industry is growing with capital investment from Japanese and U.S. auto makers coming in at the rate of about $3-billion a year.
Honda Canada built its first vehicle assembly facility in Alliston, Ont., in 1986, the same year Suzuki and General Motors began a joint venture, CAMI, to manufacture small cars near Ingersoll, Ont., and in 1988 Toyota Canada completed its first plant in Cambridge, Ont.
Since 1993, Japanese manufacturers have exported more cars from Canada than they have imported.
How did the situation get turned around?
A particularly energetic Trade Minister in the Trudeau government, Ed Lumley, started the process. Lumley is now vice-chairman of BMO Capital Markets and a director of several Canadian companies.
Vaughan: Ed, I've heard that you were always interested in the auto industry because you grew up in the midst of it in Windsor, Ont.
Lumley: That's right.
In the early '80s, the economists were talking about sunrise and sunset industries and said it was inevitable that the auto industry would die.
But if you took a look at what even one plant would employ, you couldn't let that happen. Plus, who were the biggest users of the high-tech industry? The auto industry.
So the prime minister gave me the backing to do what I could to save the auto industry.
Vaughan: Sounds like a vote-getter, at least in Ontario.
Lumley: This is a very important industry to Canada, not just in Southern Ontario.
This is a problem we had back then, to make it known to people in Western Canada and Atlantic Canada. Who buys the paint, who buys the textiles?
Go back to the Eighties, Brian Mulroney will tell you it's the auto industry that took us out of the recession.
Vaughan: Well if you were going to save the auto industry you could see the Americans trying to save theirs by imposing quotas on Japanese imports. They wanted to keep the Japanese cars out.
Lumley: We didn't want to keep them out.
I'm the one who negotiated with Honda and Toyota and Suzuki originally. I told them we didn't want them out, we wanted them to make investments in Canada, we wanted them to be treated as equals.
At the same time I was doing that I was trying to buy some time for the Big Three to get their quality up to scratch.
Vaughan: You bought time with quotas.
Lumley: Remember the Japanese gave quotas to the Americans but they wouldn't give quotas to us. They were tough negotiators but finally we got quotas, too.
But we said to the Japanese we have the best labour force in the world in autos. And I said you'll get a better return on your investment coming to Canada than you will even in Japan and certainly better than in the United States and they've done that.
Vaughan: What did you do once you got the quotas?
Lumley: First of all, we put together a task force co-chaired by Pat Lavelle of the Automotive Parts Manufacturers Association and Bob White of the Canadian Auto Workers. It was the first of the labour-management co-chairs plus we had the CEOs of the Big Three.
The mandate was pretty simple: what would each of us have to do to ensure the economic viability of the auto industry.
We all realized that if we didn't do our part there wouldn't be an auto industry.
Bob put in productivity targets, management put in capital investment targets. I did the negotiations with the Japanese on quotas. The Big Three knew I was negotiating with the Japanese at the time.
Vaughan: At that time did you ever think you would see what there is today in Alliston and Ingersoll and Cambridge?
Lumley: Yes. I thought once the Japanese had invested here and saw the quality of workmanship we have in this country and the return that they would get, the living conditions in Canada, we would see it; in fact, I even thought it would be bigger.
But I realize that the Japanese looked at the size of the American market and knew they had to be there. I think we've done extremely well but I'm disappointed that the Big Three haven't kept pace. But it's a competitive world.
Vaughan: It's competitive with subsidies and incentives. The southern states in the United States, not so much in Michigan, have been drawing the Japanese manufacturers there with cash.
Lumley: Well, they can also use moral suasion a lot easier than we can because their market's so big.
This Ontario government is the first government since Bill Davis to really realize the importance of the auto industry. And Ottawa did a great job too.
But who likes to give subsidies? Nobody. But if you're competing against subsidies, I think we have a responsibility to do what the others do.
I don't like it, but it's like aerospace in Quebec. The sad part is other countries subsidize aerospace. If you think that aerospace is important, then you've got to be there.
But I think the Japanese investment in Canada is fantastic. They are very welcome players.
Michael Vaughan is co-host with Jeremy Cato of Car/Business, which appears Fridays at 8 p.m. on Report on Business Television and Saturdays at 2 p.m. on CTV.