Canada’s auto industry could be on a slippery slope to extinction unless major changes in government policy and attitudes about investment are enacted to save it, experts say.
The significant decline thus far is due in large part to increased competition from cheaper places to do business such as the southern United States and especially Mexico. Low-price labour and numerous free-trade agreements have driven automakers to build new plants in that country. And Canada appears to be idly standing by and watching.
Industry executives and outside experts said the likelihood of Ontario attracting a new auto plant, like the one announced by Toyota and Mazda in Alabama earlier this year, is a long shot at best.
Numerous factors, ranging from high labour and electricity costs to a hesitancy from government to match the massive tax incentives offered by some U.S. states and Mexico, work against Canada when it comes to attracting massive auto investment.
Still, the biggest negative factor is the regional and global trade environment, which has favoured free trade over the past several decades and has promoted major investments in lower-wage countries such as Mexico. Since 2004, Canadian auto production has dipped 23 per cent to 2.1 million vehicles, according to the Automotive News Data Center in Detroit. Mexico, meanwhile, has more than doubled its auto production to 3.8 million vehicles.
U.S. President Donald Trump has been desperately trying to negotiate a new North American Free Trade Agreement, in effort to bring auto manufacturing — among other industry — back to the United States. He’s also threatened a 25 per cent tariff on all imported light duty vehicles, a potential job killer to Canada, unless the Great White North is exempt from such a measure.
Jeff Rubin, a senior fellow at the Centre for International Governance Innovation in Waterloo and former chief economist at CIBC World Markets, said that if Ontario wants to attract a new auto plant, it should hope the United States implements tariffs on Mexico and other nations while exempting Canada, creating a North American trade environment similar to the pre-NAFTA one.
The industry would surely rail against such a decision, Rubin said, and many automakers might balk from investing at all in North America. But for those that stay, it would be in their interests to invest in American and Canadian auto production, he said.
“You have to understand that what has worked well for industry profitability has been a move of production to Mexico,” he said.
But, Rubin added, if tariffs cut into the profitability of Mexican imports, “that same profit-maximizing behaviour would move that production back to the United States and potentially Canada.”
Short of hoping the United States puts tariffs on nations other than Canada, Ontario faces an uphill climb if it ever hopes to have a new assembly plant built in its borders, according to the experts. Several factors, including labour costs, incentives and a need for leadership are at play they said.