By on June 24, 2013

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Ontario is home to a number of auto plants, both import and domestic, union and non-union, as well as numerous suppliers. None of them are so tightly intertwined as General Motors is with the town of Oshawa, about 40 miles from Toronto (though, as any area resident will tell you, it’s really 2 hours away, thanks to our horrendously inadequate infrastructure). For nearly a century, GM has been building cars in Oshawa in one form or another, as the plant has established a reputation as one of GM’s best, consistently building high quality cars, trucks and crossovers over the decades. But that tradition may be coming to a close by 2016.

A report by The Globe and Mail comes to the same conclusion that TTAC has reached since last year: Oshawa’s future is looking bleak in the face of unfavorable exchange rates, high labor costs and an exodus of product, with no plans to replenish the factory with any new vehicles. Since the bailout era, Oshawa has seen a glut of product leave for other destinations. First to go were the full-size trucks, followed by the Chevrolet Impala (now split with Hamtramck, along with the Cadillac XTS) and then the Chevrolet Camaro.

Now, The Globe is reporting that the Buick Regal, which is currently built at Oshawa, may not be replaced after 2016, while another report by Ward’s Auto says otherwise. With sales of the smaller Verano cannibalizing Regal sales, Buick has a good reason not to replace the Regal. The Regal, based on the Opel Insignia, may also be a victim of rapidly declining D-segment car sales in Europe. Opel may not see a reason to replace a car that competes in one of the weakest segments, especially in light of Opel’s declining fortunes.

With the potential loss of the Regal and the confirmed exit of the Camaro, also that’s left is the Impala and XTS (which is in danger of leaving altogether for Hamtramck) and overflow production of the Theta crossovers, which are built in Ingersoll, Ontario, halfway between Oshawa and Windsor, Ontario, at a modern facility of their own, as well as the newly re-opened Spring Hill, Tennessee plant where workers are paid on the lower end of the UAW’s two-tier wage scale.  Even the CAW has expressed their concerns that Oshawa will wither and die if new product is not brought over.

Product aside, two other factors are likely weighing on GM. The first is the expiration of the “Vitality Commitment” in 2016, which was made as a condition of GM receiving bailout funds from the Canadian and Ontario governments. While the exact terms have never been spelled out, it’s been widely reported that the terms require GM to maintain a minimum of 16 percent of its production in Canada until it repays its loan obligations or until December 31, 2016, whichever comes first. It’s also not known what the penalty would be if GM violated these conditions. Not even the original document, publicly released by GM and the Canadian government, delves into these specifics.

The second factor, according to The Globe, is the billions of dollars in financial obligations that will be due for GM at the end of the decade, including rapidly rising pension costs, interest free loan payments and payments for a note issued by GM to help cover health care costs. The timing of these obligations and the lack of product for Oshawa is almost certainly coincidental, but they represent an extremely unfortunate convergence of poor circumstances for GM’s Canadian operations.

The loss of Oshawa would not only be a blow for GM, but a massive one for Canada’s manufacturing sector as well. Despite possessing an educated, productive and conscientious workforce, the auto industry is on a massive drive to cut costs across the board, while the CAW has repeatedly taken a tough line on any concessions, as they seek to get the best deal possible. The best case scenario would be if GM uses the threat of leaving Oshawa to help get some government “assistance”, similar to how both levels of government helped chip in to revitalize Ford’s Oakville plant. More ominously, this is the model followed by Holden and Ford Australia for many years. Australia, which has many things in common with Canada (population, an abundance of resources, a strong currency) is currently experiencing a severe decline in its own auto manufacturing sector, in part due to high labor costs.

On the other hand, December 31, 2016 is a long way away; GM’s planners may be looking that far down the road, but one Robert Anthony Lutz would be the first to tell them that it’s impossible to predict what will happen months from now, let alone that far away.

 

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18 Comments on “Oshawa’s Future Looks Bleak As The Clock Runs Out On GM’s Vitality Commitment...”


  • avatar
    Austin Greene

    My father’s XTS was built in Oshawa. It’s beautifully assemled and has had zero problems.

    It’s fanciful, but maybe Oshawa could pick up a high profit vehicle for assembly. Maybe moving K2XX SUVs from Arlington (not likely) or taking on Omega (even less likely).

    Sorry to say, but it doesn’t look good for Oshawa.

  • avatar
    danio3834

    In typical fashion our Government will seek to keep employment via corporate welfare and back handed deals instead of creating a healthy, sustainable business environment. Except this time, even that won’t be enough.

    The CAW also needs to realize the plain fact that they aren’t being competitive with the UAW and that’s they they’re losing product. It consistently amazes me how many members refuse to see this when it comes contract time. You’d think after watching their brethren at the Caterpillar plant march off the hypothetical cliff, they’d figure out these companies aren’t bluffing.

  • avatar

    Derek, have you ever heard the rumor that the Camaro/Firebird models went on hiatus last decade not because of declining sales, but so that GM could meet the contractual requirements needed to close Ste. Therese for good? (They couldn’t build those models anywhere else for 5 years, or something.)

    Put another way, GM’s desire to reduce its footprint in Canada isn’t new, and what seems to be happening at Oshawa has a big precedent.

  • avatar
    Fordson

    Derek, I had asked you this before…what are the differences in labor costs compared with the U.S., considering Canada has a national healthcare system so that employers don’t have to provide that benefit for employees.

    I’m not entirely clear on how Canadian labor costs are so out of line with those in the U.S.

    • 0 avatar

      Fordson,

      My apologies for not getting back to you sooner. I asked around regarding your question and nobody was willing to go on record. However, a bulletin from the CAW pegs the “all in costs” at around $60 per hour, versus in the high $50 per hour range for the US. Note that Canada also doesn’t have a two-tier wage scale for new hires like the US does (Canadian employees get paid the “full” wage after 10 years). This is also backed up by the CAW’s Jim Stanford who admits that even with increased productivity and government healthcare, labor costs in Canada are indeed higher, though only slightly. (http://rabble.ca/columnists/2012/10/caw-major-auto-bargaining-2012-lessons-learned). It’s more like a few dollars, rather than the tens of dollars the OEMs have claimed.

      I suspect that moving production to Mexico is more of a threat than moving it to America. “All in costs” are said to be $4-$5 per hour. Note that GM was looking at moving Theta from CAMI/Oshawa to Mexico earlier this past year.

    • 0 avatar
      danio3834

      The automakers still provide health care benefits to their Canadian workers because our Provincial health care doesn’t nearly cover everything and what it does cover it doesn’t do with any extravagence. The coverage will cost employers a bit less than in the US, but it’s still a significant chunk of expense.

      • 0 avatar
        ect

        A bit less? The last numbers I saw indicated that the cost to US employers for “family” coverage was over $1,500 per employee per month.

        My wife and I, both self-employed, living in Canada, over 60 and with no bargaining power with insurers, pay about $275/month for supplemental coverage (medical/dental/prescriptions). I imagine that GM Canada can get a much better rate,and/or much better coverage.

        • 0 avatar
          Toad

          When I left one of the Big Three I was eligible to purchase COBRA insurance at my employers cost; however that cost was more than double the rate I could get for an identical policy on my own.

          It turns out that the Big Three employees are older, sicker, and very prone to using their gold plated health care… making it very expensive. I’m not surprised that family coverage is $1500 per month since there is no incentive not to use it to the max.

          There were always rumors about employees getting “free” prescriptions that they would turn around and sell as a nice income supplement, but I have no first hand knowledge…

        • 0 avatar
          mikey

          GM Canada employees contrubute $30 a month to thier benifits.

          Retired hourly are covered by the Union administered {HCT} fund.

  • avatar
    mikey

    The 4th generation Camaro/Firebird got axed because of poor sales. The young crowd that were potential buyers could not afford the insurance premiums. The older guys {that could afford insurance} found the 4th gen “F”body a little crude. Lots of percieved quality issues. I owned a 2000 Firebird. I was always fixing trim.

    Then there was the whole “Mullet” thing.

  • avatar
    brettc

    It’ll be a sad day for Oshawa if the predicted worst case Ontario does come true. Hopefully GM has them build something else there.

  • avatar
    CoreyDL

    Guess those high labor wages are what makes the Regal WAY TOO expensive. I couldn’t believe what they want for one of these loaded up. It’s sliced too thin between the Verano and the LaCrosse.

    Plus, saying you drive a Regal doesn’t do much for you (image of 2002 Landau’ed Regal cruising to Old Country Buffet).

  • avatar
    Petmar58

    The fact is GM’s strategy in each region is to locate manufacturing in the low cost country within that region. In the N.A. region Canada is the highest cost country and México is the lowest cost country. In fact Canada is the highest manufacturing cost country in all of GM. The fact that the CAW didn’t agree to the same two tier wage agreement that the UAW did is not helping matters, although manufacturing costs in the US are not that much lower than in Canada. Not low enough to stop the ongoing relocation of manufacturing within GM N.A. to México. All this adds up to spell doom and gloom for GM Canada automotive manufacturing. Maybe government largesse will stave off this exodus but I doubt it. As far as quality and productivity are concerned the Mexican Plants are as good as or better than their Canadian and US counterparts. I’ve spent considerable time in both so I know this first hand.


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