IT’S ELECTION TIME, BUT DOES THE CANADIAN AUTO INDUSTRY CARE WHO WINS?
Given that the title of my column is “The Big Picture,” I’d be remiss if I did not spend some time pondering the outcome of the October 19 federal election and what the results might portend for Canada’s automotive industry.
Right now, we are locked in essentially a three-way race at the halfway point of the campaign with no clear sign as to which leader and which party may prove victorious come election day.
At this point in the campaign, it seems like the leader that is likely to prevail on the Monday following Thanksgiving will not necessarily be the leader that lands a knock-out punch in the debates to come or on public policy matters that the political press report on fastidiously in the daily media. It could be the leader that commits the fewest policy blunders throughout the remainder of the campaign.
The question for those of us in or near the automotive industry is, will it matter who wins, with respect to the provisions that may be put in place to bolster the automotive sector in Canada?
Up until the time that oil started to tank in June 2014, it seemed that Prime Minister Harper was content to put all of his eggs in the oil basket (or barrel, as the case may be) to the exclusion of all other sectors. He was banking on oil continuing its ascent to past the $100 barrel threshold, with Canada enroute to becoming an energy superpower.
Last year, once it became evident that the precipitous downward slide in the price of oil was more than just a blip, the PM and his cabinet ministers started peppering speeches with the importance of manufacturing — including auto manufacturing — and other sectors.
That said, it was not like the Harper government completely forgot about the auto sector, either. The Automotive Innovation Fund (AIF) was introduced in the 2008 Budget with $250-million in funding and was subsequently renewed in the 2014 Budget with an additional $500-million. According to the federal government, the AIF has leveraged $2.3-billion in automotive investment.
Likewise in the 2015 Budget, the Harper government pivoted to the supply side of the automotive industry, announcing the establishment of an Automotive Supplier Innovation fund (ASIF) with a modest $100-million fund established to assist Canadian auto suppliers in improving their competitiveness and positioning their operations to be suppliers of choice for the new automotive industry.
Also, the Conservatives would remind us all that they have invested close to half a billion dollars for the new Windsor-Detroit International Crossing — largely at the behest of the five vehicle manufacturers in Canada.
The challenge for at least some in the automotive industry, is that these funds are almost too little, too late to attract foreign direct investment headed for North America, to Canada. That’s opposed to the current location of choice — Mexico, or alternatively the southeastern U.S. states.
Some efforts have been undertaken by the current government to at least try to retain the auto manufacturing base that we have in Canada, which — don’t get me wrong — is extremely important to the country.
Regrettably though, most people seem to equate the “auto sector” to “auto manufacturing” when, in reality, vehicle assembly and parts manufacturing make up about 15 per cent of all of the Canadian Automotive Employment, according to Statistics Canada. There are 47 per cent more people working in the wholesale and retail side of the industry, than in automotive assembly and auto parts manufacturing.
In this regard, it would be nice to see all three political parties adopt a broader and more inclusive definition of “auto sector” when outlining policy platforms related to the industry, rather than focusing solely on auto manufacturing.
The challenge for any party in this regard lies with the fact that the issues and concerns of the vehicle manufacturers can at times be diametrically opposed to the issues and concerns of the retail community. So far, the Conservative and previous Liberal governments have chosen to put their support largely behind the vehicle and parts manufacturers.
Let’s not forget that the federal and Ontario governments collectively invested $13.7-billion in 2009 to bail out both Chrysler and GM with media reports suggesting that taxpayers are not likely to recover $3-billion of that amount.
Was it worth hanging onto the manufacturing footprint of both of these automakers in Canada? Time will tell.
Despite recent announcements that GM’s Oshawa operations appear to be on the bubble, it certainly shored up a number of high-wage manufacturing jobs in Canada in the intervening period. Vehicle exports are significant contributors to economic growth and Canada’s balance of trade.
That said, the dealer community did not fare particularly well through the bailout process in Canada, either.
It would be nice to see all three political parties adopt a broader and more inclusive definition of “auto sector” when outlining policy platforms related to the industry, rather than focusing solely on auto manufacturing.
So what are the parties saying about the automotive industry this go-around?
The NDP’s automotive platform appears to be the most comprehensive from what I’ve been able to find. Just after Labour Day, Tom Mulcair announced his automotive policy, which included things like improving the financial incentives for automakers and parts suppliers in exchange for firm commitments on jobs and investment. This also included adding another $90-million over five years to the previously noted ASIP.
Mulcair also focused on protecting auto jobs by stipulating that content requirements for any other trade agreement being negotiated should be at the same 62.5 per cent as currently exists under NAFTA for duty free entry. Additionally, he committed to establish a one window initiative within the federal government to assist companies potentially interested in investing in Canada, removing the need to deal with multiple ministries and directorates.
Further, Mulcair committed to convene an Auto Summit within his first 100 days in office with government and industry leaders to establish a National Automotive Strategy. Finally, he committed to support research and innovation in the sector by renewing funding for the Auto21 Network of Centres of Excellence.
Is this a particularly new or innovative policy direction? Not really. Any new PM will maintain or potentially try to augment some form of automotive investment fund that will be used — not to induce investment from those that do not already produce vehicles in Canada, but rather to keep the existing manufacturing footprint here.
If we were serious about attracting new vehicle manufacturers to Canada we’d have to increase any investment fund exponentially to compete with the likes of Mexico or some of the southern U.S. States.
Having one window access to the federal and provincial governments has been an idea advocated by those within the industry for years. The development of a National Automotive Strategy? This again is something the industry generally has been calling for years.
Maintaining NAFTA levels of content for consideration of duty-free entry into Canada under any trade agreement is an interesting point.
A party focused on an auto platform with respect to where the industry is “going,” along with a broader concept of what the automotive sector entails would be both courageous and unique.
It seems to have been influenced by recent media reports concerning the bi-lateral auto provisions that Japan and the United States reportedly negotiated for application to the broader Trans Pacific Partnership (TPP) Agreement. This is currently in its final stages of negotiation involving Canada and its NAFTA partners and nine other Asian countries — including Japan. The soundness of this approach remains to be seen.
Conservative or Liberal platforms with respect to automotive are likely to contain similar themes to continue the support of auto manufacturing.
Such messages again focus more or less exclusively on manufacturing and where the industry “is,” as opposed to where the industry
is “going.” Mexico or the southern U.S. states will always be able to outspend Canada to attract new automotive investment.
While our significantly depreciated loonie helps to make Canada look a little more attractive, it is unlikely to induce a new manufacturer to set up shop here.
So maybe it doesn’t really matter which party wins the election because the same or similar policies will continue to be pursued with respect to the auto industry. But maybe those policies are ultimately the wrong focus, anyway.
Where the industry is “going” is into advanced information and communications technology, big data, new propulsion technologies and vehicles ultimately becoming different mobility mechanisms than we have known them to be for more than a hundred years.
A party focused on an auto platform with respect to where the industry is “going,” along with a broader concept of what the automotive sector entails would be both courageous and unique.
