Duncan: A crucial time for Ontario's auto sector

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The following is a column by Dwight Duncan, the former Ontario finance minister and current senior strategic adviser at McMillan LLP.

Ontario’s automotive sector has always had a special place in my heart, and for good reason.

My grandparents came to Canada and Windsor because Henry Ford was paying $5 a day at a time when an Irish or Canadian farmer couldn't earn anywhere near that in a week. I was able to put myself through university working summers in the Windsor and Essex Ford engine plants. As a young MPP, I had regular gatherings with friends and supporters in the tavern where Henry Ford allegedly struck the deal to create Ford Canada. I canvassed the same homes in Walkerville where Ford went door-to-door selling shares in that new company. Finally, I had a ringside seat at one the darkest periods in the sectors history when the governments of Canada, the United States, and Ontario had to finance and force the restructuring of General Motors and Chrysler.

My feelings are far from unique.

Today that industry, though threatened on many fronts, is a powerhouse in the Ontario and Canadian economies.

Various organizations, including the Ontario Ministry of Economic Development, remind us in glowing terms that the auto sector in Ontario supports a half a million jobs (one in seven Canadian workers). Ontario also leads North America in terms of vehicle production: we are the only jurisdiction that hosts five original equipment manufacturers (Honda, GM, Toyota, Ford and Chrysler), and we have in excess of 1,200 parts manufacturers, tool, die and mould makers. Finally, the industry contributes some $16 billion to the province's GDP and accounts for close to $63 billion per year in exports.

Ontario provides strong support to the sector and has created a business environment conducive to sector investment. The new federal government will have a chance to put its own signature on automotive policy and it is encouraging that the new economic development minister, Navdeep Bains, has a deep and well-grounded understanding of the sector.

Marketing our strengths and providing financial and regulatory assistance to the industry is important as we cannot ignore the challenges that face the sector in the medium and longer term. As Ontario Economic Development Minister Brad Duguid said last year: “The reality is we’re facing increasingly fierce global competition. There is no denying that low-cost, low-standard jurisdictions are getting the lion’s share of commitments.”

Earlier this year, the Conference Board of Canada stated that, in spite of record profits in 2015, the auto assembly industry is “struggling to grow,” with “no growth over the next five years.” The Conference Board also expressed concern about the Trans-Pacific Partnership trade deal and its impact, particularly on parts manufacturers.

More worrisome still is auto industry analyst Dennis DesRosiers’ very sobering view of the long-term prospects facing the Canadian industry. DesRosiers sees declining production in Canada relative to Mexico and the southern United States. Even recent significant investments by Fiat Chrysler Automobiles still do not add to Canada’s productive capacity. Cited in a variety of publications including The Economist, the Toronto Star, the Huffington Post and the Windsor Star, DesRosiers projects that Canada could lose all of its production base sometime in the next 14 to 24 years.

While DesRosiers has his critics, he has been at this a long time and is highly regarded. He started his career in the Ontario public service. He has never been afraid to speak truth to power and takes no pleasure in his findings. Like so many of us from auto towns, he has a passion for the industry and wears it on his sleeve.

Apart from all of this, the Detroit Three and Unifor will be bargaining this summer, questions swirl around the future of Fiat Chrysler in general and its Brampton plant in particular, and there are no product mandates for GM Oshawa beyond December 2017. Even more disruptive technological changes are coming, including autonomous vehicles, which will have a profound impact on the industry and driving habits. The increasing presence of Google and Apple in the sector will no doubt challenge the five automakers in Canada in the same way they will test the global financial services sector.

If all of this wasn't enough, it appears as though the United States is embracing a more protectionist view of its own economy. Donald Trump has spoken openly about the shortcomings of NAFTA from the U.S. perspective. The prolonged Democratic nomination fight has forced Hillary Clinton to reverse long-held views on free trade. It appears as though Canadian autoworkers could “feel the Bern” in ways they never imagined.

Enter Ray Tanguay.

Last June, the Wynne government, in a brilliant move, asked Tanguay to serve as a special adviser to the Ontario and federal governments on the sector and its future in the province. He has spent the past year gathering information and is expected to have recommendations for the government shortly.

The retired Toyota CEO brings a wealth of insight and experience in the global industry to his work for Ontario.

Given everything the industry is facing, Tanguay’s work will be of singular importance. Done right, it can help us navigate through what will no doubt be an extraordinary period. If it misses the mark, it will be a costly setback for our entire economy.

Either way, it can’t come soon enough.

Dwight Duncan
Senior Strategic Advisor, McMillan LLP
@DwightDuncan

Dwight Duncan has been a senior strategic adviser to McMillan LLP, the Toronto-based business law firm, since March 2013. He advises the firm's clients on investing and operating in Canada and abroad. A long-time MPP from Windsor, Duncan became Ontario finance minister in 2005 and held the cabinet post until he left politics in 2013. Duncan was also minister of energy, revenue minister and deputy premier, among other posts in the McGuinty government.