Doomsday scenario for Ontario

Buzz Hargrove of the Canadian Auto Workers just cut a deal with Ford that showed a willingness to rein in union demands in order to save jobs. But even if the CAW agrees to similar deals with GM and Chrysler, will that be enough?

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Is it any wonder Mr. Hargrove was anxious to make a quick deal? Bad economy + green momentum + high gas prices = big trouble for Canadian car plants. The CAW chief looked ahead to the summer and could see things only getting worse. So the union this week reached an agreement with Ford - nearly five months before the old contract expired, and minus all the usual huffing and bluffing in front of microphones.

Not long ago, Mr. Hargrove's job was to win bigger raises and fatter pensions. Now, he's trying to try to hang on to as much as he can. He seems to have done it at Ford, but at what price? "It could be a short-run victory and a terrifying loss in three years," says auto economist Sean McAlinden. How terrifying? "A complete collapse of the 100-year-old traditional Canadian auto industry."

That may sound alarmist, and it is. But Mr. McAlinden, the chief economist at the Center for Automotive Research in Ann Arbor, Mich., is not a wacko; he's considered an expert on labour and investment in the North American auto business. And while he thinks Mr. Hargrove's bargaining tactics were "brilliant," they may turn out to be too clever by half.

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So Ford gave and the union gave, and the result is labour peace without higher costs. New employees will take lower wages, but only for their first three years on the job. All told, Ford will pay about $67 (Canadian) for every hour worked by an active employee - not much more than the $60 for U.S. auto workers, says Jim Stanford, the CAW's chief economist. Since Canadian plants are a little bit more productive, call it a wash, at least as long as the loonie is around par with the U.S. buck.

Not so fast, Mr. McAlinden says. "Jim is sadly wrong," he says. The CAW's math looks at the cost of active workers, not so-called legacy costs, like health care benefits for retirees, which the UAW agreed to essentially wipe from the auto makers' books. As for Canada's productivity advantage, it's largely a mirage, he says.

The real hit comes not now, but three years from now. By that point, thanks to the provisions in the UAW deal, the wage gap will have grown to $22 an hour, Mr. McAlinden calculates - which equals more than $1-billion in extra costs for the Detroit Three for producing in Canada. Who, he asks, would dare introduce a new model here? "Some of the mumbling around here is, 'You got the deal, Buzz, but that's the last dime of investment you're ever going to see.' "..

Then there's this:

From powerhouse to poor cousin

Canada's once-mighty economic engine could slip to have-not status within two years, a report predicts

Perfect economic storm? On the other hand (via Paul Wells):

Rumours of Ontario's penury are much exaggerated

But note the author.

Mark C.

Posted by markc at May 1, 2008 10:32 PM