BUSINESS/ECONOMY

Ontario revs up with auto dollars

MICHAEL SALTER,THERESA TEDESCO September 8 1986
BUSINESS/ECONOMY

Ontario revs up with auto dollars

MICHAEL SALTER,THERESA TEDESCO September 8 1986

Ontario revs up with auto dollars

BUSINESS/ECONOMY

The request from an unidentified buyer was a puzzling one. In July, 1984, Edward Hunt, the industrial commissioner for the town of Ingersoll, Ont., received a telephone call from a real estate agent with Pro Realty Ltd. in Toronto, 150 km to the southwest. The agent told Hunt that he had an anonymous client who wished to purchase at least 400 acres of land. Within days, Hunt replied that a 570acre agricultural site near the town’s boundary was available for industrial use. Although repeatedly asked to provide detailed information about the land, Hunt heard nothing definite from the realtor until last month. Only then did he learn that General Motors of Canada Ltd. and Suzuki Motor Co. Ltd. of Japan were the mystery buyers. The two automakers intended to build a $500-million auto plant on the site—a plan that would radically alter the small-town life of Ingersoll’s 8,500 residents. Said Hunt: “When we heard, we were ecstatic.”

Last week, in a traditional Japanese ceremony—featuring an outdoor proclamation and the ringing of a ceremonial Japanese temple bell—at Ontario Place in Toronto, the two companies announced publicly that they would build a 1.6-million-square-foot facility to produce 200,000 subcompact cars and light utility trucks a year, starting in 1989. Said a jubilant Douglas Harris, Ingersoll’s mayor: “We lured investment from the world’s largest company—it’s a plum. We sure feel like winners today.”

For Ingersoll, nestled in southwestern Ontario’s corn and cattle country, the ultramodern plant will create 2,000 jobs directly. But Ingersoll is not the only town benefiting from the receiving end of the province’s current auto boom. In the past three years Asian and North American car makers have announced five new car plants for Ontario—an investment of $1.8 billion, providing 7,000 direct jobs. As well, auto-parts manufacturers plan to add thousands of additional jobs at new or

expanded facilities to meet the expected surge in demand from the vehicle makers. That flood of auto investment has created a boom mentality— and the country’s fastest-growing provincial economy. Said Ontario Premier David Peterson: “This is a situation where everyone wins.”

The sudden expansion of the auto industry is so extensive that some experts are concerned that by 1990 the new production from Asian-owned auto plants in Canada and the United States, coupled with increased foreign imports, will create a crisis of overcapacity. If that happens, industry observers predict severe price cutting, which could force out of business inefficient domestic manufacturers and suppliers operating from antiquated facilities. “The market is going to tell us which cars succeed,” said Roger Smith, chairman of General Motors Corp. of Detroit, “and which plants close.”

Peterson said at the announcement ceremony that his government was pursuing other investments to offset Ontario’s heavy dependence on the auto industry. According to the latest figures from Statistics Canada, in 1984 the auto industry accounted for 13 per cent of Ontario’s 868,000 manufacturing jobs. Of the $55 billion in merchandise exported from the province that year, fully 44 per cent consisted of motor vehicles and parts. “It’s a chronic problem,” said Peterson, “and it is not one that is going to be solved overnight.” But Robert White, president of the 140,000-member Canadian Auto Workers (CAW) union, was enthusiastic about the joint venture. Said White: “When you get this kind of investment, do you take it or do you let it slip away?”

For Ingersoll’s prospective auto workers, the plant’s benefits are evident. Construction of the $500-million factory, which will receive $45 million in provincial loans and about $40 million in federal government grants, will begin next spring. It will be run on a day-to-day basis by Japanese managers using their management techniques. The plant’s 2,000 workers, who will belong to the CAW, will work in small teams. And they will be trained to do about 12 different tasks, unlike workers in domestic facilities who generally perform only one job.

Most municipal politicians regard a major auto plant as a major advantage—it leads to more jobs, more houses, more residents and more tax revenues. In Brampton, Ont.—20 km northwest of Toronto—the province’s largest single new auto plant is currently under construction. American Motors (Canada) Inc., which an-

nounced the $764-million factory in 1984, said that it will be producing 200,000 units of its new Premier model annually by 1989. The plant will provide 3,000 direct jobs. As a result, Brampton Mayor Kenneth Whillans says the city’s population—currently 180,000—will increase by up to 25,000. And AMC will pay “well over $1 million a year in taxes,” Whillans added.

Still, the prospect of sweeping changes brought in by such large investments has divided residents. In a subdivision located directly across from the proposed Brampton factory,

people complained about the likely increase in noise and traffic congestion. About 200 homeowners formed the North East Action Committee to prevent the plant from locating in their neighborhood. Vera lorio, a 34year-old mother of three, who served on the group’s executive committee, said that some members of the executive received abusive phone calls in the middle of the night from strangers who resented Iorio’s group for criticizing the location of the plant. And at a public meeting in late 1984, she said, there “was a lot of hooting

and hollering from workers who said, ‘How dare you push them out, we need the jobs.’ ” Declared lorio: “I would not want to go through that again.”

Many of the 4,000 spin-off jobs expected to be created by AMC’s multimillion-dollar investment will go to surrounding communities. VDO Instruments Ltd., the Canadian subsidiary of West German gauge maker VDO AG, for one, won a contract to supply AMC’s Brampton plant with instrument clusters for car dashboards. As a result, the company is building its first Canadian manufacturing plant—providing at least 150 jobs—in Barrie, Ont., 75 km from Brampton. And AMC itself is building a $30-million satellite plant that will employ 500 workers in Guelph, Ont., to supply its Brampton operation with such items as moulded instrument panels.

When it becomes public that the car industry is moving in, towns typically experience a sudden rise in housing prices. Last December Japan’s Toyota Motor Corp., the world’s second-largest auto manufacturer, said that it would build its first manufacturing plant in Canada in Cambridge, Ont., located 70 km northeast of Ingersoll. The $400-million factory, which will assemble 50,000 passenger cars a year starting in late 1988, will provide 1,000 direct jobs. According to a quarterly house price survey by Toronto-based realtor Royal LePage Real Estate Services Ltd., the price of a detached, three-bedroom bungalow in Cambridge was $92,500 last July, up 39 per cent from a year ago. The Cambridge price increase is attributed to the Toyota plant. “That’s what people on the street are telling me,” said Bernard Vogt, divisional manager of Western Ontario for Royal LePage.

Auto investment can also breathe new life into towns threatened by industry closures. Last week two companies, Markham, Ont.-based auto parts giant Magna International Inc. and Lemmerz International of West Germany, said that they would build a joint venture wheel manufacturing plant in Collingwood, Ont., located on the southern tip of Georgian Bay. The $45-million plant, which will receive an $8.1-million loan from the Ontario government, will provide 350 jobs by 1989. The announcement came only days after the town’s 13,000 residents learned that Canadian Shipbuilding and Engineering Ltd., Collingwood’s century-old shipyard, would close on Sept. 12. Only 50 employees were still working at the yard after 700 were laid off since last May.

Despite the job-creating impact of the surge in foreign auto dollars, some industry executives say that the Japa-

nese and Korean producers should be forced to adhere to the Canada-U.S. auto pact. They say that efficient foreign car producers pose a threat to domestic manufacturers—who have to meet stringent auto pact requirements. Under the 21-year-old agreement, Detroit’s big four automakers—GM, Ford Motor Co., AMC and Chrysler Corp.— can send cars, trucks and parts across the Canada-U.S. border duty free if the companies maintain a level of Canadian content equal to 60 per cent of sales. They must also build a number of vehicles in Canada roughly equal in value to their sales there.

Two weeks ago in Toronto, Harold Polling, president of Ford, charged that Canadian investment incentives to Asian car manufacturers would give them the opportunity to ship their vehicles cheaply into the United States. Said Polling: “This is additional capacity in the North American market, and you sure aren’t going to see them [those cars] all in Canada.” Other industry observers say that the Asian producers, who have for the most part not given firm commitments to meet the Canadian content rules, are the most likely to survive an excess-capacity crisis. Said Samuel Gindin, research director for the CAW: “In the long term, we will lose jobs unless we enforce the principle that the people taking over the market have Canadian content.”

Under the terms of the GM-Suzuki joint venture, the plant is expected to meet auto pact requirements within two years of production. That marks the first time that an Asian producer has made a definitive commitment to meet Canadian content and other auto pact requirements, noted Gindin. Japan’s Honda Motor Co. Ltd., which is building a $200-million car assembly plant in Alliston, Ont., 60 km northwest of Toronto, has said that the 80,000 Honda Accord and Civic models produced there annually by 1989 will contain only 20 per cent Canadian components. Ralph Luciw, vice-president for Honda’s automobile division said that the company was working toward achieving Canadian content requirements, but had not set a date to achieve that goal. Toyota officials have said that they would try to qualify their Cambridge plant under the auto pact by the end of the decade.

But last week the continuing clash between domestic and Asian car makers receded from public view. As industry, government and labor leaders sipped sake, Japanese rice liquor, to toast the GM-Suzuki alliance, the emphasis was clearly on celebration.

MICHAEL SALTER and THERESA TEDESCO