'A lot of culprits' are driving GM out of Oshawa — but Trump's tariffs haven't helped
'If you build it in the U.S. and sell it in the U.S., you don't have to meet any rules of origin'
The new North American trade agreement — the one that was supposed to be key to the future of Canada's automotive sector — didn't even make it to its signing ceremony before General Motors announced it soon will stop assembling cars in Oshawa, Ont.
"The car industry now has stability and room to grow and thrive," Foreign Affairs Minister Chrystia Freeland wrote in an op-ed published just last month, describing what she called the "well-balanced outcome" of Canada's trade negotiations with Washington.
Things don't feel very stable or thriving for people living in Oshawa right now. And it doesn't look like the federal or provincial governments are prepared to put significant cash on the table to change GM's mind this time.
Can these lost Canadian jobs be blamed on trade upheaval? Not entirely — but American protectionism did play a role.
"Challenging" but "manageable" — that's how Matt Blunt, president of the American Automotive Policy Council (which includes GM), described the terms of the United States–Mexico–Canada Agreement (USMCA) to Bloomberg News earlier this month.
For Canadian plants, "it would have been worse without a new NAFTA deal," said Kristin Dziczek, vice-president of industry, labour and economics at the Michigan-based Center for Automotive Research.
"While the USMCA does raise the costs of production in North America, it doesn't do so dramatically," she added.
So what killed GM in Oshawa? Dziczek points to the number of GM plants, including some in the U.S., currently running below capacity, and the number of production lines making sedans the market doesn't want.
Meanwhile, the Trump administration continues to threaten "national security" tariffs on imported cars and automotive parts.
Roughly nine out of every 10 vehicles assembled in Oshawa are exported to the U.S. market.
Canada's means of dodging future car tariffs — a USMCA side letter — hasn't been signed or tested yet. (A signing ceremony was expected next weekend, but details have yet to be released.)
All things considered, it may feel safer for GM to build its cars where it sells 80 per cent of them — in the United States.
"This is a business that's got risks on many fronts," Dziczek said. "If you could avoid it, you would."
Timing the only surprise
GM's statement Monday spoke of shifting more resources to its electric and autonomous vehicle programs. While Canadian engineers will get a piece of that, Oshawa assembly workers will not.
Many of the critical components for these cars of the future come from Asia. That fact makes it more difficult for a (hypothetical) Canadian-assembled green or autonomous vehicle to meet the USMCA requirement of 75 per cent North American parts in order to be sold tariff-free in the U.S.
"No one's supply chain is about those next-generation vehicles yet," Dziczek said.
"But if you just build it in the U.S. and sell it in the U.S., you don't have to meet any rules of origin."
No industry forecasters saw a new vehicle ("next-generation" or not) being assigned to the Oshawa assembly plant beyond 2020, she said. The plant already has exceeded the typical 40- or 50-year lifespan for such facilities, and Oshawa hasn't seen the kind of technological upgrades or new capital that would suggest a rebirth.
Throw in its more expensive unionized workforce and it becomes obvious why Oshawa has been on Dziczek's "worry list" for "almost a decade" now.
"There are a lot of culprits, not just globalization," she said. "It's not a surprise. It's just a surprise that it's now."
Issues predate Trump
Trade lawyer Mark Warner, who worked on GM's bailout a decade ago on behalf of the Ontario government, said the problems with the carmaker's cost structure a decade ago were never resolved.
The federal and Ontario governments could throw another relief package at GM, he said, but it would have to be big — one that would include union concessions, electricity rebates, tax reductions (including carbon tax relief) and direct incentives to compete with U.S. jurisdictions.
That would be a "substantial commitment ... probably on a scale that GM realizes neither government would do," Warner said.
Another bailout seems unlikely, judging from the early political reactions. So here we are.
"The trade uncertainty might bring the [plant closure] announcement date forward, but it didn't create the announcement," Warner said. "This was an issue before Donald Trump."
Still, when NAFTA talks concluded without Washington lifting the U.S. steel and aluminum tariffs, it made the Oshawa plant's cost issues even worse.
"All the auto companies are reporting on just how many billions of dollars they're losing because of these tariffs," Warner said.
USMCA wasn't just for GM
Let's put ourselves in the shoes (or workboots) of those in other industries, then — those who perhaps were asked to swallow concessions in the NAFTA talks in order to save automotive jobs in Ontario.
How do these layoffs look to them? Is this trade deal still worth it?
"The [USMCA] auto provisions were not put in effect just for GM," Warner said. "The so-called Canadian automobile industry is directed at selling a few cars here, and selling a lot of cars in a market 10 times our size (the U.S.)."
Translation: Canada's car industry doesn't exist despite international trade. It exists because of international trade. Canada doesn't have a large enough market to support automotive manufacturing on its own.
According to that thinking, it was critical to renegotiate the USMCA to keep the U.S. market open and protect as many jobs in Ontario as possible, particularly at production facilities linked to Asian carmakers like Honda and Toyota.
Similarly, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which takes effect at the end of this year, makes Japan's supply chains more efficient for exporting Canadian-assembled vehicles to the U.S.
Oshawa's jobs are gone. But other jobs may be more secure with these trade deals than they would be without them.
ABOUT THE AUTHOR
