The rise of the Canadian dollar to parity with its U.S. counterpart was a wake-up call for the Canadian manufacturing plants of Honda Motor Co. Ltd. – they were uncompetitive with factories in the United States that were making the same vehicles.
That realization sparked an efficiency drive by the auto maker that is designed to insulate the two Canadian assembly plants and the engine plant in Alliston, Ont. from exchange-rate fluctuations. An $857-million investment announced Thursday is a key part of that efficiency effort and will help prepare one of the assembly plants to build the next generation Civic compact.
The Alliston plant that assembles the Civic will be the lead plant for the next-generation Civic, which means it will develop the manufacturing processes that will be used by all other Honda plants around the world that assemble the car – the first time a factory outside Japan has been chosen for that task.
"I don't think there's any area of the factory that won't be touched by this investment, when you're tooling for a new generation Civic with all of the welding equipment, all the tooling – even our suppliers need to develop new tooling," said Jerry Chenkin, president of Honda Canada Inc., the company's Canadian sales arm.
Honda will build new logistics centres in Alliston and new staging areas for parts delivery as it tries to become more efficient, Mr. Chenkin said as Honda CR-Vs, the other model the factory makes, rolled along the assembly line.
The profit margins are thin in the compact-car segment in which the Civic competes, so even shaving pennies off the price of a part that goes in about 200,000 vehicles a year yields savings.
When the dollar was at par, "our cost here was more expensive to produce the identical vehicle that they're producing in the U.S." he said. He would not reveal the dollar figures or a percentage, but described it as "significant."
"Our challenge is to become exchange-rate neutral so it doesn't matter what happens, we can run a good business here."
Ontario Premier Kathleen Wynne, whose government will contribute a conditional grant of $87.5-million to the project, acknowledged at the announcement that the drop in the value of the Canadian dollar to less than 90 cents (U.S.) should help Ontario manufacturers.
"But we cannot rely on that alone for expansion in the auto sector or in manufacturing in general," Ms. Wynne noted.
The Honda investment solidifies about 4,000 jobs at the three plants and is a shot in the arm for the province, which has effectively watched from the sidelines since the recession as auto makers have pumped billions of dollars of investment into Mexico and the southern United States.
Last month, a potential investment by Ford Motor Co. to build small engines in Windsor, Ont. was scrapped after negotiations the province and the federal government conducted with Ford broke down. Government officials and industry sources believe Ford had planned from the beginning of the process to spend the money in Mexico and not in Windsor.
Ford's chief financial officer Bob Shanks said the engine plant was never intended for Windsor, although government officials in Canada said the initial proposal of an investment of more than $2-billion was tantalizing.
Ms. Wynne said the government needs to determine what factors are encouraging auto makers to build new assembly plants in Mexico and not in Canada.
Wages that are about 10 per cent of the more than $30 an hour that auto workers in Canada receive are one draw, but Mexico also has trade agreements with more than 40 other countries, which permits auto makers to ship duty-free from Mexico into those markets as well as the United States.
Economic Development Minister Brad Duguid said the government is engaged in a "non-stop effort," to try to attract investments that will lead to new vehicle assembly plants in the province.
Mr. Chenkin said Honda spends about $2.1-billion annually buying parts and services in Canada.
Those include seats for the Civic and CR-V, which are assembled by TS Tech Canada in Newmarket, Ont. – a company that started out in 1988 with 10 employees.
The seat maker is in the midst of a $14-million capital-spending program to renovate its plant and tool up for the next generation Civic, said vice-president Randy Walsh, who was one of those original 10 employees.
The parts company now employs 800 people.
"We have to become more competitive as TS Tech in order to create more jobs," Mr. Walsh said. "It's up to us."
Honda has sent employees from its plants to TS Tech's factory during the past three years to help teach employees and develop innovations, he said.