GM leaves Canada wondering what’s next
Oshawa closure has triggered a wave of soul-searching in Ottawa
OTTAWA— Like everyone else, the Prime Minister’s Office was caught off guard last Sunday when news first leaked about General Motors Canada’s bombshell announcement that it would close its assembly plant in Oshawa.
By mid-week, Justin Trudeau was on the defensive, telling the Commons his government will stay on track, carbon taxes and all, to help the economy “prepare for the transition” to the jobs of the future. But Conservative Leader Andrew Scheer accused him of sticking to “policies that are transitioning the auto sector right out of our country.”
General Motors’ decision to shut its Oshawa plant next year as it looks to a future based on “greener” electric and driverless cars has triggered a wave of soul-searching in Canada.
If the Oshawa plant — with its vaunted “flexible” car and truck assembly plat- forms and skilled workforce — is not where vehicles of the future will be built, then where is? Is Canada doing enough to position itself as the darling of the 21st-century automotive industry?
Or has “that ship left the dock,” as Premier Doug Ford said GM told him when he sought to reverse the Oshawa closure?
David Paterson, GM Canada’s vicepresident of corporate affairs, says he understands the questions.
Paterson’s answer, however, comes down to sagging market demand in an industry disrupted not just by consumers who prefer crossovers and SUVs to the Chevy Impala sedans made in Oshawa, but who are turning to ride-hailing services like Uber and electric carmakers like Tesla.
The U.S.-based automaker says it needs to find $6 billion in savings to finance profitable operations, and develop the next generation of cars.
“There’s nothing wrong that Canada’s doing, in our view,” Paterson said in an interview. “This is entirely because we don’t have a product after next year to put into the plant.
“Now, in the future, yes, we are going to be building electric cars and others. But that’s in the future.”
Pressed to explain why GM did not see Oshawa as a key player in that future, or what the governments might have done to prevent the move or others like it, he had no answer.
“This announcement had absolutely no public policy (link). The government has been, if anything, the best partner we could ever have,” he said. “In Canada we owe our existence to the government here. From back in 2009, the support that we’ve had out of them is extraordinary.”
Furthermore, Paterson says the cuts
have “nothing to do with our employees,” a skilled workforce that he describes as among the best in the world. He says Toronto is a technology “hot spot” with some of the best software developers and engineers, and governments are supportive of the industry overall. The whole point of GM’s transformation, he says, is to be able to find the billions to focus on developing those products of the future, including autonomous vehicles for its own fleets to service ride-hailing apps like Lyft, or car sharing services like Maven — all to appeal to consumers who aren’t interested in owning a car. It’s simple math. People make the “false assumption that a plant is plugand-play, ready to go,” he said, but auto operations come with five-year planning horizons, and major capital investment requirements. “Why don’t we have a number of electrical vehicles ready to go to be produced in the Oshawa plant? It’s because we don’t,” Paterson said.
“I can’t produce new electric vehicles out of pixie dust and put them into the Oshawa plant.”
Charlotte Yates, the University of Guelph’s academic vicepresident and an expert on labour and industrial policy in the auto sector, says GM’s Oshawa closure is not enough to “draw a conclusion that we’re not doing enough.”
Yates says GM wasn’t a case where the government could have said, “Here’s a ton of money.”
“This is about a response to an industry that is in significant transition,” she said, and a company that was virtually bankrupt10 years ago trying to prove it is still viable.
Yates doesn’t buy the argument that the market is swinging to electric vehicles either, noting it is a “tiny portion” of auto sales. In 2017, electric car sales were 1.4 per cent of the market in Canada.
The bigger disruption, she says, is autonomous vehicles. Yates says the Canadian government needs a more co-ordinated industrial strategy across federal-provincial lines to recruit new investment in the auto sector, and to ensure Canada remains “on the cutting edge of technology.” It could support companies like GTA-based auto parts maker Magna International, which has mused it would make a good partner for Google or Apple to make autonomous cars.
But if it does, Yates noted, “this is part of the big political public debate: do people want the government spending money on large corporations? If you want more assembly capacity, there isn’t a country in the world that doesn’t provide subsidies to the automotive companies to get them established.”
From GM’s perspective, Paterson says “what the government needs to do is have a good solid business climate for investment that makes this the best place in the world to either design or engineer or build cars and sell them.”
Federal Innovation Minister Navdeep Bains defends the government’s track record in doing just that.
In an interview, he said GM’s Oshawa decision does not reflect what he calls “a healthy and vibrant automotive sector.” Bains did not say if he holds out hope of reversing GM’s decision, but said the industry — which provides 500,000 “good quality jobs” in Canada — has been a “priority” since the Lib- erals came to power in 2015.
A program launched by the former Conservative government was supposed to make more than $1.7 billion available to help leverage other investments. By the time it wound down in 2017, only 10 projects drawing on $570 million had been announced — none of them by General Motors Canada.
The Liberals replaced it with a $1.2-billion strategic innovation fund, which was boosted by another $800 million in last week’s fall economic update. Bains says the government has already provided $389 million through this fund “which leveraged $4.1 billion worth of investment” in the big auto manufacturers and parts makers and funded 37 different projects. His department’s website lists 32 to date.
Bains says since 2015, companies have invested $5.6 billion in Canada’s automotive sector, with a net gain in jobs. He pointed to Toyota, Ford, Honda, and auto parts maker Linamar.
He boasts of other signs of a healthy sector, such as BlackBerry QNX, an automotive software platform and “Canadian success story,” which ensures a secure in-car network that the minister says will “enable greater vehicle automation towards fully driverless operation.”
“It’s not about horsepower, it’s software power,” said Bains.
The innovation minister does not believe there will now be a flight of manufacturing jobs to Mexico or China. Why not?
“We have all the key ingredients,” he said. “Incredible market access” to North America, Europe, and Asia through recently signed free trade agreements, a skilled workforce and government policies that are sparking investments.”
But scratch a little deeper and there are nevertheless lessons for Ottawa. Paterson points to irritants. “Auto manufacturing requires a lot of electricity, and the cost of electricity in Ontario is 20 per cent higher than Michigan, 30 per cent higher Ohio and 75 per cent higher than Texas. That’s not the deciding factor but it doesn’t help,” he said. “Nobody that I know has figured out a way how to fix that.”
He said GM hasn’t given up on Canada. Its plants at Ingersoll and St. Catharines are doing well, and GM is adding 500 soft- ware designers and engineers to the 500 it already has at its research and development facility in Markham.
Paterson also said GM has spoken to “over a thousand startup companies in Ontario in the last two years to look at how their technology, their software could complement stuff we’re doing and help scale up and help grow them as local Canadian companies.”
GM also partners with University of Toronto, University of Waterloo, McMaster University, universities in Quebec and sponsors other programs to engage with engineering students across North America.
He said University of Toronto students recently won a GM competition that challenges engineering students to take a plug-in hybrid car, the Chevrolet Volt, and turn it into an autonomous car as an engineering exercise. The teams then tested and competed with their inventions in the Nevada desert.
“So that’s the future and actually we have more than our share of it in Canada,” he said.
“Unfortunately for Oshawa, it ended up building the wrong product at the wrong time.”