Tromper News Updates

Eureka! I can cut and paste - probably a bad thing for you guys but future entries will not be this lengthy. This little Trieste on the Big Three is still rleavant today as the debate still rages, The Big Three in Canada – A Realistic Approach to Government Assistance For years now our automotive industry must have cringed with each report of Canada’s growing trade surplus with the U.S. It would, I’m sure, much preferred that rather than our government trumpeting the swelling numbers, this windfall be hidden under the proverbial basket. Starting with the Auto Pact in the mid sixties we saw a dizzying rate of growth in Canada both in terms of assembly plant and parts manufacturing output. We grew an efficient and cost effective automotive stamping industry and complimented it with a layer of low cost sub-suppliers. The industry’s requirement for high quality flat rolled products was more than amply met by a fiercely competitive domestic triumvirate of automotive oriented steel suppliers located in close proximity to its plants. We were favoured during most of this growth period by a cheap Canadian dollar and a capable, reliable, labour force made competitive, at least in part, by its access to a government funded health plan. Another significant factor that is now often overlooked is product mix. Our OEM’s (Original Equipment Manufacturers) were assembling the vehicles that consumers wanted and during this period that was trucks and mini-vans. By extension the parts manufacturing industry benefited with a disproportionate share of truck, van and then SUV parts. To be remembered here is that we Canadians account for only ten percent of vehicle sales in the North American automotive market and that was all that the Auto Pact was expected to secure for Canada. Government got involved in the bidding wars that erupted anytime the big three auctioned off the right to have a new or expanded assembly plant located in our backyard and it had little choice about its participation. These high stakes competitions for jobs became the business norm and who could complain during this heady period of growth. The UAW sought and won large increases in wages and benefits for its semi-skilled work force and the newly independent CAW was no less aggressive in its demands from the car makers. With no car manufacturer willing to buck union demands and risk reducing, even temporarily, its market share, there were few work outages and contract settlements bordered on the ridiculous. The supplier base groaned in silent protest after each extravagant contract settlement knowing that much of the OEM’s largess would be financed by mandatory cost-downs for the parts it supplied. With its labour costs going through the roof and despite stiff opposition from both the CAW and the UAW, the big three did it’s best to out-source not only parts manufacturing but the supply of whole sub-assemblies. Smaller privately owned parts manufacturers were weeded out based on their ability to meet new OEM demands – now size mattered! To survive, a parts manufacturer needed the capability to do a portion of what normally would be the OEM’s forward engineering, be able to initiate sophisticated quality monitoring systems, provide reliable JIT delivery to the assembly plants and agree to year-over-year price reductions for the products it supplied. The automotive parts industry found ways to meet all of these demands despite the fact that it also had to give up its small advantage in material cost control when the OEM’s took that over with centralized raw material supply programs. The survivors might rightly say, if they could, that had the big three managed its end of the supply chain better we would not today be looking at a picture quite so dire. As the term made in Japan gradually became synonymous with quality and customer satisfaction, our OEM’s did finally respond with much improved products. But a generation of car buyers had been turned off and today’s consumer mind-set is so well entrenched that only the right vehicles and a long term quality track record could restore the big three’s prominence – maybe – what’s more likely is that the market shares we see today are close to where we’ll see them for a long time to come. GM has launched many new vehicles that are smartly styled and fuel efficient but the sheer number of these offerings has created as much confusion as enthusiasm (let’s forget about the Camaro decision for now)). Ford has a couple of viable options that meet today’s consumer requirements but Chrysler has been caught with no ideal choice for today and nothing in the pipeline for the immediate future. By contrast the competition has a large array of vehicles that are perceived to be of high quality and right for the times. To be fair to the OEM’s, it takes time for the industry to change horses and large vehicles represented the consumer market’s choice until quite recently. Who can say they foresaw how events that were inconceivable then would change the car market so dramatically? Now that some form of government assistance seems inevitable the question we have to ask ourselves is: what share of North American automotive output can we realistically hope to salvage? For the purpose of this argument I’ll omit Toyota and Honda whose healthy presence in Canada remains the bright light of our automotive industry. Before the Financial melt-down and the Democratic victory in the US our industry faced: A huge increase in the price of gasoline and the associated dramatic drop in sales for larger vehicles. A steep and ongoing decline in the big three’s market share And, as a result of a smaller big three market share, gross over capacity in the industry in both assembly operations and parts manufacturing A dollar at near par with the resultant impact on our competitiveness No gain in productivity for our industry versus the US or Mexico Few of the right vehicles that enjoy any level of consumer loyalty being assembled in Canada. A parts manufacturing industry still heavily reliant on truck van and SUV parts A union that has refused to agree to the US model of a two-tier wage system for OEM workers and is generally seen to be unrealistic in its demands. Cumulative wage demands have negated the advantage that free health care contributed to our labour costs A significant weakening in consumer demand for big ticket items The virtual disappearance of the lease option through which over 60% of vehicles in Canada were moved into the consumer market. Now, with a protectionist administration soon to take power in Washington we can add the very real threat that any assistance to the big three in the US will involve some form of job guarantees for its workers. That kind of agreement points to the possible repatriation of jobs in the auto sector from Mexico and Canada. Our recent currency advantage is seen as only temporary as our dollar will surely track the inevitable rebound in the price of oil. And, most significantly, the financial collapse, and resultant credit squeeze has vaporized whatever consumer confidence still existed. We are at the crisis point now and must put our salvage package together, before an agreement in the US limits our options. The answer to the question of our share then is that we shape our expectations and our aid package realistically. We made hay during the good years when we stamped more parts for, and assembled more than our share of, the most popular and profitable vehicles sold in North America, but it’s over. Our government will have to move to assist the big three because, once again, it has no real choice. That assistance will never get us back to where we were because that was an unrealistic place for our industry to be. There’s no need or sense for us to tell the leaders of the big three to go green or to try to dictate what vehicles we want at what plants, or even to demand job guarantees other than this one proviso: our industry by virtue of its importance to Canada and its well recognized expertise must at least maintain a share of the North American market that is proportionate to our participation. This would be a painful decline from the good old days but many of the jobs that will be lost have already been identified and their loss along with many others yet to come is inevitable with or without an aid package. Our goal now, by virtue of our government’s financial participation, must be to negotiate some degree of control in transitioning our industry to a capacity level that is fair for Canada while giving us as much time as possible to refocus our excess capacity in both labour and facilities into new areas that will diversify our industrial base.