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Canadian auto industry stands at the crossroads

The Ford Edge is one of the vehicles currently being assembled at the Ford plant in Oakville, Ont. An investment of more than $1-billion by Ford to redevelop its Oakville assembly complex is regarded as all but a foregone conclusion.

Peter Power/Peter Power/The Globe and Mail

Big investment decisions loom for auto makers and the federal and Ontario governments in the next four years as companies take advantage of a new contract that should stabilize their labour costs and possibly cut them.

The high value of the dollar will not help the Canadian auto industry in the years ahead. But a buoyant U.S. market could bolster the case for General Motors Co. to invest at its Cami operation in Ingersoll, Ont., Chrysler Group LLC to add a paint shop in Brampton, Ont., and GM and Ford Motor Co. to upgrade engine plants in St. Catharines, Ont., and Windsor, Ont.

While the new labour agreement secures all but one of the Canadian plants of the Detroit Three for the next four years, the decisions made between now and 2016 will determine the future of those facilities until the early part of the next decade and whether the companies will be the major job providers they have been for generations.

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An investment of more than $1-billion by Ford to redevelop its Oakville, Ont., assembly complex is regarded as all but a foregone conclusion, although the federal and Ontario governments have not made final decisions on a request for more than $400-million in financial assistance. That investment would give the plant a new lease on life of about 10 years and likely lead to a full third shift of workers, versus the two working there now.

"Government support is going to be critical," not just for the Ford investment, but for other auto makers that are considering major projects at their Canadian operations, said Bill Pochiluk, chief executive officer of consulting firm AutomotiveCompass LLC.

Canadian Auto Workers president Ken Lewenza made the same point at each of the news conferences at which he announced agreements with the Detroit Three auto makers.

"You cannot, in collective bargaining, bargain airtight job security," Mr. Lewenza said as the CAW wrapped up the 2012 round of negotiations with a deal with Chrysler. Governments need to use incentives, trade rules and other weapons to encourage auto investment, he said.

"We need a government that provides the same tools as other countries are doing to preserve this very important industry."

But the biggest boost for Canadian plants is likely to come from the U.S. market, which is critical as the destination for about 80 per cent of the vehicles made in Canada.

Forecasters are calling for healthy sales levels through the end of this decade,which would represent a return to the 2000s when U.S. consumers snapped up more than 16 million vehicles a year.

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DesRosiers Automotive Consultants Inc. is forecasting that U.S. sales will top 16 million in 2016, up more than 2 million from the Canadian firm's target for 2012 deliveries.

LMC Automotive of Troy, Mich., sees U.S. sales hitting 16.6 million by the time the CAW sits down to negotiate again with the Detroit Three in 2016.

That level of sales will mean Chrysler, Ford and GM will be hitting full capacity after shutting about a dozen assembly plants during the 2008-2009 recession.

GM and Ford have some underutilized plants, while Chrysler will soon be close to full capacity, said Kristin Dziczek, director of the labour and industry group of the Center for Automotive Research in Ann Arbor, Mich.

"It's the 15-16 million unit markets we're predicting for 2014 and beyond where [capacity] starts to become an issue," Ms. Dziczek said Thursday.

Few of these analysts expect Canadian vehicle production to increase, but hanging on to the jobs and plants that are already here will be a victory for a country that is losing out on new auto investment to Mexico and its rock-bottom labour costs.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More


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