The Auto Sector is a Cornerstone of Ontario's Economy
A cornerstone of the industrial sector in Canada (and a main driver of industrial construction) is the auto industry. In fact, to be regionally specific, Ontario's economy is heavily dependent on automaking and auto parts production.

As if the increase in the value of the Canadian dollar has not been enough, the unionized sector of automaking in Ontario has been operating under a disadvantage ever since the United Auto Workers (UAW) signed agreements in the U.S. last fall. Now Ford Motor Company Canada Limited and the Canadian Auto Workers (CAW) have just reached a tentative deal that does not go nearly far enough in keeping the Canadian sector competitive.

The current agreement does not expire until midnight September 16. Ford is clearly opting to make the future more certain. Ford, which has already undergone years of hard times, does not want to jeopardize any of its product lines through labour disruptions.

As for the CAW, it has now established a pattern for its later bargainings with General Motors and Chrysler. Prior to yesterday, the CAW had appeared vulnerable to significant concessions as a result of the UAW agreement south of the border. The UAW made significant concessions on wages and the car firms were able to offload many of their "heritage" costs in the areas of pensions and health care.

The new CAW-Ford agreement only calls for a freeze of base wages out to 2011. Cost of living adjustments will pick up again in 2009. The wage structure for new hires will be softened to 70% of base rates for three years from the existing provisions of 80% for two years. The union calls this a "new-hire grow-in system" while the rest of the industry refers to it as a two-tier wage package. However, how much the company actually saves depends on the net number of new workers it takes on.

Yesterday's agreement goes a way towards assuring short-term peace in the industry. Product mandates have largely been established for the Canadian plants of the Detroit Three. The implications three or four years out, however, are more serious.

If the Ford agreement is the template for GM and Chrysler settlements, then Canadian operations will continue to be the highest-cost in North America (and maybe in the world). Canadian "all-in" hourly labour costs will remain well above levels in the U.S. − somewhere between $70 and $80 in Canada versus $50 to $60 in the U.S., according to DesRosiers Automotive Consultants.

A Colder Dose of Reality would have served Better

This places Canadian plants squarely in the sights-lines of corporate gunslingers if there need to be shift cancellations or further restructurings in the period ahead. It also makes them more vulnerable during the next round of decisions about plant product assignments. The former Big Three in Canada are competing not only with sister plants in the U.S. but also with new, even lower-cost (and largely non-union) domestic plants established by the Japanese and with other new car plants around the world.

A colder dose of reality would have served better than an early agreement. The former Big Three remain important to the economy of Ontario and the longer-term prospects for plant survivals appear to have taken a turn for the worse.