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Cablegate: Ontario Mayors Seek Federal Auto Sector Investment

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R 011947Z MAY 08
FM AMCONSUL TORONTO
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RUEHME/AMEMBASSY MEXICO 0146
RUEHKO/AMEMBASSY TOKYO 0077
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UNCLAS SECTION 01 OF 02 TORONTO 000134

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ELAB PGOV SENV CA
SUBJECT: Ontario Mayors Seek Federal Auto Sector Investment

Ref: (A) Toronto 123 (B) Toronto 130 (C) Toronto 32
(D) 07 Toronto 457

Sensitive But Unclassified - Please Protect Accordingly.

1. (SBU) Summary: As Ontario's economy shows continued signs of
slowing, mayors from Ontario's auto manufacturing jurisdictions met
at General Motors in Oshawa, Ontario, on April 25 to discuss the
health of the automotive sector in Ontario. Because of the huge
capital costs required for automotive projects, the group is calling
for cooperation and collaboration between companies and all levels
of government. The mayors are also calling for the harmonization of
government safety and other standards in North America to ensure
that the Canadian automotive market remains affordable and
competitive. The group suggested the U.S. and Canada align their
free trade agreements with Korea. End Summary.

--------------------------------
Ontario Economic Engine Sputters
--------------------------------

2. (U) Rising energy prices, a strong Canadian dollar, and a heavy
dependence on manufacturing is hurting Ontario's economy. The
province produced over 38% of the country's GDP in 2007, but this
figure is shrinking, down from nearly 41% in 2003. Over the same
period, the province's population has remained steady at around 38%.
Ontario's unemployment rate rose 0.3 percentage points in March to
6.4%, which is slightly above the national average of 6%. Also in
March, 25,000 full-time jobs were lost, though that was partially
offset by the creation of 23,000 part-time jobs. A report released
by Toronto Dominion Bank on April 29 warns that by 2010 Ontario may
become a "have-not" province (economically disadvantaged), compared
to other Canadian provinces. However, Ontario taxpayers would still
be paying billions more to the federal government than they get back
in equalization, or for health and social programs. (Note: In 2005
(latest available figures), Ontario taxpayers sent C$21 billion more
to Ottawa in taxes than the federal government spent in the
province. End Note).

3. (SBU) Ontario is the leading jurisdiction for automotive
production in North America, producing over 2.5 million light-duty
vehicles annually, slightly ahead of Michigan (ref (A)). For each
of the 50,000 assembly jobs in the province, there are roughly seven
to 10 spin-off jobs (the highest ratio of any manufacturing sector).
The strength of the Canadian dollar and faltering demand, however,
will make it difficult for Ontario to hold onto top spot. Some
Ontario auto sector analysts believe the proposed new Canadian Auto
Workers (CAW) contract with Ford will not help (ref (B)). One
analyst told us, "This contract doesn't provide nearly what was
needed to make the Canadian auto industry competitive. C$5 per hour
savings doesn't do it. This contract means that costs will stay too
high, and the costs either have to come down or the jobs will
eventually be transferred out of Canada."

------------------
More Layoffs at GM
------------------

4. (U) On April 28, GM announced that it would cut another shift at
its award-winning Oshawa, Ontario truck plant, laying off
approximately 1,000 more employees by September. Industry officials
attribute the move to rising fuel prices and the slumping U.S.
economy, which have suppressed demand for relatively
fuel-inefficient pick-up trucks and sport utility vehicles. CAW
President Buzz Hargrove told reporters on April 29 that he would try
to save these jobs by negotiating shorter schedules for two shifts.
The planned layoffs come on the heels of GM's elimination of 1,200
jobs at the plant in 2007.

-----------------------------------------
"Ontario Mayors of Automotive Investment"
-----------------------------------------

5. (U) On April 25, mayors from Ontario's auto manufacturing
jurisdictions -- from Windsor to Oshawa, who call themselves the
"Ontario Mayors of Automotive Investment" (OMAI) -- met at GM in
Oshawa to discuss the health of the automotive sector and to develop
a single voice for Ontario's municipal jurisdictions in order to
attract and retain automotive investment in Ontario. Mayors and
representatives of over 20 Ontario communities attended the meeting.
Consul General Nay spoke at the event, as did Ontario MPP Monte
Kwinter (Parliamentary Assistant, Ministry of Economic Development
and Trade), and federal MP Colin Carrie (Parliamentary Assistant,

TORONTO 00000134 002 OF 002


Ministry of Industry).

--------------------------------
Cooperation Needed at All Levels
--------------------------------

6. (SBU) The mayors are asking the federal and provincial
governments for "...direct, sustainable, long term continued support
and involvement to foster a business-friendly environment in [the
auto] industry." Kwinter stated that cooperation and collaboration
between companies and all levels of government is necessary to move
big projects forward. Kwinter noted that Ford and the Ontario
government had collaborated on the C$130 million project to re-open
the company's Essex Engine Plant, in Windsor Ontario, which was
announced on March 31 (ref (A)). The project should bring back 300
of the more than 900 workers who had been laid-off last November.
According to a contact at Ford, the Canadian federal government is
still considering providing additional support to the project
through its C$250 million Automotive Innovation Fund (ref (A)).

------------------------
Regulatory Harmonization
------------------------

7. (U) The mayors called on Canada and the U.S. to harmonize
regulatory standards in order to "...reap the benefits of a North
American marketplace and to ensure affordable prices and innovative
technologies for Canadians." Roughly 40 motor vehicle safety
standards are different in the U.S. and Canada, making some vehicles
produced for the U.S. market unavailable in Canada. It is costly
for producers to build vehicles specifically for the Canadian
marketplace, which is a tenth the size of its U.S. counterpart.
Transport Canada, the federal government department which regulates
road and motor vehicle safety under the Motor Vehicle Safety Act
(MVSA), is currently working to harmonize Canadian bumper standards
with those in the U.S. and Europe. The new bumper test speed
requirement rule is expected to be published in June.

8. (SBU) Transport Canada is also working on the country's first
motor vehicle fuel consumption regulations, announced at the
beginning of the year, which will enter into force as early as the
2011 model year. The fuel consumption regulations will reportedly
be benchmarked against the U.S. target of 35 miles per gallon - or
6.7 liters/ 100 kilometers - for the average fuel economy of
vehicles sold in 2020. Following on-going consultations with
stakeholders, and between the GOC and the USG, the GOC expects to
publish the draft regulations no later than the end of 2008 (though
the deadline is dependent on the USG rule-making schedule),
according to a Transport Canada contact.

---------------------
Free Trade Agreements
---------------------

9. (SBU) The OMAI mayors expressed concern about a possible Canada
free trade agreement with the Republic of Korea. The mayors, while
acknowledging the need to enter new markets, argued that an
agreement with the ROK must encourage equity and reciprocity, which
includes investment in the local marketplace. In order to build a
competitive North American marketplace, the group also suggested the
the
U.S. and Canada consult to align the two countries' free trade
agreements with Korea.

10. (SBU) Comment: With falling U.S. demand, and higher production
costs in Ontario than the U.S. (ref (A)), the province's auto sector
is likely to experience more lay-offs in the near term. Regulatory
harmonization will help reduce costs, but the cost of Canadian labor
will have to become competitive with U.S. labor costs or auto sector
jobs will move south of the border. End Comment.

NAY

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