And substantial chunks of the auto industry in the Ontario cities of Windsor, Oshawa and Brampton – as well as Cami itself – would have vanished if Canadian taxpayers had not contributed billions to the bailout plans for Chrysler and GM.
Since those rescues, however, the world’s auto makers have announced investments of $11-billion (U.S.) in Mexico, compared with the $2.3-billion in Canada.
The industry’s performance also raises the stakes for the federal and Ontario governments as they assess a request by Ford Motor Co. for a contribution of several hundred million dollars toward a $1.2-billion redevelopment of the company’s only remaining vehicle assembly plant in Canada.
There is general agreement among industry officials that the rise in the value of the Canadian dollar, the growing attractiveness of low-wage Mexico and its position as a gateway to growing markets in South America, and the line in the sand drawn by the Canadian Auto Workers against concessions are making Canada less attractive.
“It’s very hard for companies to go to bat for Canada,” lamented one veteran industry official.
Don Walker, chief executive officer of Magna International Inc. and chairman of CAPC, said the currency, and the greater willingness of the United Auto Workers to give concessions to the Detroit Three auto makers, are key factors.
Union issues don’t play much of a role in Magna’s decision-making, Mr. Walker noted, but he added that “Michigan just became a right-to-work state, which will probably get people’s attention when they’re looking at where they’re going to invest.”
Magna’s capital spending on equipment at its Canadian operations amounted to $715-million between 2008 and 2012, demonstrating that the global powerhouse still believes the industry has a long-term future in Ontario, he said.
Mr. Walker points to another likely reason why investment in Canada was a relative trickle. “There’s no car company with its headquarters here,” he said in an interview. “I am sure that given the focus from the American government on the auto industry and the bailout and the influence they can put on people behind the scenes as to where they invest, they’ll have more clout than Canada.”
A simple example shows the effect currency swings can have on the cost of investment. When the Canadian and U.S. currencies are at parity, the $400-million an auto maker would invest to rebuild a paint shop would cost the same on each side of the border.
When the Canadian dollar sits at 85 cents, as it did most recently in May, 2009, that same paint shop investment in Canada would cost an auto maker just $340-million.
Mr. Hill said the Canada-U.S. exchange rate often comes up in his conversations with friends and others in Detroit who have nothing to do with the auto industry.
“That’s just the lay person, so the auto makers are definitely aware as well,” he said.
Because of Canada’s publicly funded health care system, auto makers once enjoyed an advantage of more than $1,000 a car versus vehicles made in the United States.
But the Detroit Three dramatically reduced those costs in their U.S. operations by offloading health care to trusts now run by the UAW. There was a huge upfront cash cost to the companies, but they no longer face the burden of rampant health care inflation.
The new U.S. plan for government-financed health care will help auto parts makers and other manufacturers that haven’t yet shed their health care costs.
“The fact that we’re beginning to address our health care costs here in the States takes away another carrot for companies to look north of the border,” said John Boyd, who heads the Boyd Co. Inc. of Princeton, N.J., a consulting firm that advises companies on site selection.
Halting the decline of the industry will be difficult. The creation of CAPC has built greater awareness among governments of the importance of the auto manufacturing to the economy, but it has been hobbled by regular turnover among the chief executive officers of the auto makers in Canada and in the Industry Minister’s chair at the federal cabinet table.