Whither the auto sector?

With the news that the federal government and the province of Ontario will lend $4 billion to General Motors and Chrysler, those working in the auto and the auto parts sectors breathed a sigh of relief. However, despite this attempt to bail out the industry, vehicle manufacturing in Ontario over the long term may turn out to be quite different from what it is today.

Writing in the London Free Press, in the heart of the auto manufacturing area of southwestern Ontario, Norman de Bono suggests that Ontario may see smaller plants, more focused on research and development and therefore “better suited to the higher cost but higher quality and higher productivity” nature of the workforce there. He quotes two industry analysts who suggest the writing is on the wall for doing things the way they have always been done.

One is Tony Faria, business professor and automotive analyst at the University of Windsor, who believes it will be a long time before Ontario sees any new assembly plants once the new Toyota plant in Woodstock is completed. De Bono quotes him as saying, “Canada is the highest auto cost area in the world.”

De Bono also quotes Carlos Gomes, Scotiabank economist and industry analyst, as predicting, “Any more facilities we get will be smaller, more technology driven.”  De Bono notes the new Honda engine plant in Alliston, Ontario employs many fewer people, but the ones it does employ are very highly skilled.

This argument for a scaled-down industry does not sit well with Jim Stanford, chief economist with the Canadian Auto Workers (CAW). He suggests the fault lies with governments’ failure to support the auto sector. De Bono quotes him as saying it is a “favourite knee-jerk reaction to blame union wages” for the present precarious state of the industry. Stanford argues that governments in other countries support their auto industries by tariff and non-tariff trade restrictions. De Bono also draws attention to the CAW argument that financial aid to the auto sector to help invest in retooling, research and development and job training has not been forthcoming in Canada.

De Bono notes that the auto sector now has 42,000 employees making vehicles and another 72,000 involved in car part manufacturing. What the number will be months or years from now remains to be seen, but it is unlikely that either the Ontario or the federal government can or will match the incentives provided by other jurisdictions, and it looks as if the CAW is not rushing to make significant concessions.