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Canada losing car edge
Sunday, February 26, 2006
The once-massive cost advantage Canada held over the United States in automobile assembly has been almost entirely eroded by the soaring dollar, rising costs here and a new health care deal with the United Auto Workers union, according to General Motors of Canada Ltd.
“When you look at Canada and the U.S., the advantage that the Canadian operations have had over many years, a lot of that has disappeared,” GM Canada president Michael Grimaldi said. “We've talked a lot about the strengthening of the Canadian dollar, which in some cases is positive for the country of Canada, [but] in other cases for certain industries and companies where you have to export, the stronger dollar raises the effective price of your product.”
Costs in Canada and the United States will be essentially the same by next year if trends continue, added GM Canada spokesman Stew Low. “The labour-cost advantage that the Canadian operations enjoyed five years ago — approximately $15 (U.S.) an hour in 2001—has narrowed because of CAW/UAW contracts, U.S. health care changes and to great extent the rising Canadian dollar, such that by 2007, the active labour costs are projected to be roughly comparable,” he said.
Rising costs in Canada make it harder for Oshawa, Ont.-based GM and other companies to make the case for new investment in Canada later in the decade, especially since auto makers now compare all their plants around the world when it comes to deciding where to build vehicles.
In talks with the Canadian Auto workers union last year, GM, DaimlerChrysler Canada Inc. and Ford Motor Co. of Canada Ltd. said Canada is the second-most-expensive country in which to make vehicles.
They said it trails only the United States. None of the companies would offer specific figures on their current labour costs and how they compare with U.S. figures.
“Canadian annual labour costs, including health care, continue to rise, though the 2005 collective bargaining agreement with the CAW slowed down the rate of growth of those labour costs,” said Stuart Schoor, a spokesman for Windsor, Ont.-based DaimlerChrysler Canada. Ford Canada refused to comment on the issue.
Canadian labour costs include wages of about $32 (Canadian) an hour, vacation pay, pension costs and health care and other benefits. One industry source said the difference in hourly labour costs has narrowed to between 50 cents (U.S.) and $1.50 an hour, and added that any examination of the cost structure here must include the surge in electricity prices in Ontario, where all auto assembly plants are located.
CAW economist Jim Stanford concludes that Canada still has an advantage of between $5 and $10 an hour on labour costs after the CAW agreement last year, 2-per-cent annual wage increases in the UAW contract and cuts to health care costs that General Motors Corp. and Ford Motor Co. have negotiated with the UAW.
Mr. Stanford acknowledged that Canada's favourable position has deteriorated from 2004 when plants here enjoyed a $14.55 advantage. “We used to be a low-cost jurisdiction, but thanks to the ‘petro-loonie' (and the Bank of Canada) we aren't any more. But our labour costs are still in the ballpark of the average costs reflected in the overall North American new-vehicle market [including Mexico].”
It's still significantly cheaper to hire a dollar of labour here than in the United States, he said.
Until now, the rising Canadian dollar clearly has not deterred investment by auto makers here, since four of the world's largest companies have announced more than $5.6-billion (Canadian) worth of new investments in Canada.
Among them is the new, $1.1-billion Toyota Motor Manufacturing Canada Inc. assembly plant in Woodstock, Ont.
GM is spending $2.5-billion on its Canadian operations, Ford is redeveloping its Oakville, Ont., assembly complex at a cost of $1-billion, and DaimlerChrysler Canada is spending $768-million to upgrade plants in Winsor and Brampton, Ont.
But investments in plants later in the decade and beyond may be in jeopardy.
“In terms of getting new product mandates, it's harder than it was two years ago simply because of the dollar,” one high-ranking industry source said.
GM has announced that it has no product for one of its car plants in Oshawa, Ont., and plans to close it in 2008.
Oakville-based Ford plans to eliminate a shift of production at its St. Thomas, Ont., operations, although it has confirmed it will spend $200-million to upgrade the plant. Union officials and industry observers, however, fear that the plant may still be on U.S. parent company Ford Motor Co.'s hit list, because it plans to shut seven assembly plants, and has so far identified only three of them.
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