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             Ontario's Auto Sector: Threats To This Key Economic Driver


 

By Randall White

Just what did former Canadian Auto Workers national president Ken Lewenza have in mind last week when he urged, “If you don't think about the past and understand the past, you can't move to the future”? 

Mr. Lewenza expressed this opinion while he and his colleagues were being especially critical of all three levels of government at the launch of the new Chrysler Pacifica in Fiat Chrysler’s Windsor Assembly Plant. 

There have been other similar complaints lately. Towards the end of April some hasty remarks on climate change by Environment Minister Glen Murray prompted a clarification of Ontario government policy, from both Mr. Murray and Economic Development Minister Brad Duguid. 

The two ministers stressed that nothing Queen’s Park does on climate change will place “Ontario’s auto sector ... from the parts makers to the assembly plants” at “a competitive disadvantage.”  

But just this past February Dianne Craig, President and CEO of Ford Motor Company Canada, was complaining about the federal automotive innovation fund — and the pending Trans Pacific Partnership (TPP) trade deal.

As Ms. Craig stressed: “We've got to get these trade agreements right, and right now as the TPP stands, there will be no positive outcome for Canadian manufacturing.”

At this point the relevancy of Ken Lewenza’s claims about how you can't move into the future if you don’t understand the past may start to make sense and become clear.

A century or so ago there actually were a few independent auto manufacturers in Southern Ontario. But the protective tariff in the old National Policy could not really shield Canadian industry from the colossal competition in Detroit. 

But at the same time, a combination of the old National Policy tariff and newer “Imperial Preference” trading arrangements within the global British empire was enough to lure U.S. firms across the border to establish branch plants (and jobs) inside Canada. 

In the 1920s Ford, General Motors, Chrysler, and other US auto makers had established Canadian branch plants, selling directly into the Canadian domestic and British imperial markets with advantages denied to U.S.-based exporters.  

By the late 1920s this kind of industrial policy had given Canada the second largest automobile industry in the world. 

For better or worse, the dismantling of the British Empire after the Second World War made this incarnation of an Ontario auto sector obsolete.

A new Canada-US Auto Pact in 1965 set the stage for an updated policy, focused on the continental market in the United States and Canada.  The Auto Pact provided for tariff-free trade in autos and parts, but along with guarantees that the Big Three would at least produce as many cars and trucks in Canada as they sold here. 

By the late 1980s new Canadian federal government trade measures had also prompted Toyota and Honda to establish assembly operations in Ontario. 

And in the early 2000s an especially competitive Canadian dollar and public health care had helped make Ontario the largest sub-national auto-producing jurisdiction in North America.

The Canadian industry in this last golden age was the sixth largest in the world.

From here, on most accounts, the golden age has been more or less progressively fading, rescued only a little by the latest wave of especially competitive Canadian dollar. 

Auto sector historians James G. Dykes and Dimitry Anastakis put some of the blame on the 1989 Canada-United States Free Trade Agreement and the 1993 North American Free Trade Agreement. Their impact took time to settle in, but their principles were fundamentally different from the managed free trade of the Canada-US Auto Pact.

In 1999 the Auto Pact was in any case ruled illegal by the World Trade Organization. A few years later, Mexico and the low-wage American South were the go-to locations for auto assembly plants in North America.  

According to Dykes and Anastakis, “Canada’s auto sector faces severe challenges in the 21st century.” It still has real strengths. But “continentalization and globalization ... through free trade agreements and international trade arrangements threaten the future of the Canadian industry.”

Meanwhile, late last month Stephen Carlisle, president of General Motors Canada, was explaining that the “automotive industry finds itself on the cusp of global change ... with expanded fleet tests of new self-driving cars” and “new longer-range battery electric vehicles.”

Late last week in Windsor Fiat Chrysler CEO Sergio Marchionne talked about a new deal with Google to add self-driving technology to 100 Chrysler Pacifica minivans for testing purposes.

Dianne Craig at Ford Canada, however, must still be wondering about the pending Trans Pacific Partnership (TPP) trade deal, with her assessment that it contains “no positive outcome for Canadian manufacturing.”

It has always been good advice to be careful what you say about the auto sector in Ontario.

In 2016 it’s hard not to wonder quietly about just what new public policy directions might finally prove necessary to maintain the legendary branch-plant automobile industry in Canada’s most populous province.  

 

 

 

 

 

About Randall White

Randall White is a former senior policy advisor with the Ontario Ministry of Finance, and a former economist with the Ontario Ministry of Municipal Affairs and Housing. He is the author of Ontario 1610-1985: A Political and Economic History and Ontario Since 1985. He writes frequently about Ontario politics.
Posted date : May 19, 2016

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