Page: FP1 / FRONT
Section: Financial Post
The surging Canadian dollar makes it far less likely carmakers will upgrade or build new automotive assembly plants in this country, according to an industry study released yesterday.
The study, conducted for the Canadian Automotive Partnership Council, an industry group that represents auto assembly and parts companies, found that a Canadian dollar worth US75 cents would remove most of the economic advantages of manufacturing cars in this country.
"What I take away from this study is that Canada will never get another greenfield plant or major retrofit unless we alter the fiscal balance," said Jim Stanford, the economist for the Canadian Auto Workers union. "This study confirms most of what we thought was happening."
The Canadian automotive assembly and parts manufacturing business accounts for 150,000 jobs and $90-billion in total annual sales.
While the study shows that in the past Canadian plants have offered economic benefits to car makers, the Canadian dollar, which closed at US76.31 cents yesterday, negates any advantages Ontario and Quebec facilities have over those in the southern United States.
The study, which was started in early 2003 by accounting firm KPMG, used an exchange rate of US67.75 cents.
It said that while Canadian plants in Montreal and Waterloo, Ont., have the highest annual net profits, and the lowest unit production costs, these factors are largely negated by the rising dollar. The report said a US75 cents dollar results in a decrease in return on investment of 7.3% to 8.3%.
Mr. Stanford notes that only one of the last 18 new auto plants built in North America have come to Canada. Last year, DaimlerChrysler AG killed a proposed plant in Windsor, Ont.
Currently, Ford Motor Co. of Canada Ltd. is working on a proposal to build a modern flexible manufacturing plant in Oakville, Ont., that would likely mean thousands of new jobs for the area.
It was expected the company would have already finished a business proposal for the plant, which it would then take to Ford Motor Co. management and the Ontario and federal governments. The company wants up to $250-million in financial aid before it commits to building the plant.
Mr. Stanford called the proposed Ford plant, "the litmus test for Canada."
"If we miss this one, it will signal to the rest of the world that we are not serious about the auto industry," he said.
John Jelinek, a Ford Canada spokesman, said the Canadian dollar is only one factor in several that will determine how the company proceeds in Oakville.
"The dollar plays some role, but I think it is kind of an elusive target," he said.
"As an export company, we are hurt by a strong Canadian dollar, but as an import company, it helps us."
He said the company is still moving ahead with its business plan for the Oakville plant, but could not say when the proposal would be complete.
Joe Cordiano, Ontario's Minister of Economic Development and Trade, blamed the previous provincial Progressive Conservative government for not working with the auto industry to gain investments in Ontario. "Essentially there wasn't anything the previous government did to encourage the auto sector," he said, adding that the current provincial Liberal government is "moving ahead with developing an investment strategy."
Mr. Cordiano said he remains "very optimistic" the government can work with Ford to develop the Oakville facility. "Ford, along with hopefully many more, will make investments and new investments."
Kim Hill, a public policy analyst with the Center for Automotive Research in Ann Arbor, Mich., said the impact of the Canadian dollar and government incentives on auto plants can be overstated.
He said many foreign auto makers, such as Toyota Motor Corp., have chosen to locate in the southern U.S. because they do not have to compete for the most qualified employees.