Asian car firms make Ontario the new Detroit

PUBLISHED : Saturday, 27 May, 2006, 12:00am
UPDATED : Saturday, 27 May, 2006, 12:00am


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Asian producers are a key factor in Ontario's thriving automotive sector. For the past two years, the eastern Canadian province has topped Michigan as the leading hub for car production in North America.

Last week's announcement by Honda Motor that it will build a US$137 million engine plant near Alliston, Ontario - its first in Canada - has helped to cement the province's leading position. Now, Canadian officials are trying to persuade Nissan Motor to build an assembly plant in eastern Canada's industry powerhouse by 2010.

Ontario is bucking a key trend in North America's automotive industry - the shift of jobs and investment to the south.

Ontario's economic development minister, Joe Cordiano, is making a trip to Japan next month to persuade Nissan to set up shop in the province. His plans received a big boost from Honda's announcement last week.

In June last year, Toyota Motor Corp revealed a plan to invest US$656 million in a new assembly plant in Ontario by 2008. The operation will create 2,000 jobs.

In less than three years the province had attracted more than US$6.2 billion worth of new investments, said Ontario Premier Dalton McGuinty.

Honda's new plant will be near its vehicle assembly plant northwest of Toronto. Honda employs about 5,100 people in Canada, 4,300 of them in Alliston where it makes 390,000 vehicles a year, among them the Civic, Canada's best-selling car for eight years.

When it reaches full production soon after its start in 2008, the new factory will churn out 200,000 four-cylinder engines per year. The investment is part of Honda's global expansion and a milestone in Mr Cordiano's development strategy for Ontario.

'We have that critical mass now so we can make the pitch that more should be coming,' he said.

Several municipalities in the province were courting Japanese carmakers and components producers to follow leads for potential investments, said industry analyst Dennis DesRosiers.

Ontario is in midst of a major marketing effort to position its southern region, across the border from Detroit, as the centre of North America's car industry.

At the centre of the campaign is the provincial Automotive Investment Strategy which has committed US$410 million to recent investment projects by DaimlerChrysler, Ford Motor and General Motors. The financing is targeted at encouraging innovation in the sector.

As a contribution to Honda's new project, Ontario pledged to improve its infrastructure in the Alliston area for an amount equal to 10 per cent of the company's investment. After Toyota's announcement last June, Canada's Industry Minister, David Emerson, said: 'Canada can win the battle of inches for North American product mandates.' Most of the cars from Ontario's assembly lines are exported to the United States.

Signalling the next possible move by a major Asian car manufacturer, Nissan said it was considering building a plant in Canada once its sales in the country accounted for 10 per cent of its total North American sales - a threshold it may reach by the end of the decade, according to Mr Cordiano.

Nissan already assembles cars in Mississippi, Tennessee and Mexico. Last month, it reported 2005 sales in North America of close to 1.08 million vehicles, a record year for Nissan in that market.

For Ontario the new investments could not come at a better time. Major industries such as pulp, paper, furniture and cars are reeling as the Canadian dollar has soared, making exports more expensive. The car industry is suffering from its strong focus on American producers who see their market share being taken away by expanding Asian competitors.

General Motors, the world's largest carmaker, announced late last year that it would cut 30,000 jobs and close nine factories in North America, among them its car plant No2 in Oshawa, Ontario.

Amid the onslaught by Asian carmakers in the North American market, Ford earlier this year announced that it would reduce its capacity by 36 per cent on the continent, idling a casting facility in Windsor, Ontario, and cutting production at St Thomas, Ontario, to one shift.

But while Michigan has lost 18 per cent of its car-related jobs since 2002, Ontario has suffered a loss of only 0.5 per cent.

The car and car parts industry, with annual shipments of about US$89 billion, is the engine of the province's economy, accounting for almost half of its exports. All the industry's Canadian assembly plants are in Ontario.

For new investors - among them Canada's second-biggest parts supplier, Linamar, which said earlier this month it would spend almost US$1 billion in the province over the next five years - the rapidly rising Canadian dollar is not a major problem.

Although the currency has gained one-third in value against the US dollar since 2003, industry insiders point out that many of the parts and components that go into vehicles in Canadian plants come from the US, cutting import costs.

'We're creating the best environment for our auto industry to compete with any jurisdiction around the globe,' said Mr Cordiano who claims that the province offers cheaper health insurance, better qualified workers and higher productivity than comparable regions in Michigan or Ohio.

Ontario also provides tax credits that can cut the after-tax cost of research and development by nearly 60 per cent.

With its Automotive Investment Strategy, the province is trying to persuade car companies to do more research and development locally. The bet is that funding will help Ontario create leading-edge manufacturing technologies for long-term competitiveness and that research spending will be the key to expansion.

While politicians are celebrating new investment in the province, the car industry is under heavy pressure, not only because of the struggles of North America's big three carmakers.

Although the strong Canadian dollar makes it cheaper for carmakers to buy parts from the US, it is also causing headaches, especially in the car parts industry which exports most of its output to the US.

At the annual convention of Canada's Automotive Parts Manufacturers' Association early this month, the organisation's president, Gerry Fedchun, said: 'The high dollar is killing us right now.'

Many of the 400-plus parts makers in Ontario sell a large part of their output to US assembly plants and are suffering due to the strong Canadian dollar which rose past 90 US cents against the US dollar for the first time in 28 years this month.

The car parts industry in Ontario employs more than 90,000 people and generates annual sales of more than US$22 billion. Chip McClure, chief executive of Arvin Meritor, a supplier of engine and transmission parts, said: '[The industry] has its back up against the wall. We are making parts at the lowest margins in history.'