Foul! And You're Out...

"You have stabilization in the U.S., you have plants in the next couple of years for Mexico and you're not really seeing anything with respect to Canada yet. We could become somewhat of a laggard in the sector." Carlos Gomes, Scotiabank economist

What did we do wrong? After all, the Government of Canada solemnly following the anticipated lead of the United States, made a decision to bail the Canadian arm of the North American auto industry out of bankruptcy proceedings. A huge whack of the country's treasury went into assuring Chrysler and General Motors (Ford demurred and made it on their own) that they would survive the catastrophic economic downturn and their own flailing industry, into recovery mode.

Canadians generally accepted that. Although it might have made some kind of sense to be alarmed at the downturn being experienced by the IT industry, and particularly by Northern Telecom, a giant of the telecommunications and fibre-optic industry that had risen to international stardom through its innovative and ingenious new technologies.

But no, it was the auto industry and it alone that benefited from government largesse.

And the industry did recover. At least as much as it deserved to. Considering the quality control lacking and the lack of design and mechanical engineering innovation in the North-American auto industry as compared to the growing popularity of the more reliable mechanics and electronics of the Asian auto industry whose inroads into North American sales had been largely responsible for lagging sales for Ford, General Motors and Chrysler.

Now, it would appear that we're facing declining investment by the very same auto companies that we had extended a financial lifeline toward. American companies are cutting U.S. labour costs, and Canadian auto workers aren't thrilled at the prospect of a cut in pay. The robust earning power of Canada's surging currency isn't helping in that regard, either.

It is now estimated that investment in Canada's auto plants will fall to 62% less than a ten-year average.

Since 1995, Canada has done very well for itself in the North American-shared auto industry with between 15.5% and 17% of vehicles assembled, with the inclusion of auto plants owned by Honda and Toyota. And when Canada contributed to Detroit-based bailouts of Chrysler and General Motors in their 2009 bankruptcies it was with a commitment to retaining that 16% production in Canada.

Chrysler, in fact, agreed to maintain at least 20% of output and product-related investment, while GM committed to 18.9% of its North American output.

"I don't think I've ever been at meeting where the company actually congratulated us for our productivity, our quality, or meeting their sales objectives. It's always about 'You know, you're not the most favourable place to invest today'", comments Ken Lewenza, president of Canadian Auto Workers.

A strong Canadian dollar, while having benefits for the country, also has deficits. Honda, Nissan and Mazda are also looking to add capacity in Mexico. While Ford, Chrysler and GM are planning huge investments by 2014 in the U.S. Canada? Maybe.