By on September 17, 2013
Ford Oakville, Ontario Assembly Plant

Ford Oakville, Ontario, Canada  Assembly Plant

The Toronto Star is reporting that Ford Motor Co. will soon announce a ~$700US million investment in it’s Oakville, Ontario plant, where it assembles the Ford Edge and Lincoln MKX midsize crossovers. According to Toronto’s Globe and Mail newspaper, $135 million of that will come from the Ontario and Canadian governments, which recently divested some of their bailout related shares in General Motors. The investment by Ford follows commitments made to the Canadian Auto Workers, now under the banner of Unifor, to add 600 jobs to the Oakville facility.

The next generation Flex and MKX will share the CD4 platform with the Fusion and MKZ sedans. The investment means that Oakville will have the capability to build cars based on CD4 which raises the possibility that the plant may join Hermosillo, Mexico and Flat Rock Michigan in building FoMoCo’s midsize sedans. Ford recently added Fusion production at Flat Rock to increase supply of the car, which has been in short supply.

Automobile operations in Canada are jeopardized by the country’s current status as the world’s most expensive place to build cars. In addition to the Oakville plant, Ford operates two engine plants in Windsor, across the Detroit River from Dearborn.

To keep costs down, after the CAW ratified the current 4 year contract Ford offered 1,000 hourly workers incentives to retire. New hires to replace those retirees will start at a lower hourly pay rate and not reach the current full rate for 10 years.

Volkswagen Group Plant

Volkswagen Group Plant, Sao Jose dos Pinhais, Parana, Brazil 

Meanwhile, the Volkswagen Group plans to spend 1.2 billion reais ($529US million) in Brazil to restart local assembly of Audis and begin local production of the VW Golf, according to a spokesman for the Brazilian state of Parana.

Fifty million reais will go to expand VW’s factory at Sao Jose dos Pinhais in order to start assembly of Audi’s A3 compact sedan and Q5 compact SUV in 2015. A3 capacity is planned to be 26,000 units annually by 2018. The same factory will receive a 700 million real investment to prepare it to start building the latest Golf model.

Brazil’s federal government recently raised taxes on imported vehicles while offering tax incentives to automobile manufacturers that increased local investments. BMW had earlier announced a $267 million investment in a factory in the southern state of Santa Catarian, with a capacity of 30,000 units, starting production there in late 2014. Luxury sales in Brazil have increased due to rising wages for highly skilled professionals, persuading Audi to once again build cars locally. Audi had previously assembled A3s at the Parana plant from 1999 to 2006.

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23 Comments on “Ford to Invest $700 Million to Possibly Build Fusions In Canada, While VW Puts $529 Million Into Brazil to Locally Build Audis and Golfs...”

  • avatar

    So there is a possibility that the Edge, MKX, Flex, MKT, Fusion, and MKZ could all be built in Oakville? The Taurus and MKS are going to Flat Rock with the Fusion and Mustang. Does Chicago just get the Explorer or do you think the MKT/Flex could move there?

    • 0 avatar

      My guess is that they’ll keep the Taurus cop car on the old platform, in Chicago and add a Lincoln Explorer to replace the lost Taurus and MKS volume. Oakville gets one of the euro minivans (Galaxy or S-Max) to replace the Flex and MKT, which will be canned. Maybe they’ll move the Lincoln MKZ there too (high margin car in the high cost plant, frees up Fusion capacity in Mexico)? Flat Rock gets Fusion, Mustang, Taurus and MKS like you said.

  • avatar

    I think a full line automaker that wants a significant market presence in Canada should have at least one assembly plant in the country. If you want the money from Canadians as customers, you should employ a few of them in manufacturing.

    • 0 avatar

      conslaw – Canada assembles a very high number of vehicles given their relative small population, and most of those are for export to the USA. Then again, I see a lot of vehicles on the streets north of the border that weren’t assembled in Canada or the USA. So, once again it seems people care about other things than where it’s screwed together.

      Ford, VW, et. al. only care about the bottom line. If they can make a profit building in Canada they will, if not, they won’t. Pure and simple.

  • avatar
    SCE to AUX

    It happens in every industry, but I really tire of local governments ‘buying’ plants with subsidies. Instead, they should offer viable conditions for all businesses to begin with, rather than picking winners by catering to big shots.

    • 0 avatar

      I have few issues with this. At least automakers produce a tangible product. What ticks me off is billionaire sports team owners pleading poverty and extort cities to pay for new stadiums.

      • 0 avatar
        SCE to AUX

        Amen. Pittsburgh got 3 stadiums (stadia?) funded by the taxpayers even after they voted them down.

      • 0 avatar

        Hit the nail on the head April, extortion is the best word to describe it. The other part of it is somehow its ok in people’s minds to get say 15 years out of a *building* before it needs replacing or “upgrading”. I can’t even begin to dissect how wrong this thinking is or understand why others just go along with it. First world problems.

  • avatar

    Marcello how do you feel about Brazil’s new push to protectionism in the car industry?

    I’m not sure how i feel about protectionism personally. It helps build up a local industry and if the market as big enough that industry should eventually become self sustaining. Some countries like Australia, and New Zealand that used to have protectionism are losing all remaining automobile manufactures, or did decades ago since without protectionism they are no longer profitable or competitive.

    On the other hand it can make things more expensive.

    I do find it strange when Mexico and Brazil have free trade, and the golf will be built in Mexico. But, they are punished by building them in Mexico against the free trade pact if i understand correctly.

    • 0 avatar

      Hey Onus

      Since you ask…

      I think it’s necessary. The big picture:in the past (late 80s and 90s) makers aid the market was too small and, for example, prices would come down as the market reached 3 million. Guess what? We’re at that point and prices haven’t come down. Makers now allege the pie is bigger but there are more players. I don’t believe that VW, Fiat and GM all hold about 20% of the market, Ford 10. SO the Big 4 hold 70% of the world’s fourth largest market. Projections say that 5 million is within view. When Brazil opened up, imports from anywhere (cars made in Argentina count as made in Brazil, similar situation to US-Canada) grew to almost 15% of the market andprices really didn’t fall. Now they hover at 5%. Truth is margins are exceptional in Brazil and we are a major market from most global companies. For Fiat Brazil is bigger than Italy, for VW we are their 3rd largest (bigger than US), some say 20% of GM’s profits come from here. SO malers complain and ask for money but they make a killing.

      This time, the protectionist measures are rather intelligent. At the firt moment, those who don’t invest in production in Brazil, tariffs and taxes have been raised. For those who invest, depending on the investment, tariffs and taxes are maintained at the old (high) levels or even reduced in real terms. Another interesting twist is that this time the gov is rewarding not just any investment but the more technologically advanced the greater the tax benefits.

      Down the line, it’s probable that these measures will bring about greater competition, productivity gains (investment in technology not just in production) so even the end consumer might see some price drop.

      In relation to Mexico, I guess Brazil took a gamble. Brazil opposes the turning of NAFTA into AFTA like the US wants. So Mexico was a backdoor through which Brazil envisioned the chance to export to the American market. Sales here areso strong and margins so good that makers are not interested in exporting. Why export when your wares bring more money here? On the other hand,makers so a chance to bring Mexican built cars into Brazil. Makers have invested heavily in Mexico partly because of that. Of course, the primary target is the American market, but the possibility of getting to Brazil with very high prices was attractive. Brazil was losing out so they basically repealed the pact with Mexico. It is working, imports are down and that BMW investment was made here and not in Mexico.

      The same with VW and Audi. To supply Audi production, VW has invested in bringing technology in. This way they have guaranteed enormous tax breaks and the closing of the market has also guaranteed production of the latest Golf. Before the measure VW would laugh when asked if they would produce the Golf here.

      All in all I think the benefits outweigh the drawbacks. We are using other peoples moneys to develop our local industry. The government this time isn’t investing money directly, but is using the tools at its disposal to prod the makers into investing here. Who knows? Somewhere down the line even the final consumer might benefit from lower prices.

      • 0 avatar

        So Brazil closes its markets to imports, why should anyone (besides a big sap like the US) open their market to Brazilian exports? Maybe you don’t care about exporting cars, but Embraer can’t survive just selling to Brazilian airlines. Careful.

        • 0 avatar

          no quid pro quo here. Brazil has been trying to play hardball for a while now. To use the size and potential of our market to gain benefits. The try at the American market was quite underhanded and it wasn’t official, just my interpretation.

          Btw, our relations are at a low point. American cars for example are slapped with an extra tariff in retaliation for the US effectively blocking imports of Brazilian agricultural products. Then there’s the whole debacle of American spying on Brazilian politics and the petrol industry. It’s quite possible that Brazil will cancel the presidential visit to show our displeasure. Complaints abound and run both ways.

  • avatar

    When Canada penned the Auto Pact with the USA, one of the stipulations was that if you wanted to sell vehicles in Canada duty free you had to build in Canada. I believe it was build 2 to sell 10 in total. That helped build the Canadian auto industry. The AutoPact also meant that Canadian built vehicles and parts counted as “Made in America”. We still see the “made in America” clause when any “American Made” index surfaces.
    NAFTA replaced the Auto Pact which covers USA and Canada made vehicles and “old” duties that existed pre-AutoPact resurfaced as they were never officially extinguished. Those tariffs were challenged in the international courts and deemed illegal but due to lobbying by USA car companies and Ontario special interest groups (read UAW), and Ontario politicians, the Canadian Federal Government contested based on the grounds that a sovereign nation can set their own rules. They won and therefore any “import” that isn’t under NAFTA gets hit with a Tariff. IIRC, 8%.

    I am happy to see investment in Canada, Ontario has been hit hard with lost manufacturing jobs as companies prefer to “offshore” jobs to keep costs down.
    I do find it ironic that GMC shares were just sold by Canadian governments and then Ford gets a 135 million welfare cheque to build in Canada.

    • 0 avatar

      Trade restrictions are stupid, Consumers should be free to buy whatever they want from wherever they want. It’s up to national and local governments to make maintain conditions hospitable for competitive industries. And every country and region does not have to have the same industrial cross section – look up “comparative advantage”. And while you’re at it, look up “Smoot-Hawley”.

      And trade restrictions are especially stupid across the US/Canadian border, a line in the sand drawn across a highly integrated North American economy.

  • avatar

    Ford has been the number one automotive brand in Canada for some time now, so the possible Fusion assembly is welcome news. Add to it that the Fusion is a solidly competitive car and it’s wins all aboot.

  • avatar
    Big Al from Oz

    I hope this works out for Brasil. Brasil recognises UNECE regs, but isn’t a signatory yet, just like the Chinese. I think that’s good for the country.

    Once Brazil is a UNECE signatory it will have to produce ‘better’ vehicles it will be able to export like Thailand. Globally, Sergio would like this as well.

    Another area of improvement for the Brasilian’s is the desperate restructuring requirement of it’s taxation system. The layers of complex taxes/regulations increases cost significantly.

    Just building factories doesn’t give success. I hope Brasil can improve it’s current economic position before it to late………..again.

    As for Canada, it seems the Canadians are stuck doing whatever it’s dominant trading partner to the south wants.

    Canada being more aligned to a commodity currency means the value of the CAD is high. Will Canada eventually end up like Australia? Especially if labour costs increase with some of the superannuation schemes becoming available. I did read that some wages will rise from approx. $17per hour to over $32 per hour.

    Someone pays for this, the consumer? Or will the Canadian government increase subsidisation and gradually increase protection as much as the US does to protect it’s market.

    I do hope Ford has made the right decision, not some short-medium term decision through political pressure, ie, government/union.

    Remember, there’s lots of political tinkering with these kind of plans. $700 million, how much of this is Ford money, not government or government interest free loans (subsidised again).

    • 0 avatar

      hey Big Al,

      this time Brazil is trying something more intelligent. It is using a sticks and carrots scheme that aims to bring not just factories but mainly technology. If it works, in time there’ll be the infrastructure to export no t only cheap cars, but real world class cars.

    • 0 avatar

      Far be it for me to educate the world’s most well-known and erudite automotive industry critic, but I’ll try.

      Did you read the article? Why are you asking what subsidy Ford is getting? It’s right there. $135 million out of a total $700 million.

      Ford is the number 1 seller in Canada. Ford F150 is best selling vehicle, Fusion is number 1 midsize. And so on.

      Canadian pricing is 15 to 20% more than the same vehicle in US, for virtually all manufacturers. Thus, we pay extra to subsidize Canadian-built cars sent to the US.

      And just to make sure, we more than double freight costs compared to the US. Honda Accord from Ohio to Alaska, $895. Honda Accord across the lake to Toronto, $1695. And CNR does most of the hauling. A blatant ripoff by manufacturers, none of whom lose a single cent building and selling cars here in Canada. Quite the opposite. Sure they cry poor – but it’s a load of codswallop. Just another bargaining chip in the haze of misinformation endemic to vehicle manufacturers that politicians everywhere fall for everytime without fail.

      Canada’s import duty on foreign made vehicles from outside NAFTA is 6%. Has been for decades. The US is 1.8%.

      As for Brazil, they’re running down a rathole with their tariffs. Marcelo’s rationalizations are right out of the playbook that nations used a 100 years ago. Quite why Air Canada bought Embraers is beyond me. Oh wait, I know, subsidized cheap export pricing paid for by tariffs on the other end. Thankyou, Brazilian taxpayer.

      • 0 avatar

        “Marcelo’s rationalizations are right out of the playbook that nations used a 100 years ago.”

        Yep. Which is why they are working. No country since Great Britain has successfully industrialized without tariff walls. You neo-liberal radicals will be the death of us all if you keep power.

  • avatar

    There are so many trade barriers related to motor vehicles around the world, I doubt anyone knows them all. Some of them make good economic sense for everyone. Others don’t.

    “Some folks rob you with a six-gun, others with a fountain pen.”

    Currently, the biggest give away is China’s export led growth stimulated by its undervalued currency. Irony abounds. One of the poorer nations on earth is subsidizing the richest nations on earth with cheap exports – the so-called ‘China price’.

    • 0 avatar
      Big Al from Oz

      So true But wealthier nations just can’t stick their heads in the sand and create insular trade.

      The problem confronting the OECD economies is that the developing nations total GDP is now equivalent to ours.

      He who controls trade has the power. The US is losing out in this position. It will now have to come to a consensus more often than not will world politics and trade.

      Look at the current Mid East situation.

      To the comment on old Brittania. Did it work very well? The Ancient Romans did it much better.

      The US’s exaggerated trade and political position was always relatively temporary. WWII ‘artifically’ inflated the US’s position globally. Now we are truly leaving behind the damage of WWII, especially over the past 20 years. Even the Chinese situation if from that era.

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