Friday, April 17, 2009

Canada's Vital Auto Industry: Past, Present and Future

For half a century, the risk of catastrophe has loomed over the auto industry in Canada, those who work in the plants, their families and the communities where they live. Though it was not possible to predict when and in what precise form a transforming crisis would strike, the calamity that has befallen the industry and that threatens its future has been entirely predictable. The critical decision that pointed Canada’s auto industry toward this doleful time was made in the 1960s. It antecedents went back further to the beginning of the 20th century.

For over a century, Ontario has prospered as a consequence of the location in its cities of an automotive industry, large enough to be globally significant. From the eastern edge of the Golden Horseshoe four hundred kilometers westward to Windsor, Southern Ontario is home to over half of Canada’s manufacturing and an even higher proportion of the nation’s heavy manufacturing. The jewel in the crown of Ontario manufacturing, which includes steel, chemicals and electronics as well, is the auto industry. Directly and indirectly, hundred thousands of jobs in Ontario are linked to auto industry. Southern Ontario has all the locational advantages, as an auto producer, of Detroit and the American Midwest. Ontario’s automotive industry has benefited from much in addition to its proximity to markets.

The first auto makers in Ontario were Canadian. The most famous of them was Oshawa’s Sam McLaughlin who made the leap from manufacturing horse-drawn carriages to producing the horseless variety. Because he could not manufacture engines as cost-effectively as the Americans could, McLaughlin began importing Buick and Chevrolet engines from Detroit. In 1904, Henry Ford opened a factory in Windsor, Ontario across the river from his Detroit operations, to manufacture cars.

Just over a decade later, McLaughlin sold his Chevrolet and Buick operations to General Motors, leading in 1919 to the establishment of General Motors of Canada. During the 1920s, the American Big Three, GM, Ford and Chrysler, found it profitable to assemble vehicles in Canada, both for the Canadian market and for export to other British Empire countries. Locating plants in Canada permitted the Big Three to skirt around Canada’s high tariffs on imported manufactured products. In addition, autos produced in Canada were eligible for the low tariff advantage known as British Preference when they were shipped to other countries in the Empire. This phase in the history of the Canadian auto industry peaked in 1929 when the country’s auto makers produced 263,000 vehicles, 102,000 of them for export.

The Great Depression that followed the stock market crash of 1929 slammed the door shut on this first golden age in the history of the Canadian automotive industry. By 1933, domestic auto production had plunged to 40,000 vehicles annually. Although auto production increased from this low during the rest of the decade, it did not get close to the 1929 level. During the Second World War, production of civilian vehicles was halted altogether. Instead the auto industry turned its attention to the production of military vehicles.

When civilian auto production resumed after the end of the war, the Canadian auto industry functioned in a global environment far different from that of the 1920s. In the 1950s, the market for automobiles expanded enormously in North America and Western Europe. Fiat, Volkswagen, Renault, and Peugeot grew swiftly in Italy, West Germany and France. British plants were turning out Austins. In Sweden, a potentially important role model for Canada, as a small country producing its own cars, there were two national companies, Volvo and Saab. Beginning to emerge during these years were Honda, Nissan and Toyota, the Japanese auto producers that would grow to dominate much of the global auto market in coming decades.

The Canadian subsidiaries of the Big Three U.S. producers no longer had access to their former export markets in British Empire/Commonwealth countries. Limited to the Canadian domestic market, they had become “miniature replicas” of the operations of the Big Three in the United States. They were hampered by all of the problems of branch plant manufacturing. The vehicles they produced were conceived and designed in the United States where top management was located.

Almost all of the production machinery deployed in the Canadian plants was produced south of the border. Most of the engines and sub-assemblies and many of the parts and components used in the production of autos in Canada were imported from the United States. In addition, the Canadian auto assembly plants of the Big Three could not match the economies of scale of their American operations. That was because, while the production run for a single auto could total 300,000 vehicles in the U.S., the Canadian domestic run for the same model was in the range of 30,000 vehicles. This meant that the plants in the U.S. could achieve a ratio of fixed to variable costs that the Canadian plants could not hope to match.

By 1960, all of these factors had come together to create a chronic malaise for the industry. Canada was importing far more finished vehicles than it was exporting. The largest single source of these vehicles was Britain, whose auto makers shipped 80,000 vehicles annually to Canada. When to this was added the import of engines, sub-assemblies and parts, Canada was saddled with a serious negative trade balance in the auto sector. The relatively small Canadian auto parts sector supplied only a limited portion of the parts requirements of the assembly plants. The wages of Canadian auto workers were significantly lower than the pay of American auto workers.

During the economic downturn at the end of the 1950s, John Diefenbaker’s Conservative government established a one-man royal commission to consider the options for the auto industry, headed by economist Vincent Bladen. While the Royal Commission Report in 1961 did succeed in analyzing the ills of the industry, its recommendations had little to do with the future evolution of the industry.

Over the next few years, two broadly divergent options dominated the debate about the future of the Canadian auto industry. The first option was that Canada should follow the lead of European auto producing countries and manufacture vehicles primarily for the Canadian domestic market. The second option, the one that became the basis for future government policy, was that Canada should integrate its auto production facilities with those in the United States so that the Canadian plants would produce for segments of the continental market, under the terms of a trade agreement in the auto sector. Both choices had their champions. Backing the first option were key locals of the Canadian section of the United Auto Workers (UAW) and a sizable number of Canadian owned auto parts producers. On the side of continental integration were the Big Three auto manufacturers and the Canadian region of the UAW.

The choice the Liberal government of Lester Pearson ultimately made was that of continental integration of the auto industry. The concern the government had with that choice was that General Motors, Ford and Chrysler were U.S. owned companies and so too were many of the major parts suppliers for the Canadian auto industry. The problem was that at some critical point in the future, perhaps in the midst of a severe economic crisis, decisions could be taken in the United States that could be deeply injurious to Canadian interests.

In 1964, the Pearson government negotiated the Canada-U.S. Auto Pact with the Johnson administration in Washington. The Auto Pact came into force in 1965. A sectoral trade agreement, the Auto Pact differed in essential ways from the Canada-U.S. Free Trade Agreement and NAFTA which were to come in the 1980s and 1990s. The Auto Pact was a deal that allowed the Big Three auto makers and the producers of original auto parts (parts included in vehicles at the time of purchase) to ship their products duty-free in either direction across the Canada-U.S. border provided certain commitments were met. The reason for the inclusion of these commitments, known as safeguards, was that the Canadian government insisted that since the auto companies were American owned there needed to be a guarantee that significant auto production would continue in Canada once the Auto Pact went into effect. The first safeguard, one that was easily met and swiftly became unimportant was that companies had to match or exceed the dollar value of their production in Canada in 1964 to be eligible for duty free treatment of their shipments. The second safeguard, the one that really mattered was that as the market for cars and trucks for the auto makers increased in Canada, their production had to increase as well. In the case of cars, every additional dollar worth of sales a company made had to be matched by at least sixty cents worth of additional production in Canada, or of Canadian Value Added, the term that was used. In the case, of trucks, every additional dollar worth of sales had to be matched by at least fifty cents worth of additional Canadian Value Added.

While the Auto Pact covered original auto parts, those included in the vehicle at purchase, it did not cover replacement parts, those parts that needed to be replaced in vehicles as repairs were made by car owners. The replacement parts market in Canada continued to be sheltered against imports from the United States through the imposition of a fifteen per cent tariff.

Within a few years of the implementation of the Auto Pact, the auto plants in Canada were retooled to produce products for segments of the North American market rather than simply for the Canadian market. Once this process of reordering Canadian production was complete, about sixty per cent of the vehicles assembled by the Big Three in Canada were exported to the United States. Most of the Big Three vehicles purchased by Canadians were assembled south of the border.

With the Auto Pact in effect, a gigantic two-way trade in assembled vehicles and auto parts was established across the Canada-U.S. border. The locus of this trade was the border crossing points between Detroit and Windsor, Ontario, although other border crossing points between Ontario and the U.S. were also important. A pattern in this trade was established right from the start, and this pattern persisted throughout the life of the Auto Pact, during the good years and the bad, and even after it ceased to function. Canada’s exports of assembled vehicles to the U.S. were much larger in value than Canada’s imports of assembled vehicles from south of the border. On the other hand, Canada imported a much greater dollar value worth of auto parts from the United States than the value of its parts exports to that country. Except for a few years in the early 1970s, when Canada’s overall trade in assembled vehicles and parts under the Auto Pact lapsed into deficit, Canada’s auto trade with the United States became the source of a persistent and growing trade surplus.

There were a number of reasons for the trade surplus. One of the most important was the long-term decline in the value of the Canadian dollar against the U.S. dollar. In the mid 1960s, when the Auto Pact went into effect, the Canadian and U.S. dollars were of roughly equal value. It was assumed by the governments signing the pact and by the auto companies that wage costs would be similar in Canada and the U.S. As the value of the Canadian dollar slid against the U.S. dollar after the mid 1970s, the cost of labour in Canada became lower for the auto companies than the cost of labour south of the border. For instance, when the Canadian dollar was at eighty cents against the U.S. dollar, the labour costs of auto companies in Canada were effectively twenty per cent lower than in the United States, even if the nominal rate of pay was the same in the two countries. Another major reason Canada did well under the Auto Pact in attracting the investments of the Big Three was that in Canada the health care costs of employees were covered by medicare. In the United States, however, the auto companies had to provide billions of dollars in health care benefits to their employees. Two other factors were significant. Autoworkers in Canada had a better on the job record, with lower rates of absenteeism and less sabotage on the job to company equipment than did their American counterparts. Finally, the Big Three continued to charge more for their vehicles in Canada than south of the border even after exchange rates and tax rates were taken into account. As a consequence of all of these factors, the auto companies made higher profits on the vehicles they assembled in Canada than on the vehicles they produced in the United States.

Despite Canada’s favourable trade performance under the Auto Pact, there were warning signs from the very beginning that things might not always be so good. First and foremost, no vehicles were conceived, designed and produced from start to finish on machinery that was manufactured in Canada. The top jobs in the Big Three, at executive levels, in finance, in car design, research and development, engineering, and the production of engines and major sub-assemblies were mostly located south of the border. Thousands of trucks had to cross the border from the United States to Canada each day to keep the assembly lines in Oshawa, Oakville, and Windsor humming.

As the technology advanced, the companies developed just-in-time delivery of components needed for vehicles in the assembly plants. Each vehicle differed in substantial ways from the one in front of it or behind it on the assembly floor. Parts and components arrived at the plants only an hour or even less before they were installed in vehicles. On the floors of the plants where this high-tech assembly was in operation, almost none of the production machinery had been made in Canada. When I visited a GM plant in Oshawa, I saw workers, no longer tied to an assembly line, working in gangs on automobiles brought to them on driverless vehicles that moved the product from station to station. The machinery in the plant, including these robotic vehicles, was designed and produced, in Sweden, other European countries, the United States and Japan. When I visited the assembly line for Chrysler vans in Windsor, I saw robots doing jobs that hundreds of workers had formerly done. The robots were also not made in Canada. As long as nothing fundamental changed, the industry in Canada would retain its strong position, despite the underlying weaknesses.

Although this did not seem significant in its early years, throughout the history of the Auto Pact, European and later Asian automakers were carving out markets for their vehicles in Canada. Even before the Auto Pact, in the late 1950s, those odd little Volkswagen beetles were putting in an appearance on Canadian streets. By the early 1970s, Japanese vehicles were being unloaded off ships for sale in Canada. Over time, the European and Asian automakers were gaining an ever larger market share in Canada as well as in the United States. From exports, the leading Japanese auto makers, Toyota, Nissan and Honda, began producing cars in North America on both sides of the border. From plants in Tennessee and Ontario, these producers were cutting deeply into the market shares of the Big Three.

What effectively killed the Auto Pact was the Canada-U.S. Free Trade Agreement which came into effect in 1989 and the North American Free Trade Agreement, including Mexico, which was inaugurated in 1994. While the Auto Pact was a sectoral managed trade deal, the FTA and NAFTA were free trade agreements formulated in accordance with neo-liberal free market ideology. As tariffs were quickly reduced to zero between Canada and the U.S., and later Mexico, the safeguard that guaranteed a minimum level of production in Canada, the re-imposition of the tariff in the event of the fall of production by one or more auto maker, was removed.

By the mid 1990s, the Auto Pact no longer functioned to regulate the production of vehicles produced by the Big Three in Canada in relation to the market size of GM, Ford and Chrysler in Canada. Instead, it was used as a mechanism to protect North American auto producers from European and Asian competitors. The Pact was used to allow duty free shipments both ways across the border for vehicles that contained at least fifty per cent North American content, that is content that resulted from production in either Canada or the United States.

From the beginning of the North American content regime, European and Asian automakers made the case that the revised Auto Pact resulted in discrimination against them under the rules of the World Trade Organization. In 2001, a WTO panel ruled that the Auto Pact did indeed discriminate against these auto producers. As a consequence, the Auto Pact ceased to exist in any form.

During the past decade, the auto industry in Canada has been hit with a new series of basic problems that have set the stage for the future. Two challenges emerged side by side: the dramatic rise in the value of the Canadian dollar against the U.S. dollar; and the skyrocketing price of gasoline. The swift climb of the Canadian dollar, which soared past the U.S. dollar in value for a few months in 2007, made the price of labour in Canada much higher in relation to labour south of the border. The auto companies had enjoyed the cushion of cheaper labour at their Canadian plants for decades. Suddenly this cushion was wrenched away from them. Meanwhile, as gasoline prices spiked, automobiles sales turned soft. Then came the financial meltdown, the stock market crash and the onset of the economic crisis. The fall of gasoline prices, which would have been welcome earlier, did nothing to revive auto sales. For the auto industry, the period from the autumn of 2007 to the autumn of 2008, amounted to a perfect storm.

By the time of the Crash of 2008, the Canadian auto sector had already been bled to the point of terminal weakness. The Big Three, especially General Motors and Chrysler, faced the necessity of total restructuring and downsizing and the very real possibility of declaring bankruptcy. The fate of the Big Three----Ford was somewhat healthier because of its relatively strong cash position---was effectively in the hands of the Obama administration.

Even before the administration of George W. Bush left office, the top executives of the Big Three were making the case in Washington that they desperately required government assistance, to the tune of about $25 billion. On November 18, 2008, the CEOs----Rick Wagoner of GM, Alan Mulally of Ford, and Robert Nardelli of Chrysler----flew to Washington in their corporate jets, Wagoner in GM's luxurious $36 million aircraft, to tell members of Congress why they needed billions of dollars from the federal government. The optics of supplicants arriving in such wasteful opulence made a bad impression on law makers who were already getting negative feedback about corporate bailouts from their constituents.

By late March 2009, when the White House acted on the imminent prospect of GM and Chrysler having to declare bankruptcy, the administration had spent weeks dealing with the populist backlash that swept the country in the wake of the payments of bonuses to AIG executives. This time the administration was determined to play tough with the two ailing auto giants. The Obama auto team forced Rick Wagoner to step down as a CEO of GM as a condition of considering a bailout for the company. The team, having concluded that Chrysler was not viable on its own, was prepared to lend cash to the company for a thirty day period to allow it to seek a corporate alliance with Italy's Fiat. Should the deal with Fiat fall through, the administration saw bankruptcy as the only option. Similarly, should GM fail to come up with a suitable plan for its restructuring within sixty days, the company would have to file for bankruptcy protection. Obama's auto team announced that given the grim circumstances they faced both companies "may well require utilizing the bankruptcy code in a quick and surgical way."

It is mistake to think of bankruptcy as a terminal event for a corporation. As is the case with all the other aspects of the Crash, bankruptcy is a human institution with good news for some and bad tidings for others. It is not like a death in the family. Bankruptcy establishes priorities for who gets money from the stricken firm. Above all, bankruptcy allows the firm to offload pensioners and to dispense with union contracts. Workers who toiled for thirty years on assembly lines in the expectation of a middle class retirement lose their pensions in the event of bankruptcy. They are not among the “preferred” creditors. And the threat of bankruptcy is a lethal weapon when deployed by corporate executives and governments to bludgeon workers into agreeing to wage and benefits cuts. Decades of gradual improvements to the income, benefits and working conditions of union members can be reversed under the gun of bankruptcy. On both sides of the Canada-U.S. border, politicians lectured members of the CAW and UAW to trim their wages back to the level of wages paid by non-union Japanese auto companies in North America.

In this critical situation, the Canadian and Ontario governments were exposed as utterly impotent, unable to do anything except to repeat what Barack Obama was saying. On March 30, Obama announced his position on GM and Chrysler to the media: “Our auto industry is not moving in the right direction fast enough to succeed,” he warned. But the president also set out his vision of the industry's future: "I am absolutely committed to working with Congress and the auto companies to meet one goal: The United States of America will lead the world in building the next generation of clean cars.”

A couple of hours after Obama's White House announcement, Canada's industry minister, Tony Clement put a brave face on saying exactly what the president had said. Chrysler had thirty days to make a deal with Fiat and GM had sixty days to work out its plans for the future. “The plans don’t go far enough,” Clement said of the efforts of the two companies to date. “There is some fundamental restructuring that must take place.” He announced a short-term $C1 billion loan to Chrysler with a C$250 million installment within days to allow the company to meet its payroll obligations.

The same day, in a televised news conference, Finance Minister Jim Flaherty and Ontario Economic Development Minister Michael Bryant announced that the two governments would lend C$3 billion to General Motors to assist the company in launching its restructuring effort, one third of this coming from Queen's Park.

Flaherty told reporters separately that the leaders of the CAW needed to do more on compensation in order to make Chrysler and GM competitive.

“This is very serious and I encourage the union leadership very seriously to go back and speak with management,” Flaherty said. “This isn’t about collective bargaining; this is about saving thousands of jobs in Ontario and in Canada.”

During the month of April 2009 a multi-sided power struggle, or game of chicken, took shape over the future of Chrysler. The Obama administration, echoed by Ottawa, took the position that the United States and Canada would not pour funds into Chrysler unless the ailing company was able to reach a merger arrangement with Fiat. This public stance, of course, gave Fiat the whip hand. And the Italian auto maker proceeded to use it. Fiat made it clear that unless wages and benefits were drastically reduced at Chrysler Canada, by about C$19 an hour, there would be no deal. Sergio Marchionne, Fiat's chief executive officer, told the Globe and Mail that workers on both sides of the Canada-U.S. border have to end their sense of entitlement and added that the CAW had taken “more rigid positions” than the UAW.

In the power struggle, Industry Minister Tony Clement whole heartedly took the side of Fiat against Chrysler's Canadian workers and the CAW. Clement told the Globe and Mail that he had spoken to the Fiat CEO and that the car executive was unequivocal that he would walk away from Chrysler if labour costs in Canada and the U.S. were not dramatically reduced. “It's not pleasant, it's not palatable to the union, I understand that,” Clement said. “But we cannot have a situation where the union is resisting the reality of the situation and then expecting the Canadian taxpayers and the Ontario taxpayers to contribute.”
With no Fiat deal, Clement said there would be no further loans to Chrysler.
The minister was adding the weight of the government to that of Fiat in negotiating with the CAW. He told the CBC that it was not his role to be involved in the bargaining process, technically between Chrysler and the CAW, but realistically between Fiat and the CAW. Clement was being completely disingenuous. He was twisting the arm of the CAW on behalf of Fiat and he knew it. He was signaling Fiat not to back off its full demands where the workers were concerned. More than that, in the event that Chrysler ended up with no deal with Fiat, and did declare bankruptcy, he and the other members of the Harper government had their scapegoat, the autoworkers and their union. Should the plan to rescue Chrysler succeed, at least in the short-term, the anti-union Conservatives would have attained one of their goals, the weakening of the CAW, Canada's most effective industrial union.
When considering the issue of worker compensation, it is crucial to note just how profitable the Canadian operations of General Motors and Chrysler have been. A study on auto company profitability by CAW economist Jim Stanford concluded that between them the two companies realized profits of $C37 billion between 1972 and 2007. The study showed that the two auto makers generated profits on their operations in Canada every year for the period studied except for 2002. GM's overall profit for the thirty-five year period was C$31.75 billion and Chrysler's was C$4.95.

"And even in the years from 2005 through 2007, when the U.S. auto industry slid deeply into red ink, the Canadian industry remained profitable," Stanford concluded. Stanford's analysis of the companies' profits was made by combining data they publicly released before 1996, with figures since then extracted from Statistics Canada data for the whole industry.

For their part GM and Chrysler were seeking loans in Canada that were proportional to the loans being sought in the U.S. in relation to the scale of their Canadian production operations. General Motors wanted up to C$7.5 billion and Chrysler was seeking about C$4 billion.
The predicament in which Canada found itself was not without precedent. In 1997, when it was faced with the need to reduce the scale of its operations, the French automaker Renault chose to shut down its assembly plant in Vilvoorde, Belgium. Tens of thousands of trade unionists from across Europe descended on Vilvoorde to protest the plant closing. Belgian workers concluded bitterly that they were the victims of a choice made by a foreign owned auto company with a very close connections to a foreign government.

After more than a century in the automotive industry, which became Canada's most important manufacturing sector, Canada was failing to intervene effectively to safeguard Canadian jobs and to plan coherently for the future. At every stage in the history of the Canadian auto industry, Canadian policy making has been inadequate, never more than a house constructed on shifting sands. The branch plant phase of the industry left it truncated, uncompetitive and incapable of innovation. The Auto Pact reduced the Canadian auto industry to the position of a regional extension of another country's auto industry, a hostage to fortune.

With the onset of the FTA and NAFTA, Canada did what no other major auto producing nation, with the exception of the U.K., had ever done---it allowed its auto sector to slip almost entirely out of its effective jurisdiction. Ottawa and Queen's Park were reduced to supplicants who could cut taxes or throw money at auto companies, but little else. They were free, of course, to pray that their neo-liberal faith in the market was not misplaced.

On the auto industry, the records of governments and of all of the political parties, at one time or another, has been one of derogation of responsibility, of colossal negligence. The failure---of monumental significance---was the inability or unwillingness to comprehend the role of the state in an advanced capitalist country. Policy makers in Canada, the bureaucrats who implemented policy, both federally and provincially had imbibed neo-liberal ideology from the business schools that churned it out, from the offerings of business lobby organizations, as well as from the wisdom of the C.D. Howe and Fraser institutes. The managers of the Big Three operations in Canada were of little account and simply did what they were told by corporate headquarters in the United States.

It was the treason of the clerks, the betrayal of auto workers and the communities that depended on the industry, indeed the betrayal of the country, by those whose role should have been to nurture and sustain Canadians and their livelihoods. Some of these people were dazzled by the attractions of neo-liberal utopianism. Others were cynically working for the union of Canada with the United States.

Ironically, the Americans showed themselves to be less in thrall to neo-liberalism than the Canadian devotees of the ideology. The members of the Obama administration, neo-liberal to be sure, had another harder set of ideas to which they could return---those of American nationalism. When neo-liberalism fails them, as it so evidently has, Obama and his advisors fall back on their belief in the American project and they are perfectly willing to use the American state to achieve their ends. Pathetically, Canadian neo-liberals do not believe in a corresponding Canadian project and they have neutered the Canadian state in their devotion to the god to whom they pray. The idea that Stephen Harper could make the claim for Canada that was so eloquently put into words by Barack Obama for the U.S., that his country would lead the world in the development of green cars for the 21st century, tells the story. Obama can step outside the neo-liberal paradigm as an American in a way that Harper never can as a Canadian.

The dominant wings of the major political parties, Liberals, Conservatives and New Democrats have all contributed to this lamentable state of affairs.

In the 1960s, the powerful continentalist wing of the Liberal Party chose the path of continental integration for Canada’s auto industry, despite the available alternative of a Canadian centred strategy. They understood the risks of ceding control of a crucial industrial sector whose firms were overwhelmingly foreign owned, to even greater foreign control. They tried to mitigate this through the Auto Pact safeguards.

In the 1980s, the Mulroney Conservatives, who negotiated the FTA and then NAFTA, wagered the future of the Canadian auto industry on the proposition that the Pearson-era safeguards could be blithely discarded. The Auto Pact was not grandfathered in the FTA and NAFTA. The future was consigned to the faith that the free market would bless Canada and its auto industry. The Harper government's even more committed neo-liberals have been placed in a bind that has its darkly humorous side. Unwilling to consider radical, novel interventionist ideas for the future of the Canadian auto industry, they are stuck with aping the Obama administration, an administration to which they are ideologically hostile.

The mainstream social democrats made their own distinctive contribution to the mess during the debate about economic nationalism that seared the NDP in the early 1970s. The NDP leaders, David Lewis at the federal level and Stephen Lewis in Ontario had very close ties to the Canadian sections of the key American-based international unions, particularly the United Steelworkers of America and the United Auto Workers. The Lewises and the national leaders of the Steelworkers and the UAW were deeply hostile to the Waffle Group in the NDP, not least because its economic nationalism was perceived as a threat to international unions in Canada. In Windsor, Ontario in 1972, the Waffle co-sponsored a conference on the future of the auto industry with the leading UAW locals in Ontario. Attended by hundreds of auto workers, including influential local leaders, and welcomed to Windsor by the city’s mayor, conference speakers warned that the Auto Pact would prove to be a technological dead end for Canada and for the future of auto production in Canadian communities. The conference’s conclusion---that Canada needed its own domestically owned and controlled auto industry---was the front page headline of the Windsor Star.

The leadership of the international unions and Stephen Lewis had had enough of the Waffle and its ideas. Within a few months, they had pushed a resolution disbanding the Waffle through the Ontario NDP’s provincial council. Creative economic thinking in the NDP was abolished by the party’s own internal War Measures Act.

For their part, the Quebec nationalists and the Greens have contributed little that has been helpful to the dialogue. In Ottawa, the Bloc Quebecois has always branded the auto industry as an Ontario concern and has labeled support for the industry as favouritism for Ontario. While the Greens have some reasonable ideas about environmentally sustainable transportation policies for Canada, soft green thinking often concludes that the auto industry is a gas guzzling monster that is not worth saving.

Given the shabby record of the political parties on the issue of the auto industry and its future, auto workers, their families and the inhabitants of the communities where the industry is vital, could be forgiven for concluding that the country’s political leadership has orphaned them.

If we are to establish an environmentally sustainable future for the auto industry and other transportation equipment industries in Canada, two principles, so regularly ignored in the past, need to be front and centre: paying attention to the interests of the workers and the communities in which they live; and the necessity of Canadian control.

What ought to mobilize Canadians to demand a wholly new approach to industry in the future are recollections of some of the dismal realities of the winter of 2009. First, there is Chrysler which is considering pulling its production facilities out of Canada and supplying its Canadian market with production south of the border. Second, there was the spectacle of Premier Dalton McGuinty announcing that there is not nearly enough money in the Ontario government’s account to help workers out in the event that their private pension funds go bust should GM and Chrysler declare bankruptcy. The prospect of forty-five thousand former auto workers losing their pensions after putting in thirty years on the assembly lines is not one we should ever tolerate. Third, the announcement by U.S. Steel in Pittsburgh that it had decided to shut down production at the Steel Company of Canada in Hamilton and Nanticoke, Ontario was a moment of national humiliation. Stelco was founded a century ago to be a profitable steel company. It was created, though, to establish an independent Canadian presence and capability in this seminal industry precisely to ensure that it would not fall into American hands.

Nothing stands in the way of Canadians using their capital, resources and skills to create industries for the 21st century except for the ideas of a failed ideology.

President Barack Obama is certainly correct when he says that a new, green fleet of automobiles, and indeed trains, trams, subways, and aircraft, will be constructed for the 21st century. That fact has already registered all around the world. In Asia, Europe and in the United States, companies and unions in partnership with governments will be working out plans to design and build these vehicles. Everyone knows that the countries, companies and work forces that seize the high ground in the creation of these vehicles will be well placed to do well in the industrial competition of the 21st century. So far, Canadians have barely begun to think about all of this. The reason is simple enough. Governments, political leaders, and industrial communities are still thinking in terms of the major American auto companies doing most of the job in Canada.

To count on this would be to make an error of historic proportions. A variety of geo-strategic circumstances, having to do with the decline of the British Empire and the rise of its American successor allowed Canada to become the site for a large scale auto industry even though the companies that assembled vehicles in Canada were based in the U.S. and Asia. It will require enormous pools of capital to cope with the start-up costs to conceive and manufacture green vehicles for the 21st century. Canada has the capital. What it lacks at the political, governmental and corporate levels is the boldness and the imagination to think outside the 20th century branch plant box in which we remain cloistered. We haven't much time to break out and chart a new course.

There is an alternative to placing our faith in the share of production we can glean on our side of the border from the next generation of American auto makers, Japanese auto makers, or the Fiats of the world who arrive in the guise of little Red Riding Hood, but who intend to use our present misfortune to gouge our workers and communities. The alternative is to design and build cars and trucks in Canada for Canadians and for export. Such a grand project will require the ingenuity, imagination and boldness we lacked in the last century. We have the expertise, the work force, plenty of experience in designing virtually all aspects of auto production from batteries to drive electric vehicles to engines and sub-assemblies.

What makes this a moment of immense opportunity for those who will seize it is that all of the vehicle manufacturers in the world are starting from scratch just as their predecessors were at the beginning of the 20th century. The internal combustion engine, propelled by gasoline, transformed the world, its cities, and the lives of billions of people. For the working people who built them and for the wage and salary earners who drove them, the automobile delivered mobility and freedom that the wealthiest a few generations earlier would have found unimaginable.

But the automobile in a time of global warming, peak oil, and choking cities now threatens the people of the world. Once a liberator, in its present form, it imprisons. This fundamental fact of our new century is understood all around the world. We are starting from scratch in the creation of the new personal vehicles, call them cars, that must be conceived alongside the other transportation modes of our time, and with ideas for how to recreate our cities, shift from petroleum to other fuels and sharply reduce the emission of greenhouse gases.

Holding us back from entering this new world and seeking to play a crucial role in it is our habit of dependence, of leaving such things to others. In addition, of course, there is our colonial minded business class whose members still believe in the discredited shibboleths of neo-liberalism. And, there is the matter of the Harper government that hasn't the faintest idea that there is an opportunity here.

We need a new model to plan a wide range of Canadian initiatives. Involved must be the federal government, the provinces, and the cities. The private sector, trade unions, and the best brains in a range of fields must be brought on board.

Because we are considering something entirely new, the model for managing these new enterprises should also abandon past practices. Instead of the top-down workplace models of the 20th century, where creativity was left at the door when wage and salary earners entered, we can use this sector as the proving ground for industrial democracy, and worker input and decision making. These concepts have been much talked about over the past two centuries, and sometimes tried. We can push them further.

Let's get on with it.

6 comments:

janfromthebruce said...

Great post James. My dream as a Canadian and Ontarian, is to own a green car (I live in rural) made in Ontario and owned by a Canadian company and built by the CAW.
Further, I want a rail cars - green - built by Canadians, owned and manufactured by Canadians, and built by CAW. I want a rail line and ditto for the rest.
And yes, if there is no company, I want it to be a crown Canadian corporation.
After the global meltdown, no one can say, that govt owned and operated is bad - just look what private greed just did.

Bill Bell said...

May I say, a marvellous posting! Thank you.

In contrast with Jan though, I think that I would prefer (but I do not expect) a system that somehow limits any concentrations of political and economic power.

Having worked in a certain crown corporation for several years, and having dealt with various quasi-governmental organisations during that time, I can say with certitude that there are human weaknesses other than greed (or in addition to it) that can make for truly pathetic results.

Let's not rehearse this tiresome theme forever.

Tom said...

Excellent historical synopsis of the Canadian auto industry. So many facts that are forgotten or ignored by the Ontario and federal governments. Like the previous writers I agree that a purely Canadian vehicle sector is the logical answer. Is there the political will on the part of Canadians to do it? If not, how do go about creating it?

Oemissions said...

The truth is: There are far too many automobiles on this planet. Our lives are run by them and we are over run in loss of lives, injuries, enormous social costs, and stupid habits associated with their use.
By the 60s cities were already congested. The solution was to build more roads, bridges and parking spaces.
Where were the planners and the Health Departments on this. ?
Public transit was left for the lower classes and viewed thusly.
Eventually rail service was stopped or became almost insignificant.
Meanwhile, every newspaper and most media survived on ads from the auto industry.
The 3 American companies spent $1.5 Billion last year on advertising.
Canadians spend on average $8900 a year just on maintenance for 1 automobile.Estimated social costs are $190 Billion.
Noise, stench of exhaust and stress from all these autos is beyond intolerable.
Get them off the roads. Now. Like China is having to do. Regulate use.
We pull baby bottles from shelves but care not that the greatest cause of death for our youth is from automobile acidents.

Luke42 said...

Thank you for that interesting article James.

Two somewhat critical observations however:

1) I agree with the previous poster about the effects of the private automobile. The carnage rivals wars. The destruction of cities to make room for highways. The air pollution and now climate change. Marcuse's One Dimensional man comes to mind too; I don't think this would have happened in the absence of the private automobile.

Although you do mention trains etc I think you put too much emphasis on the private automobile as the backbone of transportation.

Decades ago Ivan Illich was a very popular writer among some people, including myself. Equity and Energy would still be worth reading. Illich approches the private car on the basis of the (financial) cost and puts this in relation to the average miles travelled and average wages per hour. Thus he comes up with a "speed" of 4 miles per hour, if memory serves.

And - he concluded - he could easily walk at that speed.

He did have a somewhat unique methodology that can be crticised. I think he exxagerated to get his message across.

For instance, when he appeared at McGill to talk about his book Medical Nemesis he had travelled to Montreal from Mexico. Needless to say he did not walk.

2) I also see a slight contradiction between your assertions of our know how and skills and your statement about "our habit of dependence".

I don't think that is generally, or necesarily, the case. Take the Beaver, for example. It is such a superb plane that people these days are paying up to a million dollars (e.g. Harrison Ford) to have an old one rebuilt.

Other things come to mind, e.g. insulin but on the whole it is a wonderful article.

Thank you.

Anonymous said...

Jim:
Whatever its faults, the continental approach has enriched Ontario, the communities that host the auto and parts plants, and, most importantly, the autoworkers. But the AutoPact is dead.
The CAW may yet be able to protect some jobs. However, the future is grim: the Obama government is looking to return the U.S. to its former status as a manufacturing and exporting giant. That means auto jobs will be migrating southward.
The government should be demanding production guarantees from the automakers, but it won’t. The bailout loans aren’t even properly secured. That means that should one of the automakers go out of business here, the federal government hasn’t the right to seize plants and assets. It's simply an unsecured creditor. Should we want to build an auto industry, we start with nothing.
Both the Liberals and the Conservatives worship the free market, so don’t expect anything from them. That leaves the NDP, which has been largely invisible, its leader comatose since the merger with the Liberals flopped.
By the way, don’t expect help from the Bloc. It’s a Quebec nationalist party; it could care less about English Canada. In fact, worsening conditions in the rest of Canada only strengthen the Bloc’s separatist position.
The NDP needs a new leader and a nationalist agenda. Whether it will get the latter is another matter since nationalism means centralism and that’s something the NDP has no stomach for. In other words, it’s time to revive the Waffle if only to strong arm the NDP to change.