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by Daniel Gloade on August 16, 2012

The automotive industry is very important to Kitchener, Waterloo.  According to the Canada Autoworkers’ Union website, in 2001 Kitchener-Waterloo autoworkers paid approximately $478 000.00 in municipal and income taxes.  It also states that approximately one in eight jobs is either directly or indirectly related to the automotive industry.

While I acknowledge that these figures are old and from an admittedly biased source, I still suspect that many small businesses in Kitchener rely on purchases from larger automotive factories and auto workers.

The automotive industry has become relevant once again because the current C.A.W. union contracts will soon expire.  The C.A.W. and General Motors are currently meeting in Toronto to hammer out a new deal.  Both sides have arguments to make.

The autoworkers want some assurances that factories will not close and, perhaps, other plants will re-open.  Autoworkers point out that they made large concessions during the financial crisis of 2009.  The car companies have largely rebounded since then, and the workers want some concession returned.

The car companies respond that Ontario is the most expensive place to build automobiles.   One reason is the Canadian-American dollar parity.  When the contracts were last negotiated, the dollar amounts were based on Canada’s dollar being worth approximately 3/5 of the Greenback.  Canadians therefore received more Canadian dollars per hour than the Americans receiving American dollars.  This unforeseen dollar parity has increased the cost of manufacturing in Ontario.  In my opinion, this issue can be resolved if the autoworkers hourly wage rate is an equation based on the respective countries cost of living and annual inflation.  I acknowledge, however, that union leaders would have a more difficult time convincing workers to accept a flexible wage rate.

Second, car companies will not continue to manufacture in Canada unless there is some assurance manufacturing costs will eventually decrease significantly.   Autoworkers argued that it is unfair to expect them to take a reduced wage rate after they have made their financial plans (mortgages on homes, etc.).  Car companies respond by pointing out that they can open factories in places like Mexico.  The manufacturing costs are much smaller in Mexico due to the smaller hourly wage rate.  The automobiles are still manufactured well (the Ford Fiesta is made in Mexico.)

In the United States, the two parties have found a compromise solution.   Autoworkers accepted a two-tiered payment system.  Those workers who were hired after a fixed date receive a much smaller hourly wage than more experienced workers performing the same work.

Canadian workers have rejected the two-tier system, however.

Those of use outside the automotive industry also have an interest in this debate.

As stated above, if Kitchener loses autoworkers then there is significantly less income in the community to purchase cars.

Second, the Canadian taxpayers (through the Government) have given car companies huge bailouts in exchange for car company stock.  Taxpayers may be bitter that these companies were bailed out just so that can invest outside of North America.  Car companies can respond, however, by saying that a bankrupt Detroit Three helps no one, including the Canadian taxpayers who will not see a return on his or her investment.

I suggest that there is an underlying issue that affect these talks but neither the negotiating parties nor the mainstream media are openly discussing.  The market for North American automobiles is shrinking faster than the North American economy’s ability to adapt to it.

North America makes too many vehicles.  There is excess manufacturing capacity.  North American companies are exporting fewer cars due to the high cost of manufacturing.  Cars last longer, which reduce the demand.  The economic collapse means that people are spending less and financial institutions are less willing to lend.  Earlier automotive purchase incentive programs means that most people already have cars.

The biggest reason for the market’s collapse is the type of vehicles produced, however.  North American car companies and factories mostly make vans and S.U.V.’s.  There will be greater pressure on North American governments to reduce fuel conception (climate change, national security, trade imbalances).   The age of the large vehicle is passing, and the North American auto industry is passing with it.

So if North Americans are not building large automobiles, what are they going to manufacture?  If North America’s manufacturing base shrinks, what types of jobs shall replace them?  These questions, I suggest, are among the most important facing our country.

Any suggestions?

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