For the first time since 1964, auto makers are on pace to produce fewer vehicles in Canada than they sell here - a development that has alarmed the Canadian Auto Workers union and underscores how badly the severe slump in the U.S. market has hammered Canada's largest manufacturing industry.
As a result, tucked into the new labour contract between the CAW and Ford Motor Co. of Canada Ltd. lies a mini auto pact, a Ford-specific clause that replicates a key feature of the 1965 agreement between Canada and the United States that guided Canadian automotive policy for more than three decades until the World Trade Organization shot it down in 1999.
In return for agreeing to cuts in benefits as well as other concessions, the CAW wrung a commitment from Ford that it will manufacture more vehicles in Canada than it sells here.
That commitment comes amid a 38-per-cent fall in production by auto makers in Canada for the first nine months of 2009, compared with last year.
The production decline is yet another demonstration of the long arm of the Great Recession and has been accompanied by massive layoffs that have rippled through parts suppliers and cascaded throughout Ontario, Canada's only auto-producing province.
"I'm incredibly worried about it," CAW president Ken Lewenza said on Monday.
When the union urged the federal government in 1999 to fight the WTO ruling that ended the auto pact, the Liberal government of the time said there was no reason to worry because Ford, Chrysler Canada Ltd., and General Motors of Canada Ltd. were exceeding requirements that they make one vehicle in Canada for every one sold here, Mr. Lewenza recalled.
"We said: 'We're not worried about today, we're worried about long term.' Sooner or later, if you don't have the investment, the reality is that you don't have the product and then you don't have the commitment of the Auto Pact."
As part of the Ford deal, he said, the CAW tried but failed to get the company to agree to a penalty if it didn't meet the production-to-sales commitment.
Such an enforcement mechanism would also have replicated another clause in the auto pact, which the federal government used for several decades to lever investment out of the Detroit Three.
The plunge in production to less than the level of sales in Canada this year is likely temporary because of the collapse of the U.S. market, the destination for about 85 per cent of the vehicles manufactured here, noted industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. But the long-term decline is a worry, he said.
"What should be of concern is the fact that we have been deteriorating in this variable for a long time," Mr. DesRosiers said.
The production-to-sales ratio, which compares the number of vehicles built to the number sold in Canada, peaked in 1995 at 207 per cent, meaning auto makers assembled more than two vehicles in Canada for every one that was sold. The ratio fell last year to 124 per cent although it has averaged 151 per cent this decade, compared with 179 per cent in the 1990s.
Mr. DesRosiers forecast that it will slide to 140 per cent between 2010 and 2019, while production in Mexico soars, pushing that country's ratio to 230 per cent over the same period.
As of the end of September, auto makers produced 1.013 million vehicles in Canada and sold 1.125 million.
While the CAW gained some protection from Ford with the agreement members approved on the weekend, another element of the same deal will reduce production further.
Ford will close its St. Thomas Assembly Plant near London, Ont., in 2011, cutting its vehicle manufacturing operations to a single plant.
Mexico, on the other hand, is likely benefit from another development in the Ford world - the rejection by the United Auto Workers of a contract that matched concessions that union gave Chrysler and GM earlier this year.
Higher costs at U.S. plants will drive more vehicle production to lower-cost Mexico, analysts said.
Mr. DesRosiers pointed out, however, that there is some good news for Canada in another measure of vehicle output.
Canada's share of North American vehicle production has held its own at about 17 per cent, which is the second-highest figure on record. U.S. production has fallen more than Canadian production, driven in part by shutdowns of more than a month at almost all Chrysler and GM plants while they were in Chapter 11 bankruptcy protection.
"So it's North America that's screwed up and within a screwed-up market, we're holding our share. … We're not growing, but we're not declining yet."