Will these converging headwinds lead to a repeat of 2009?
By Angela Johnson, Vancouver, Canada:
Fiat Chrysler Canada sales, after a record first half, plunged 20% in August year-over-year. Not exactly what we wanted to hear from the company that just received C$85.8 million in funding from the province of Ontario to help offset the C$2.6 billion retooling costs at the Windsor Assembly Plant to accommodate the Chrysler Pacifica minivan.
“It’s about time the government stepped in and provided some support,” explained Tony Faria, the co-director for the Center of Automotive and Vehicle Research at the University of Windsor. “I hope it’s only the first [step].” Because corporate welfare programs are never enough.
Not everyone was getting wiped out: Ford car and light truck sales jumped 9.0%. But GM sales dropped 8.5%. Total sales for all automakers fell 2%.
In the US, the largest export market for Canadian auto assembly plants and component makers, it was similar, only worse: Vehicle sales fell 4.1% in August, year-over-year, with GM down 5.2%, Ford down 8.8%, and Fiat Chrysler down 2.4%
From the manufacturer’s point of view, demand weakness in the US has been apparent for months: In the second quarter, exports of Canadian-made cars and light trucks plunged 6.6%, part of Canada’s worst export plunge since 2009.
Will these converging headwinds lead to a repeat of 2009? At the time, the Canadian divisions of Chrysler and General Motors, after having been subsidized by provincial and federal government for years, got a bailout to the tune of C$13.7 billion.
From 2001 to 2013 around 14,300 jobs were lost in vehicle manufacturing in Canada according to the Automotive Policy Research Centre, based in the province of Ontario. According to the International Organization of Motor Vehicle Manufacturers, Canada currently takes 15th place worldwide.
Though carmakers assert labor is not their only consideration, the fact remains the southern US and Mexico hold their appeal, compared to the demands of the auto workforce in the province of Ontario. The electricity cost in that province is also notoriously, prohibitively high.
In Mexico, Canada’s big competitor, auto production climbed from 1.2 million in 2007 to 3.4 million in 2015. By 2020, production is expected to rise to over 5 million vehicles. The rise in Mexico’s auto industry, thanks in part to the devalued peso, stands in contrast to the Canadian automotive landscape. Here, no new assembly plants have been built since 2008, and promises to put those factories into production are under discussion even now.
This is not doom and gloom but cold, hard facts staring the US economy’s biggest trading partner in the face.
Can a trade deal in the works bring more smiles to the industry? Consider the Trans-Pacific Partnership (TPP) between the US, Canada and 11 Pacific Rim countries. Signed but not yet ratified, it’s the new trade darling document. But a study of the deal’s fine print, according to Automotive News Canada, “reveals an even larger threat to the health of Canada’s auto supplier sector than previously feared:
Provisions found in supporting documents – or “buried in an appendix to an annex,” in the words of study author John Holmes – would allow automakers and parts producers to substitute parts from low-cost nations and still qualify for tariff exemptions under the trade deal.
While much of the attention on the TPP has been focused on the end of duties on vehicle imports, “Our sense is that it’s the regional content values on auto parts that poses the most serious challenge to the industry within Canada,” said Holmes, emeritus professor of geography at Queen’s University.
Particularly vulnerable to increased competition from large, multinational companies with operations in low-cost countries are small and medium-sized Canadian suppliers that stamp metals, make plastic parts, etc. These auto suppliers are forming “at least half of the industry that is a key part of Canada’s manufacturing sector, but one which has been much slower to rebound from the 2008-’09 financial crisis than its American counterpart.”
Indeed, C.D. Howe Institute corroborates this position with their report that Canada’s automotive sector would be the biggest loser under the TPP and would “experience a relatively large decline in total shipments,” to total C$420 million in lost shipments per year, “both through erosion of the domestic market share and through a loss of export sales due to preference erosion in the key US market.”
Even if small in the overall scheme of things, it’s something the industry can’t afford to lose.
Last year in the US, GM’s successful deal with the United Auto Workers led to a US$1.9 billion investment for an assembly plant. We watch for the big news later this month, since the talks continue for now, and Canadian contracts end on September 19. But we’re not holding our breath. If the Canadian auto industry can pull off an attractive deal, maybe Canada’s real estate concerns and continuing oil sector troubles won’t feel so painful. But we’re not holding our breath on that either. By Angela Johnson, Vancouver, Canada.
Already, more Canadians sour on the Magnificent Housing Bubble. Read… Fear Spreads of a Housing Crash in Canada
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TPP ending duties solves nothing IMO. Ending subsidies would shake things up. Who knows what are subsidies world wide in the Auto industry? Even Germany subsidises its Auto industry I read. Here in Oz we have ended subsidies and also wound up our auto industry. What a clever government!
Over its lifetime here the government spent $1.5 billion on subsidies, but GMH paid $35 Billion in Taxes.
We really don’t have governments worthy of the name.
Economic collapse … you can simply avoid by offering 0% financing.
Well well well. Australian auto industry in the process of closing down over the next 15 months.
Hmmm, many similarities between Australia & Canada I wonder?
They have told Australia that the job losses will be in the thousands, only. According to the auto traders in Victoria, the suburb of Fawkner, has closed down. Fawkner is one of the suburbs that carried the spin off trades that serviced the auto makers & it is all gone, including the local shops that provided lunches for the workers.
All up the unofficial job loss figures, as a result of the auto makers leaving Australia are estimated to be around 200.000. This unofficial figure will never pass the lips of officialdom, who have downplayed the tragedy some what.
The Ontario government has had a history of sponsoring white elephants and sinking taxpayer money into losing ventures.
They closed the coal fired electricity plants, cancelled the natural gas ones destined to replace them wasting MORE $ millions, and are spending $millions MORE putting up 600 foot tall wind turbines all over the province that produce electricity at the wrong time of day which has to be unloaded at a steep discount because there is no way to store it.
The auto industry is their own worst enemy as they have priced themselves out of the high labor cost countries…… $35/hr vs $7 in Mexico. The auto market is only being held together with NINJA financing and deep discounts anyways.
With household debt levels around 150 % of annual income it won’t be long before the bubble bursts as it always does.
The Ontario government must have learned something from their French colleagues. Those wind turbines sound like the siblings of those installed at the Etagne des Salses (near Perpignan).
These colossal turbines are made in China (which has a massive overcapacity in wind turbines, chiefly driven by artificially inflated demand from Europe) down to the last bolt and were shipped to France using Cold War vintage Antonov aircraft. While it was probably the cheapest and fastest way to get the turbines on site, one cannot but appreciate the delicious irony of shipping supposedly environmental-friendly devices on aircraft designed and built without caring one tiny bit about emissions.
“priced themselves out of the high labor cost countries…… $35/hr vs $7 in Mexico”
but that $35/hr is what it’s cost to live in Canada or the USA…..and that would be barley squeaking by……..one couldn’t afford to buy a house on that income. And if you think having 2 people making that in a household is the answer you are only proving how fucked up things have gotten.
i feel windsor tends to be a good thermometer for economics of canada. in the past it seems we felt things first. over the past few decades we have lost so many jobs and manufacturers which will never return. what we have left is chrysler and a little ford. even these have threatened to leave so who knows what the future will hold. all i know at one time we offered the best manufacturing hub in the country with the highest skilled workforce when it came to manufacturing and a great geographical location being next to detroit.
windsor has had one of canadas highest unemployment rates since all this has happened not sure where its stands these days. its housing market was greatly affected, there was no housing bubble here until recently that our market turned hot well maybe warm.
anyways i will say if you want an affordable town to live in that has one of the mildest winters in canada. great place for people to retire and that is one thing they have been trying to push here. not trying to sell it, i swear.
Reading this article tells me yet again, that mismanagement is the only problem here. The mismanagement of information first. Surely the only reason automakers exist, is to put vehicles on the road that are needed ?
Otherwise what ..
Oh, competition is the reason for ..
I don’t get it ?
Who is calling the shots here to the tune of gazillions of dollars ?
Is it possible for an automaker / ‘s to make vehicles that they believe are needed as opposed to what the market actually needs ?
NO .. it is not .. & yet that is the way the auto manufacturing industry operates .. with the attitude ..
“We call the shots & you can either like it or lump it.”
Also, the population of planet earth is ever decreasing, this means that the market is ever shrinking & also, unemployment is on the down turn, “he there boy, who you makin’ them trucks for, why they shut down years ago, didn’t anyone tell you.”
Everyone wants to live the dream, only that it cost big bucks.
How is it the entire western world can be dependent on a manufactured item. that is entirely dependent on a resource, that has only a certain amount available (oil) . and fight wars over that resource? So we build a machine in great numbers dependent upon a limited resource, and we base the world economy on these 2 things. I forgot to mention we build weapons to secure and control our resources. DOES ANYBODY SEE ANYTHING WRONG WITH THIS PICTURE?
The only two pillars holding Canada’s economy from freefall are now gone. The housing and car bubble, both propped up by insanely loose financing. And now that they’ve pulled forward demand to eternity, the hangover will be something out of ancient Biblical records.
There were three pillars to Canadian economy, tar sand oil, housing bubble and car manufacturing in Ontario. Tar sand will shut down if price of oil does not recover and bad loans will eventually show up on Canadian banks book.
“It’s about time the government stepped in and provided some support,” explained Tony Faria, the co-director for the Center of Automotive and Vehicle Research at the University of Windsor. “I hope it’s only the first [step].” ”
The level of hypocrisy some neoliberals show is so ridiculous, it’s not even funny anymore. They want free unregulated markets but then turn around and asks for help from the collectivity.
Only reason brands such as MB and BMW are still breaking sales records are the pull aheads taken place….I see leases with 6-12 months remaining and they buy em out to churn a sale and keep numbers up. This has been happening for the past 2 years ..something will give it’s past due for a pullback