Oshawa's Future Looks Bleak As The Clock Runs Out On GM's Vitality Commitment

Derek Kreindler
by Derek Kreindler

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.

Derek Kreindler
Derek Kreindler

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  • Corey Lewis Corey Lewis on Jun 26, 2013

    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).

  • Petmar58 Petmar58 on Jun 29, 2013

    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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