Automotive strategy needed

There’s a vital question about where Canada will fit in the future global economy. This directly affects our jobs and living standards. And how well we are able to do in the fast-changing and increasingly high-tech automotive industry may be a good test case of our ability to succeed in a major global industry.

  • Nov. 12, 2014 9:29 p.m.

There’s a vital question about where Canada will fit in the future global economy. This directly affects our jobs and living standards.

And how well we are able to do in the fast-changing and increasingly high-tech automotive industry may be a good test case of our ability to succeed in a major global industry.

We will need more than natural resources for a strong economy. But if recent developments in our automotive industry are a sign of things to come, the future is not bright.

Our MPs don’t talk much about it, yet this is Canada’s key manufacturing industry with close to 120,000 employees and, after oil, is our leading exporter.

But Canada is falling behind in retaining and attracting new investment, losing ground to Mexico and the U.S., and is lagging even further in the new technologies that will dominate the future automobile.

According to the Centre for Automotive Research, of US$43 billion invested in the North American auto industry in 2010-2012, only five per cent was invested in Canada, and there are no signs of improvement.

But why are we not attracting more investment? Based on conventional economic theories there shouldn’t be a problem. For example:

l Canadians were told during the NAFTA debates that they had nothing to fear from downward pressure on wages from the U.S. South or Mexico. Our higher productivity would offset any lower-cost labour advantage.

Yet it is Mexican workers, or lower-paid workers in U.S. southern states who are attracting investment and new jobs — despite the fact that Canadian autoworkers have made concessions. Mexican workers are just as capable of being trained to work in automated auto plants as Canadian workers, and for less money.

l Canadians were told that they did not have to worry about loss of competitiveness for investment and jobs because our exchange rate would automatically adjust, restoring competitiveness. If weak competitiveness was costing us jobs, our dollar would decline, making us competitive again.

But that hasn’t happened. Our dollar has soared despite Canada losing significant manufacturing investment and jobs.

l Canadians were told that if we had low corporate taxes, that this would attract investment because tax rates were a key factor in investment decisions.

Today, our government boasts that Canada has one of the lowest corporate tax rates. Yet this has not led to a surge in investment and job creation. Auto companies haven’t rushed across the border from Michigan or Ohio to Ontario because of a lower tax rate here.

l The Bank of Canada and Finance Canada told Canadians not to worry about the high exchange rate — this, they said, would significantly lower the price of imported high-tech machinery and equipment, enabling Canadian companies to modernize, increase productivity and become much more innovative and competitive.

It didn’t happen on any scale. In the auto sector, investment largely dried up.

What has really been happening is that the U.S. and Mexico have made it a much higher priority to attract major auto plant investments.

There’s a reason for this: The presence of a major assembly plant means there will also be a large number of auto parts plants which, in total, may employ many more people than the assembly plant, so the economic benefits outweigh the costs of incentives.

The assembly plants are seen as anchors. It explains why countries dangle incentives to attract such plants. Canada does it as well, but compared to other countries our incentives may be relatively modest.

Like it or not, Canada has to be in the game to attract major assembly investments. But this is only part of the story.

Automotive technology is changing rapidly and what used to be a mechanical vehicle is now an electronic vehicle, a “connected car,” perhaps soon a “driverless car,” and loaded with software. Vehicles are also using new materials such as carbon fibre, and shifting to batteries and fuel cells.

We need to help build competitive companies in many of these fields.

To attract investment and create new jobs in a much more competitive global economy, Canada will need to be at the frontiers of knowledge and skills. This means much more attention to an industry that will depend on much more technologically agile suppliers.

Yet if we are to capture opportunities from new technologies, we will also need the assembly plants. So we cannot avoid the incentives game.

What this means is that we need a much more focused automotive strategy in Canada.

Economist David Crane is a syndicated Toronto Star columnist. He can be reached at

Just Posted

Red Deer garage owner finds kitten trapped under truck

Jeff Roberts, owner of Wrenchmasters AutoPro in Red Deer, brought the kitten to the SPCA

This is spring?

Central Albertans have been getting a taste of summer four weeks early

Red Deer arm wrestler steps onto big stage

World Armwrestling League’s deal with streaming service gives Matt Mask a chance to shine

Spring flooding not necessarily a sign that worse to come

Rain is the main culprit when June mountain snowmelt turns into flooding

WATCH: Red Deer walks to reduce stigma associated with schizophrenia

First annual Strides for Hope walk takes place across Alberta

Central Alberta athletes shine on the track at CASAA Zone Track and Field Championships

Lindsay Thurber Raiders athlete Hayley Lalor took the win in the senior girls individual aggregate

Businesses, project recieve award for efforts to improve Central Alberta air quality

Three organizations will be recognized for the work they have done to… Continue reading

Trudeau defends $600-million price tag for G7 summit in Quebec town of La Malbaie

LA MALBAIE, Que. — Prime Minister Justin Trudeau is defending the hefty… Continue reading

Weather now co-operating with evacuation of fire-threatened communities

WINNIPEG — The weather is now co-operating with efforts to evacuate some… Continue reading

Canadian auto sector observers doubt U.S. will carry through on tariff threat

Canadian auto industry observers are reacting with shock and disbelief to news… Continue reading

Bus bursts into flames on parkway; driver, passengers safe

HOLMDEL, N.J. — Authorities say a bus driver and about two dozen… Continue reading

Facebook won’t pay compensation for Cambridge Analytica case

BRUSSELS — Facebook said Thursday it will not compensate users in the… Continue reading

Five standout tracks from Shawn Mendes’ vulnerable new self-titled album

TORONTO — Shawn Mendes is slowly letting the world capture a glimpse… Continue reading

Canadians confused about GM foods, support mandatory labelling: study

HALIFAX — The vast majority of Canadians believe genetically modified foods should… Continue reading

Most Read

Five-day delivery plus unlimited digital access for $185 for 260 issues (must live in delivery area to qualify) Unlimited Digital Access 99 cents for the first four weeks and then only $15 per month Five-day delivery plus unlimited digital access for $15 a month