GM deal 'a black day' for Canada's auto sector
Buffeted by soaring loonie, Ontario plants now face stiffer competition from the United States
GREG KEENAN
From Thursday's Globe and Mail
September 27, 2007 at 1:12 AM EDT
One of the key pillars supporting Canada's long-standing competitive advantage in the auto industry began crumbling Wednesday, less than a week after another one collapsed.
General Motors Corp. and the United Auto Workers reached a deal that shifts the burden of retiree health-care costs for U.S. workers to the union. The agreement dramatically reduces GM's burdensome cost structure and once it's followed by Chrysler LLC and Ford Motor Co., will reduce the health-care advantage Canada has used for more than a generation to help lure automotive investment to this country.
It comes just days after the Canadian and U.S. dollar reached parity, vaporizing a competitive advantage that buttressed billions of dollars in investment in the automotive heartland of Southern Ontario.
“It's a black day for the auto sector in Canada,” said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc.
Another industry-watcher, Michael Robinet, vice-president of global vehicle forecasts for CSM Worldwide Inc., was not as downbeat, but warned that the breakthrough labour agreement “puts GM U.S. in a much stronger competitive position versus GM facilities in other parts of the world.” The deal represents a “shot across the bows” for new GM investment in Canada and Mexico, Mr. Robinet said.
Also in the four-year deal are annual bonus payments instead of wage increases, a lower hourly pay rate for some newly hired employees and commitments by GM to invest in its U.S. operations.
There is no immediate threat that Chrysler, Ford and GM are going to close up their Canadian factories.
But several of the Detroit Three's Canadian plants are on the endangered list. The combination of reduced U.S. costs and the promises of new U.S. investment means it will be more difficult for Canadian Auto Workers president Buzz Hargrove to negotiate increased spending on Canadian plants.
“This may be the first day of the long-term hollowing out of the Canadian plants of GM, Ford and Chrysler,” Mr. DesRosiers said.
Those companies and their suppliers have for years represented the bulk of the industry in Canada, but the operations of Honda Motor Co. Ltd. and Toyota Motor Corp. of Japan are growing here, as are parts companies that supply those two auto makers.
GM will transfer its $51-billion (U.S.) retiree health care obligation to a trust, called a Voluntary Employees Beneficiary Association or VEBA, and finance it with a cash infusion of about 70 cents on the dollar or $36-billion.
That move will trim its average labour costs – including benefits – by about $18 or $19 an hour, Deutsche Bank AG auto analyst Rod Lache estimated. Average hourly U.S. labour costs will fall to about $55, close to the $48 that Japan-based auto makers are estimated to pay their U.S. workers.
The $55 figure is also considerably below the $70 (Canadian) average hourly wage and benefit package paid to CAW workers at Detroit Three plants in Canada.
Mr. Hargrove rejected the assessment that Canada is suddenly less competitive.
The rise in the value of the dollar has hurt Canada's position, he acknowledged.
“I think we still have an advantage because of our health-care system in spite of the dollar,” he said. He also noted that Canadian auto workers are more productive than U.S. employees, a view backed up by annual studies of North American auto labour productivity.
What happened in the U.S. talks and will happen when the CAW goes to the bargaining table next year for a Canadian deal, Mr. Hargrove said, is that workers are asked to compensate for the Detroit Three's loss of market share, for which he blames a flood of imports from Asia and Europe.
CAW economist Jim Stanford described shifting the retiree health-care burden to the union as simply a shell game.
The U.S. auto makers will still be paying for the health care of their active employees, Mr. Stanford pointed out and retiree health costs are irrelevant when it comes to deciding where investments are made.
Mr. Robinet agreed that Canadian workers' higher productivity is a benefit, but others cautioned that the mess at the Windsor-Detroit border is another black eye when it comes to investing in Canada.
“Don't forget the border,” said one long-time observer referring to the delays that hold up delivery of new vehicles from Canadian plants to U.S. destinations and more importantly, Canadian-made parts to U.S. vehicle assembly plants. “We have to offset the border.”
