Auto plants in Canada have cost advantage, report shows

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The costs of new employees at auto plants represented by the Unifor union are about 15 per cent lower than the costs of similar employees represented by the United Auto Workers at U.S. factories, Bank of Nova Scotia economist Carlos Gomes says.

The costs of a new employee at U.S. plant are about $37 (U.S.) an hour, compared with about $32 (Canadian) at plants operated by Chrysler Group LLC, Ford Motor Co. and General Motors Co. in Canada, Mr. Gomes said in his monthly report on the industry issued Wednesday.

That calculation is based on the Canadian dollar at par with the U.S. currency, which means the decline of the Canadian dollar to about 96 cents (U.S.) makes the Canadian industry more competitive than it was a year ago when the Canadian dollar was above par, he noted.

"While the labour cost advantage will narrow gradually going forward, we estimate that it will remain at nearly 10 per cent by mid-decade when the current contract between the Detroit Three and the UAW expires," he wrote.

Senior executives from the Detroit Three have complained consistently for the past several years that Canada is the most expensive place in the world to build vehicles.

Mr. Gomes said he believes the improved cost position of the Canadian operations is one reason for the recent announcement by Ford that it will spend about $700-million to retool its Oakville, Ont., assembly plant and GM's two-year extension of the closing date of its consolidated assembly line in Oshawa, Ont.

The industry-wide capacity utilization rate is at 90 per cent in North America, the highest level in nearly a decade, he said.

"We estimate that on-going output gains will lift North American capacity utilization to an unsustainable 95 per cent by mid-decade, putting pressure on auto makers to add new capacity," he wrote.

Vehicle production fell 6 per cent in Canada from January to September from year-earlier levels.

Michigan is on track to surpass Ontario in vehicle production this year for the first time since 2004, which would knock Ontario out of first place as the largest vehicle producing province or state in North America.

Editor's Note: An earlier version of this story incorrectly said Canadian vehicle production rose 6 per cent, when in fact it fell 6 per cent from January to September from year-earlier levels.