U.S. Auto Retreat Poised to End With Canadian Labor Pacts

The U.S. auto industry’s output decline in Canada is poised to end after the major carmakers secured wage and pension savings that lower the costs of what Ford Motor Co. calls the world’s most expensive auto workers.

In four-year labor agreements at Ford and General Motors Co., the companies agreed to offset previously announced layoffs with fresh investments and jobs. Chrysler Group LLC pledged to maintain its current operations in a tentative deal with the Canadian Auto Workers last night. In exchange, workers accepted bonuses in lieu of annual raises, along with measures to make new hires less expensive.

“We’re in a period now of a decade-plus of evolving to learn how to compete one-on-one with the best jurisdictions anywhere in the world,” Dennis DesRosiers, president of DesRosiers Automotive Consultants in Richmond Hill, Ontario, said by telephone. “And these labor agreements are starting to reflect that.”

The auto companies opened the latest round of negotiations with Ford saying its Canadian workers were the most expensive worldwide. The country’s exports became more expensive in the last decade as the dollar rose about 60 percent against its U.S. counterpart. That helped push Canada out of the top-10 global automakers, from fourth place in 1999, according to the union.

Most Expensive

Before negotiations began last month, Ford said it spent $15 more an hour for a Canadian worker than a unionized laborer in the U.S., including costs for benefits and retirees. Erasing that hourly gap will depend on how many workers Ford can hire at the new wage to bring down the average, Lauren More said by e-mail. She declined to say what the new average hourly wage could be.

Faye Roberts, a spokeswoman for GM, didn’t respond to an e-mailed request for comment. Chrysler, in an e-mailed statement last night, declined to comment on the accord.

The three U.S. companies’ output in Canada was 1.48 million vehicles in 2011, down 24 percent from 2002, according to DesRosiers Auto Consultants. Employment dropped 55 percent to 20,777 workers over the same period, according to the union.

“At least in the course of the next three or four years, with these agreements, they could get very competitive with the U.S.,” Kristin Dziczek, director of the Center for Automotive Research, said by phone from Ann Arbor, Michigan.

New Hires

With no plant expansions planned, labor savings under the new agreements will depend on how many current employees retire, and the companies’ ability to keep a steady pipeline of new workers coming in as older workers reach full pay, she said

“The structure is there,” Dziczek said.

Under the deals, workers gave up annual cost-of-living raises in favor of C$2,000 ($2,033) lump-sum payments in the second, third and fourth years of the contracts, as well as a C$3,000 ratification bonus. The hourly rate for new hires will fall to C$20.40 from C$23.80 and the time to reach a base salary of C$34 will be 10 years, from six.

The Ford deal promises 600 new jobs in its Oakville, Ontario, assembly plant to help offset the loss of 1,100 jobs after a plant in St. Thomas, Ontario, closed in September last year. The GM deal will add 900 jobs at an assembly plant in Oshawa and 100 more at an engine and transmission plant in St. Catharines, to offset the 2,000 jobs lost from another plant set to close in 2014.

Top Sellers

Chrysler said during negotiations it planned to maintain three shifts at its Windsor assembly plant, near Detroit, and two shifts at its Brampton, Ontario plant through the agreement, CAW President Ken Lewenza told reporters last night.

The Dodge Grand Caravan and Chrysler Town & Country minivans built in Windsor were the fourth- and fifth-best selling models in the company’s lineup last year. Deliveries of the 300 sedan, built in Brampton, surged 158 percent this year through August, the biggest gain among its models.

“The beauty of Chrysler Corporation, even though they’re the smallest, even though from a financial perspective they might even be the most vulnerable, they’ve got some hot products that are going to provide employment opportunities at our facilities for the life of this collective agreement,” Lewenza said.

The contracts, which still need to be ratified by GM and Chrysler workers after Ford’s members approved theirs, move half the pensions for new hires into a defined-contribution plan where the payout at retirement depends on the pension fund’s performance. The other half will come from the union’s defined-benefit plan that guarantees a certain amount at retirement and obliges the company to make up the shortfall if the fund underperforms.

‘Bigger Piece’

In 2011, Canada accounted for about 20 percent of the major U.S. car companies’ North American production, up 3 percentage points from a decade before, even as the companies’ share of North American sales fell, according to DesRosiers Auto.

The latest agreements will allow Canada to hold onto its share of the U.S. automakers’ production, DesRosiers said.

“We’re getting a bigger piece of a smaller pie,” he said.

Before the past decade, Canada’s auto industry had grown with the help of a Canadian dollar that hit a record low of 62 U.S. cents in 2002 and the competitive advantage offered by the country’s universal health-care system. By 2007, the car companies moved a large part of their U.S. health-care costs off their books and into a separate fund managed by the U.S. union.

Government Incentives

“I think it’s a win for manufacturing,” Jeff Schuster, an auto analyst with LMC Automotive, said by phone from Troy, Michigan. “I think it’s a win for the unions, and creates a stable environment.”

Places where labor is cheaper, such as Mexico and Tennessee, where GM will shift production of its Chevrolet Equinox sport utility vehicle from Oshawa, have been offering tax incentives to attract producers.

Long-term investment by the auto industry depends on the Canadian and Ontario governments doing the same thing, said Schuster.

“That’s what they’re getting in the U.S.,” he said. “They’re getting that in Mexico, so that seems to be the name of the game. If you want a factory, or even just a new vehicle, which is going to drive economic growth for that region and for the country overall, then they want some sort of incentive to locate it there.”

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