Canada has competitive advantages when it comes to car manufacturing, but falls short in marketing itself and needs to change a key element of the incentive package offered to global auto makers, says Ray Tanguay, the special auto adviser to the federal and Ontario governments.
Those advantages include lower taxes than U.S. states, a highly educated work force, and a strong research and development infrastructure, Mr. Tanguay said in an interview ahead of a brief presentation he will make Thursday at the Canadian International Auto Show in Toronto.
"Right now, in comparison to other jurisdictions – even the southern states – we are totally competitive," he said. "Against Mexico, no. That's a problem."
Mr. Tanguay, the former chief executive officer of Toyota Motor Manufacturing Canada Inc., was appointed as an adviser to the two governments last year to examine how they could help attract new automotive investment as car companies bypass Canada to spend billions of dollars building new assembly plants in Mexico.
Since the 2008-09 recession, auto makers have announced eight new assembly plants in Mexico with investment of almost $10-billion (U.S.) that will create tens of thousands of jobs. Canada has not landed a single new assembly plant.
The investment in Mexico includes new plants being built by luxury auto makers, which indicates that the quality of Ontario's work force may not be as much of an advantage as it has been in the past.
The work force in Mexico is just as capable as the Ontario work force, one senior auto industry executive said.
Mr. Tanguay responded, however, that "the trophies don't match" pointing to 29 J.D. Power and Associates quality awards won by Canadian plants versus three awarded to Mexican factories.
While money has flooded into Mexico, some Canadian assembly plants are awaiting new investment that would keep them operating into the 2020s, including a Fiat Chrysler Automobiles NV large-car plant in Brampton, Ont., and two General Motors Co. factories in Oshawa, Ont.
To get on the list of auto makers considering North American investments, Canada must market itself more efficiently and in a more positive light, Mr. Tanguay said. That means highlighting the combined federal and Ontario tax rate of 25 per cent on manufacturing companies, compared with 30 per cent in Mexico, 34.5 per cent in Alabama and 35.9 per cent in Georgia.
He also pointed to lower wage and benefit costs at unionized plants in Canada versus their counterparts in the United States. All-in labour costs at U.S. plants where workers are represented by the United Auto Workers are $54.82 (U.S.), compared with $51.98 at Canadian plants where the Unifor union represents workers. The Canadian figure was based on an 80-cent dollar; the advantage would be even greater today with the dollar trading in the 72-cent range.
Mr. Tanguay and other officials have urged the federal government to change its Automotive Innovation Fund so the program offers grants instead of loans that are then taxed as income.
"That's useless," Mr. Tanguay said. "One of the recommendations from all of us is that it has to be grant," he said.
"While it is too early to comment on potential changes" to the fund, "we have engaged extensively with industry stakeholders (including labour, industry, and provincial/municipal representatives) over the past few months," a statement from Innovation, Science and Economic Development Canada said.
But a key question is whether Canada has missed out on a complete cycle of new investment, given that all the assembly capacity being added will come on stream just as North American vehicle sales hit a plateau.
While auto makers will seek to reduce their exposure to currency fluctuations by locating in North America, the major shifts have already occurred, said one industry source.
"The window was open, but is closing for this round," the source said.