The Canadian Automotive Industry - Term Paper Example

In this paper, a framework of examining the place of government in auto industrial activity in Canada is presented.The following aspects arestudied and researched in this paper. 1. The place of government in auto business activity in Canada: 2. The salient issues surrounding auto industrial activity in Canada. 3. Awareness of how government has responded, is responding, and will likely respond to these issues. For example, with regard to the auto industry, information about current crisis and governments' responses to it are explained. 4. How has the government implemented policies in the past such as the Auto Pact 5. How does Canada's position vis--vis the United States affect the domestic auto industry The Canadian Automotive Industry The Canadian automotive industry produces light duty vehicles- cars, vans, pickup trucks; heavy duty vehicles - trucks, transit buses, school buses, military vehicles; and a wide range of parts, components, and systems used in vehicles of this nature.The Canadian automotive industry is integrated into NAFTA (i.e. Canada, U.S., Mexico), considered globally competitive, the eighth largest in the world with positive trade balance and a major contributor to the Canadian economy, employing over half a million people Salient issues surrounding auto industrial activity in Canada. The level of engagement of the federal and provincial ministers and their interest in asking for the industry's input on approaches which would ensure the continued growth and competitiveness of the auto industry, while safeguarding the environment is noted. There are concerns about the pace of progress towards increased regulatory cooperation across North America, the implications of a possible Canada-Korea free trade agreement, the proposal by the federal government to regulate fuel consumption, and the approach to consumer incentives and levies announced in the last federal budget. There is concern about the plans of several provinces to establish their own regulations on fuel emissions. There is concern about the accelerated Capital Cost Allowance announced in the recent federal budget and the Ontario government's commitment to support environmental R&D as examples of government actions in support of certain strategies to attract investment and ensure the Canadian auto sector remains strong and internationally competitive. ("Canadian Automotive Partnership Council Discusses Competitiveness Issues," 2007) Government responses to the above mentioned issues There is increased cooperation across governments and closer cooperation with the US in addressing the key issues raised with regard to auto industry. The governments should ensure a competitive tax regime and business environment, a greater degree of harmonization with the US in setting safety and environmental regulations, as well as a fair international trade regime. The assessment of the required level of assistance will take into consideration the total assistance from all levels of government (e.g., federal, provincial and municipal assistance). This includes assistance such as all Grants and Contributions being considered, implicit subsidies, forgivable loans, investment tax credits and any other grant or contribution. All recipients of financial assistance will be required to disclose any other government financial assistance received or requested for this prior to the approval of the contributions. Budget2007 demonstrates the government's commitment to addressing automotive sector interests, in providing generous capital cost allowances, significant investments in gateway and transportation infrastructure and measures to foster innovation and green technologies. Through the auto strategy, the government has leveraged more than $7billion in new investments that will create thousands of jobs and help position Ontario's auto industry for long-term competitiveness. Focus is given on how to build on this success while helping the industry meet the near-term challenges of a major global restructuring and the need for improved environmental sustainability. The federal government is encouraged to develop national initiatives that contribute to the strengthening of our automotive industry. (Rosenfeld, 2009) The place of government in auto business activity in Canada: The liberal Ontario government has developed an industrial strategy to stimulate investment to auto companies in the province. This strategy is designed to promote competitiveness and train workers in Ontario's larger auto companies. Canada does not actually compete in the global auto industry; instead, much of its auto industry is what is called "intra-corporate" trade within its branch plants associated with their much larger counterparts in the United States. The main competitive threat faced by Canada is simply real competition itself within a free trade environment. One example of this tendency can be seen in the free trade agreements that Canada has signed with the United States. In fact, these are managed or regulated trade agreements that, while they open U.S. markets to Canadian industry and vice versa, essentially protect the status quo and guard Canada against the competition of industries in Europe and Asia. Thus, in a paradoxical way, the free trade agreements such as the North American Free Trade Agreement can be seen as a competitive advantage for the Canadian auto industry in the global market as they protect this Canadian industries preferential access to its primary market while keeping the threat of foreign auto industry competition at a distance." The Ontario province government has implemented several strategies to encourage private sector investment in the province's automobile industry. These strategies combine loans and grants that are designed to "top up" or encourage the investments of companies in the private sector. It is said that the ideological underpinning of this strategy is liberal democratic capitalism under which the state is seen as playing a supportive role to industry by absorbing some of the costs associated with industrial growth and development. The cars manufactured in Canada are not intended to compete in the global marketplace but rather almost entirely in the U.S. as intracorporate trade in the form of parts and assembly for different plants of the same company on different sides of the Canada-US border. The Canadian competitive advantages are the low value of Canada's currency in comparison to the United States dollar and the various Canada U.S. trade agreements. The Auto Pact,2002. The Auto Pact was the best strategy for the development of the Canadian economy in 1965. In Canada the Automotive Industry has had a successful relationship with free trade. In other words, branch plants have proliferated throughout Canada. For many years it has been argued that the economies of the USA and Canada are so closely connected that they are basically a single economic entity. To foreign investors interested in the US or Canada, North America is not only an appealingly lucrative market; but, in comparison to the European Community or other regions of the world, it is relatively homogenous. In May of 2000 the World Trade Organization (WTO) ended the Canadian made Auto Pact. The Auto Pact was an agreement constructed by Pierre Trudeau in 1965 that allowed companies to bring auto parts and vehicles from anywhere in the world into Canada without any tariff, but with two conditions. One condition was a requirement of commitment to jobs in Canada; manufacturers had to produce one car in Canada for everyone they sold. They also had to maintain a Canadian Value Added (CVA), which basically means no depreciation on Canadian made machinery and that parts in assembly were also made in Canada. Automotive trade markets are among the most open in the world. They maintain no tariff barriers. This treaty kept North America happy however; the overseas companies were left with the shorter end of the stick. This caused the fall of the Auto Pact. The Auto Pact is too important to Canada, and Canada will suffer extreme losses.(" 1965 - Canada-United States Auto Pact") Current crisis in auto industry and governments' responses to it We are currently witnessing three related crises. One is the global economic crisis of capitalism. A second is the crisis specific to the auto industry. This second crisis simply would not exist in North America were it not for last year's economic meltdown, the very costly privatized American health care system and the disproportionate number of retired workers relative to active workers in the plants; a phenomenon that exists entirely due to corporate decisions designed to lower the age of the workforce and avoid the training costs that would be generated by the layoff of low seniority workers and the retraining of those who replaced them on their jobs. The third crisis is a worsening crisis of leadership in the Canadian labor movement. The auto industry needs short-term help, but it also needs a long-run plan. Responding to the current crisis requires a viable long-term strategy to guide our industry in all key areas: fixing our infrastructure, investing in skills, supporting new capital, protecting the environment, and leveling the playing field in global trade. All levels of government must recognize the strategic importance of the auto industry and put in place necessary supports, including funding forgreenproduct development and new investments.Right now this aid is critical for the industry's long term survival. The collapse of credit markets for major industrial borrowers hit all auto companies and their suppliers, with the drop in consumer borrowing leading to massive declines in sales. Now, governments should at least guarantee already negotiated plans, which, after all, were funded by the deferred wages of the workers in the first place. The banking and finance sector should be nationalized and socialized and run by democratic bodies. Auto production and trade must be regulated. The need to deal with climate change and the general environmental crisis requires that there be fewer personal and commercial vehicles. Much of the productive capacity currently used to produce cars must be redirected to produce other goods or services. Government-owned corporations should be created to take over the productive facilities and resources Communities must be organized to defend their right to decent jobs and a share of new production facilities. A bold alternative vision for transforming the auto industry is needed. Transforming the current industry will require major structural reform, challenging the logic of capitalism and capitalist state institutions. There need to be strategies to protect jobs and income. In the short-term the federal and Ontario governments demonstrates their willingness to be part of a continental solution that helps the industry survive the current crisis and put it on stable footing for the future. Canadian governments in return for a proportional contribution would receive a proportional share of investments and jobs. The Canadian government has provided $100 billion in support for banks, but it also needs to support the real economy. Hundreds of thousands of jobs in Canada depend on a vibrant domestic auto industry, ("Support for Auto Industry Reinforces Canadian Economy during Crisis") How does Canada's position vis--vis the United States affect the domestic auto industry Canada :The Canadian auto industry is closely linked to the U.S., due to the Automotive Products Trade Agreement and later the North American Free Trade Agreement (NAFTA), and is in similar trouble. Industry analyst has criticized the labor contracts that Canadian Auto Workers then-president Buzz Hargrove negotiated with the Big Three US automobile manufacturers in 2007, predicting that the sub prime mortgage crisis and currency would hit Canadian auto production especially hard. United States :The crisis in the United States is mainly defined by the government bailouts of both General Motors and Chrysler, while Ford secured a line of credit in case they require a bridging loan in the near future. Car sales declined in the United States, affecting both US based and foreign car manufacturers. The bridging loans lead to greater scrutiny of the US automotive industry in addition to criticism of their product range, product quality, high labor wages, job bank programs, and healthcare and retirement benefits.( "Automotive industry crisis of 2008-2009") References 1. Canadian Automotive Partnership Council Discusses Competitiveness Issues(2007). Canadian Automotive Partnership Council. CAPC. Retrieved July 3, 2009 from http://capcinfo.ca/english/news/news-nouvelles_may04_07.html 2. Automotive industry crisis of 2008-2009, Wikipedia ,The Free Encyclopedia. Retrieved July 3, 2009 from http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008%E2%80%932009 3. 1965 - Canada-United States Auto Pact. Key Economic Events. 1965 - Canada-United States Auto Pact. Retrieved July 3,2009 from http://www.canadianeconomy.gc.ca/English/economy/1965canada_us_auto_pact.html 4. Rosenfeld, Herman (2009), The North American Auto Industry in Crisis, Monthly Review, Retrieved July 2009 from http://monthlyreview.org/090608rosenfeld.php#fn22b 5. Support for Auto Industry Reinforces Canadian Economy during Crisis, (2009).Canada. TCA .Retrieved July 3, 2009 from http://www.caw.ca/en/7531.htm Read More