As the indigenous auto industry in the northeastern United States contracts under OEM and supplier sector restructuring the mood to the north is much more upbeat. The Ontario province of Canada has secured a number of significant investments in the automotive sector that point to competitive advantages even as the Canadian currency appreciates against the US dollar. Behind the investment wave there’s a strategy for attracting investment that is proving successful.
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Michigan Governor Jennifer Granholm was born in Canada, but she can’t be too thrilled these days about her native land.
While Granholm deals with massive job losses stemming from restructurings at Ford Motor Co., General Motors Corp. and Delphi Corp., the auto industry rolls along with substantial new investments in Ontario, Canada’s largest province and home to all 11 light vehicle assembly plants in the country as well as most of its parts industry.
The divergence between the two was illustrated clearly last month when Granholm was in Japan pleading for a new Toyota Motor Corp. engine plant for her state on the same day that Honda Motor Co. Ltd. was announcing a new engine plant next to its sport utility vehicle and Civic assembly plants northwest of Toronto.
“They are not happy with us in Michigan these days,” says Ontario Premier Dalton McGuinty. “For the second year running, we are the number one auto producer in North America. That’s the first time since the invention of the car.”
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By GlobalDataUnlike Michigan and its neighbours Ohio and Indiana, Ontario is holding its own as the auto industry migrates southward with mushrooming growth in Alabama, Mississippi and Texas.
Since 2002, about 49,000 auto assembly and parts jobs have vanished in Michigan. That’s 18 per cent of the state’s work force in those two areas, Thomas Klier, an economist with the Federal Reserve Bank of Chicago, noted in a recent a report.
Another 7,000 have disappeared in Ohio and about 8,700 in Indiana, even though those states boast major operations of automakers that are winning market share in the fiercely competitive North American market—Honda and Toyota respectively.
In the same time, Ontario’s job numbers have held steady at about 150,000.
But it’s the amount of investment that has McGuinty and his political lieutenants bragging.
Automakers and parts companies have announced projects worth about $7-billion (Canadian) since the province introduced an automotive investment strategy in 2004.
The latest is the Honda engine plant, which, in typical Honda fashion, will start small with an investment of C$154-million and 340 people cranking out 200,000 engines a year when production begins in 2008.
Quietly cheering in the background is engine parts maker Linamar Corp., which just days before the Honda announcement, made a big splash of its own with a C$1.1-billion plan to build several factories over five years and hire 3,000 employees, plus open a research and development centre.
The R&D centre would have gone to Michigan if Ontario had not provided a C$44.5m financial package through the auto investment strategy, says Linamar chief executive officer Linda Hasenfratz.
The government’s strategy of offering financial incentives of up to 10% of a project under certain criteria deserves much of the credit. It helped land the Linamar investment, but also a new C$1.1bn assembly plant that Toyota is building about 90 minutes west of Toronto, a C$1bn redevelopment by Ford of its assembly complex in Oakville, Ont. and a C$2.5bn spending spree by GM at assembly plants in two locations.
Taxpayer-financed health care in Ontario is another key advantage that gives automakers a dramatically reduced legacy burden when compared with their U.S. operations.
One crucial behind-the-scenes reason for Ontario’s success is the Canadian Automotive Partnership Council, a joint government-industry-labour task force.
It was set up in 2002—mainly at the urging of Canadian Auto Workers president Buzz Hargrove—when three Canadian assembly plants were either closing or about to close and billions of dollars of new investment was pumped into the U.S. South.
The group has convinced both the Ontario and national governments that cutting taxes and reducing regulatory burdens are not enough to convince automakers to invest in Canada. They want financial incentives, as well and both levels of government have obliged.
There’s another key factor working in Ontario’s favour. While Delphi, Dana Corp., Tower Automotive Inc. and Collins & Aikman Corp. are operating in bankruptcy protection in the United States, key Ontario parts companies such as Linamar and Magna International Corp. are among the healthiest in the industry.
Delphi has no Canadian operations and Dana, Tower and Collins & Aikman did not place their Canadian plants in bankruptcy protection.
Industry executives and analysts on both sides of the border point to Ontario’s skilled work force and strong work ethic as key reasons why the province is attracting new investment even at a time when the soaring Canadian currency is eroding competitiveness.
Honda officials, for example, describe a situation back in the 1990s when a die cracked in their stamping plant in Alliston, threatening a lengthy and costly shutdown because the die might have to be sent back to Japan to be fixed.
The stamping team at the Alliston plant came up with a repair in about a day and a half and the assembly line was up and running again.
The seeds for Ontario’s success were sewn at least partially in the 1980s, when governments convinced Honda and Toyota to locate assembly plants here. The domination of the Big Three in Michigan meant those two companies, as well as Nissan Motor Co. Ltd. build their U.S. factories elsewhere.
Because of that, no U.S. state matches the diversification Ontario enjoys in its auto assembly sector, with each of the Big Three having at least two plants in the province and major operations of Honda and Toyota.
Honda’s Alliston operations have launched four new truck products in eight years and Toyota’s assembly plant west of Toronto is the only company plant outside Japan to assemble vehicles for the automaker’s luxury Lexus line.
Ontario’s success should be cheered by Michigan, says Sean McAlinden, who has chronicled the woes of the state as vice-president of research for the Center for Automotive Research, an industry think-tank located just west of Detroit in Ann Arbor, Mich.
“Our auto industry is a 400-mile industry,” McAlinden says, pointing out that parts makers supplying the new Toyota plant under construction in Ontario could easily locate on the Michigan side of the border and still ship components.
