Canada’s automotive manufacturing industry has been uniquely and strongly profitable in recent decades, a new report from the Canadian Auto Workers (CAW) said.
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“While the industry is financially fragile at present in the wake of the global credit freeze and the resulting temporary collapse in vehicle sales, its long-run economic record indicates that the sector has been a lucrative component of Canada’s economy,” report author and CAW economist Jim Stanford said.
The report reviewed the longer-term financial performance of automotive manufacturing in Canada, dating back to 1972, and continuing through to 2007 (the latest year for which industry-wide profitability data was available from Statistics Canada, and the last year prior to the onset of the global credit freeze).
Summary data also considers the profitability of the Canadian arms of General Motors and Chrysler (the two companies which face the most urgent financial challenges).
On an industry-wide basis, the report said, automotive manufacturing had generated positive net after-tax income in every year but one since 1972. Adjusted for inflation (in 2008 constant-dollar terms), the auto manufacturing industry generated cumulative net after-tax profits in excess of C$100bn during that time.
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By GlobalDataThat makes the auto sector far more profitable, in the long-run, than other sectors of heavy industry in Canada (including primary metal industries, metal fabrication and machinery, chemical products, electrical products, and aerospace), the CAW said.
The Canadian arms of GM and Chrysler were also profitable in most of those years. Based on a combination of public and estimated data, GM Canada’s cumulative profits over the same period (also expressed in 2008 constant dollar terms) exceeded C$30bn. Chrysler Canada (which through this period was a much smaller company) earned cumulative profits of C$5bn.
According to Stanford, this historical record of profitability provides important context to current discussions regarding so-called “legacy costs” in the auto industry.
“Today’s retired autoworkers are the ones who provided the real economic foundation for the long-term financial success that this industry has enjoyed for several decades. Their work produced the value-added which created the profits which GM, Chrysler, and other auto manufacturers enjoyed almost every single year for the past 35 years.”
CAW president Ken Lewenza said the profitability data confirmed that today’s retired autoworkers should not have to pay for the current crisis.
“It’s an incredible injustice to imagine that the workers who created over C$100bn in profit, which the corporations and their owners happily pocketed for decades, should now face the loss of pensions and benefits because of a financial and industrial crisis they did not create,” Lewenza added.
What analysts term “legacy costs” (the continuing expense for pensions and health benefits for retirees) are in fact deferred compensation for the work which underwrote decades of sustained, lucrative profitability, Stanford argued in the report.
That work was completed on the basis of a compensation contract which included promises of pension and health benefits to be paid after the workers retired.
“Yes, we’re at a tough moment right now, but we shouldn’t forget that bigger picture, which has been one of consistent profit and tremendous opportunity,” Stanford told Reuters after the CAW published the report.
The news agency noted that the Canadian arms of GM and Chrysler stopped reporting their results publicly in the late 1990s so Stanford used estimates based on industry-wide trends.
