VZCZCXRO7271
RR RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHON #0123/01 1151627
ZNR UUUUU ZZH
R 241627Z APR 08
FM AMCONSUL TORONTO
TO RUEHC/SECSTATE WASHDC 2453
INFO RUCNCAN/ALCAN COLLECTIVE
RUEHME/AMEMBASSY MEXICO 0143
RUEHKO/AMEMBASSY TOKYO 0074
RUEHUL/AMEMBASSY SEOUL 0041
RUEHBJ/AMEMBASSY BEIJING 0078
RUEHOK/AMCONSUL OSAKA KOBE 0015
RUCPDOC/USDOC WASHDC
RUEAHLC/HOMELAND SECURITY CENTER WASHDC

UNCLAS SECTION 01 OF 02 TORONTO 000123 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ELAB PGOV SENV CA
SUBJECT: Canadian Auto Sector Adjusting to North American Market 
Conditions 
 
Ref: (A) Toronto 32 (B) 07 Toronto 457 
 
Sensitive But Unclassified - Please Protect Accordingly. 
 
¶1. (U) Summary:  Despite being labeled the world's most expensive 
auto manufacturing jurisdiction, for the fourth straight year in a 
row, Ontario is North America's top automobile-assembly site by 
volume (2.542 million light vehicles in 2007), surpassing Michigan 
(2.295 million).  However, Ontario may lose top spot as its 
competitive advantage erodes due to the strength of the Canadian 
dollar and the UAW's contract concessions that offloaded healthcare 
costs from the Detroit Three to the union, effectively eliminating 
Ontario's lower-cost healthcare advantage.  During upcoming labor 
talks here, the Detroit Three are expected to seek labor cost 
reductions through such contract concessions as reduced paid time 
off.  Despite the pressure of deteriorating economic indicators in 
both the U.S. and Canada, relations between the Detroit Three and 
the Canadian Auto Workers (CAW) union are said to be positive going 
into the upcoming contract negotiations.  End Summary. 
 
--------------------------------------------- -- 
U.S. Economic Slowdown Beginning to Hit Ontario 
--------------------------------------------- -- 
 
¶2. (U) According to a recent Export Development Canada (EDC) 
forecast, Ontario's exports are expected to decline 7% in 2008 and 
grow only 1% in 2009.  The declining export numbers are blamed on 
the high Canadian dollar and eroding U.S. sales.  The auto sector is 
among the most vulnerable export sectors in Ontario, accounting for 
37.2% of exports, mostly to the U.S.  Light vehicle sales in the 
U.S. are expected to drop to 15 million units in 2008 from an 
average of 16.7 million units over the 2003 to 2006 period.  Reduced 
sales forecasts and the high Canadian dollar have prompted 
automakers to cut production in Ontario.  Total monthly vehicle 
output was down 24% in January compared with January 2007, while 
U.S. production declined 2.2%, and a Mexican production was down 21% 
during the same period.  Analysts expect Canadian auto exports to 
decline 9% in 2008, before posting a modest growth of 3% in 2009. 
 
-------------------------------------------- 
U.S. Parts Strike Cascades Across the Border 
-------------------------------------------- 
 
¶3. (U) On April 16, GM announced that it would be cutting one shift 
of production at its Oshawa, Ontario auto plant starting April 21, 
laying off about 1,000 workers.  At the same time, GM will resume 
another shift for two weeks at its Oshawa truck plant, putting 1,200 
to 1,300 employees back to work.  GM production has been hampered by 
disrupted just-in-time delivery from striking parts suppliers 
American Axle and Manufacturing Holdings.  The GM shutdowns also 
have had a ripple effect on other auto parts suppliers like Aurora, 
Ontario-based Magna and Vaughan, Ontario-based Martinrea 
International.  Magna reportedly has had to shut parts of its St. 
Thomas, Ontario plant that builds frames for GM's large pickups and 
SUVs.  Back in February, interruption in just-in-time delivery 
crippled Chrysler's Windsor Assembly Plant when parts supplier 
Michigan-based TRW's Windsor parts plant went on strike.  Roughly 
175 TRW workers, members of the CAW union, went on strike for six 
days, demanding a C$3.75-an-hour pay raise (from C$11.25 to C$15-an 
hour), forcing the temporary layoff of around 5,000 employees at 
Chrysler's van plant. 
 
--------------------------- 
Demand for Ford CUVs Strong 
--------------------------- 
 
¶4. (SBU) On April 15, Ford announced that it would hire up to 500 
additional workers at its Oakville, Ontario assembly plant by July. 
Demand for the Ford Edge and Lincoln MKX crossover utility vehicles 
(CUVs) are driving the expansion, along with the new Ford Flex CUV, 
which will be added to the production lineup in July.  700 laid-off 
Windsor plant workers will reportedly be offered the Oakville jobs 
(located 207 miles from Windsor) before applications are opened to 
others.  The Oakville expansion is Ford's second Ontario hiring 
surge since March.  On March 31, Ford announced it would reopen its 
1981-era Essex Engine Plant in Windsor, Ontario, bringing back 300 
of over 900 workers, who were laid-off last November.  The plant 
re-opening was facilitated by the Ontario government kicking in C$17 
million to the C$170 million project.  The plant will assemble a new 
generation of fuel-efficient V8 engines, and is expected to be in 
production by the end of 2009. 
 
¶5. (SBU) Our contact at Ford told us that the company is still 
 
TORONTO 00000123  002 OF 002 
 
 
trying to persuade the Canadian federal government to support the 
project (ref (A)).  They said that the GOC is working out the terms 
of possible support through its C$250 million Automotive Innovation 
Fund, announced in the 2008 federal budget, which supports research 
and development investments in the automotive sector (Note: The 
Automotive Innovation Fund is designed to help develop new 
environmentally sustainable and fuel-efficient vehicles.  The fund 
has been criticized by Ontario Finance Minister Dwight Duncan as 
being insufficient because a single new plant costs over C$1 billion 
to build. End Note).  A GM contact told us that the company is in 
funding talks with the provincial and federal governments for an 
advanced vehicle technology R & D initiative, but no further details 
are known at this time. 
 
--------------------------------------------- 
Ontario Hangs on to Top Spot in Auto Assembly 
--------------------------------------------- 
 
¶6. (U) For the fourth straight year, Ontario is North America's top 
automobile-assembly site by volume (2.542 million light vehicles in 
2007), ahead of Michigan (2.295 million), according to data released 
in April by trade publication Automotive News.  Ontario's 
competitive advantage has eroded because the Canadian dollar is now 
around par with the U.S. dollar, up from 63 to 78 cents a few years 
ago, and because the UAW agreed to contract concessions last fall 
that offloaded healthcare costs from the Detroit Three to the union, 
effectively eliminating Ontario's lower-cost healthcare advantage. 
 
------------------------------ 
Upcoming Union Contracts Talks 
------------------------------ 
 
¶7. (SBU) Early in April, CAW union leader Buzz Hargrove told 
reporters that he and other CAW negotiators had separately met with 
top officials at GM, Ford, and Chrysler in hopes of starting 
negotiations for their next three-year contracts.  Contract 
negotiations usually begin in July for the contracts of 31,000 
workers which expire in mid-September.  Market conditions are 
expected to deteriorate both in the U.S. and Canada, so an early 
start might benefit the union.  Hargrove has already said the union 
will not accept reductions in wages, cost of living allowances, 
pension indexing, or healthcare.  GM reportedly is seeking to reduce 
its labor costs by reducing paid time off, allowing temporary 
workers, and eliminating strict work rules.  On April 22, a contact 
at Ford told us that the company had not formally begun contact 
negotiations with the CAW, but that they were exchanging information 
on such things as new products and fuel efficiency targets.  Despite 
public rhetoric by Hargrove, our Ford contact told us that the 
company's relationship with the union has "never been better." 
 
¶8. (U) Comment:  We expect the Detroit Three to press the CAW for 
significant concessions to improve the competitiveness of their 
Canadian manufacturing operations when contract negotiations begin 
this summer.  CAW President Buzz Hargrove is considered by industry 
insiders to be pragmatic, and is expected to work with the Detroit 
Three to meet their cost reduction needs.  Auto sector executives 
are actively in talks with both the Ontario and federal governments 
to find public funding for innovation initiatives to boost 
competitiveness.  End Comment. 
 
NAY