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Eleven years ago, multinational Volvo Construction Equipment Corp. swept into the southwestern Ontario town of Goderich to buy the local manufacturing gem with a pledge to make it a key component in its global growth strategy.

Yesterday, Volvo announced it will close the Goderich road grader plant by 2010, shedding 500 jobs in the town of 7,500 people and consolidating its road machinery operations in Pennsylvania.

"It's a huge blow," said Goderich Mayor Delbert Shewfelt, reacting to the loss of the community's largest employer - which could trace its origins back to the 1870s as a maker of horse-drawn graders.

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It is the latest body blow to the Ontario manufacturing base, as it reels from the rise of the Canadian dollar, the threat from China and a shaky world economy. It comes a month after John Deere Ltd. announced its Welland farm equipment plant would close, with the loss of 800 jobs.

Volvo said in a news release that the decision to consolidate its North American road machinery business in Shippensburg, Pa., is aimed at improving competitiveness and profitability and reducing exposure to exchange rate fluctuations. Volvo officials did not return calls yesterday.

"Who do you lash out at?" said Mr. Shewfelt, indicating that the plant is a victim of a global economy in upheaval. "I think we're in strange economic times."

Yet the mood was decidedly buoyant in 1997 when Volvo paid $173-million to take over Champion Road Machinery Ltd., a company that had managed despite its small size to play among the big boys in road equipment technology.

Champion had been the No. 2 North American road grader maker behind Caterpillar Inc., and Volvo said the plant would play a major role in its ambitious growth plans.

Arthur Church, the former president of Champion, said it's a sad day because people at the plant had worked hard to make it competitive.

But Mr. Church, now majority owner of another Ontario manufacturer, said the rise in the Canadian dollar, driven by energy in Western Canada, had undermined cost competitiveness. "The labour force is excellent but the cost structure is a challenge," he said. When Volvo bought the plant in 1997, the Canadian dollar was trading at about 75 cents (U.S.); yesterday, it closed at 93.97 cents.

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When the Canadian dollar was under 80 cents, a Canadian manufacturer could afford to pay higher nominal wages than in the U.S. But now with the currency near par, the balance has tipped, and jobs are leaving Ontario, he said. Even if the Canadian dollar eased, "the jobs don't come back overnight. That's a challenge for Ontario," Mr. Church said.

Mr. Shewfelt said there had been "scuttlebutt" about a possible Volvo downsizing, with speculation focused on a parts operation hampered by border delays. But the shuttering of the whole plant was a shock.

He said the loss would be felt over four counties. According to the International Association of Machinists and Aerospace Workers, which represents 335 workers, wages average $22 to $24 (Canadian) an hour.

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