Cablegate: Changing Face of Canadian Auto Sector

DE RUEHON #0450/01 3181821
R 141821Z NOV 07 ZDK




E.O. 12958: N/A
SUBJECT: Changing Face of Canadian Auto Sector

Ref: (A) Toronto 414 (B) Toronto 358 (C) Toronto 53 (D) Toronto 11

TORONTO 00000450 001.2 OF 003

Sensitive But Unclassified - Please Protect Accordingly.

1. (SBU) Summary: An ascending Canadian dollar, briefly topping
US$1.10 for the first time in modern history on November 7 and still
at US$1.04 as of November 14, continues to put pressure on the
Canadian auto manufacturing sector, and to erode its global
competitiveness. Canadian Auto Workers (CAW) union President Buzz
Hargrove has renewed his opposition to the proposed Canada-Korean
Free Trade Agreement (FTA), which he says would make matters worse
(ref (A)). Ontario manufacturers are calling for a cut in interest
rates to help take some of the air out of the loonie, but market
analysts are concerned that such a move will only fuel consumer
spending and borrowing. Soaring relative costs determined in
Canadian dollars, diminished U.S. demand, and higher fuel costs
changing consumers' preferences, have forced more layoffs at
Chrysler Canada, and the parts sector is expected to be next. On
November 7, CAW workers signed a deal with parts supplier Magna,
giving the unionized employees at Magna's Windsor Modules plant more
job security. End Summary.

2. (U) Canadian vehicle sales were up 2% to 121,237 in October,
compared with 118,833 in October 2006, compared to a 2% drop from
September 2006 to September 2007. Chrysler Canada, Ford Canada, and
GM Canada all outperformed the market for the first time in three
years, with GM up 13%, Ford 6%, and Chrysler 3%. The Detroit Three
outshone their Japanese competitors after offering incentives to car
buyers, which included cash rebates of up to C$5,250 at Chrysler and
C$7,000 at Ford. Honda Canada's sales were down 9%, and Toyota
Canada sales were down 10%. That contrasted with the United States,
where rising gas prices reportedly drove up U.S. sales for small
cars, including Toyota, thereby apparently creating a shortage of
small cars for sale in Canada (where small car sales had been very
strong until last month).

3. (U) Early in November, Honda Canada responded with incentives as
high as C$5,500 for cash purchases of the Pilot crossover vehicle;
C$1,500 to buyers of the compact Civic; and up to C$4,000 on some
models of the Accord. On November 8, GM Canada, Canada's biggest
automaker, joined its competition in offering rebates of C$1,500 to
C$10,000 on select models. GM also announced that it will cut its
own collection of the goods and services tax (GST) by 1% until
January, when the GST will be officially lowered from 6% to 5% by
the federal government.

Cross-Border Auto Shopping Continues

4. (SBU) Despite sales incentives by the Canadian auto sector, the
high-flying Canadian dollar and lower U.S. list prices are
attracting more Canadian shoppers daily, according to the Registrar
of Imported Vehicles. 25,000 Canadians bought U.S. vehicles in
October, and it is estimated that 170,000 Canadians will buy a
vehicle in the U.S. in 2007. The previous one-year record for the
number of Canadians buying U.S. vehicles was 112,000. 40% of the
vehicles purchased in the U.S. by Canadians are expected to be new,
rather than used. An industry insider told us that most of the cars
being imported from the U.S. into Canada are used cars because it is
difficult for Canadians to finance new cars in the U.S.; purchases
therefore tend to be in cash. 5,000 Canadians reportedly call the
registrar per day looking for information on importing cars from the
U.S. When the Canadian dollar hit US$1.08 last week, that number
rose to 7,000.

Chrysler Announces More Job Losses

5. (U) On November 1, Chrysler Canada announced it plans to
eliminate 1,100 jobs (roughly one shift of workers) at its Toronto
Area plant in Brampton. This downsizing is in line with recent
workforce reductions at Ford in St. Thomas, Ontario and GM in
Oshawa, Ontario, though Chrysler has not trimmed as many jobs at its
Canadian operations as have Ford and GM in the last year or two. In
August, GM announced that it would eliminate 1,200 of the 3,000 jobs
at its truck plant in Oshawa by January 2008 due to diminishing U.S.
demand. 85% of the trucks assembled at the Oshawa plant are
destined for sale in the U.S. Another 3,000 jobs will be eliminated
over the next two years at GM's Oshawa car plants. This year, Ford
has shed 3,000 jobs by closing its Essex Engine Plant in Windsor,
and eliminating one shift at its St. Thomas assembly plant (ref
(D)). Chrysler's announced cuts are in addition to its elimination

TORONTO 00000450 002.2 OF 003

of 2,000 jobs in Canada by 2009, announced at the beginning of this
year (ref (C)). Most of those cuts affected Chrysler's Windsor
assembly plant (ref (C)).

6. (U) Chrysler also plans to discontinue four of its models that
have shown a consistent decline in sales; including the Dodge Magnum
muscle car and the Chrysler Pacifica crossover, which are built in
Brampton and Windsor, respectively. Magnum sales slid 27% through
the first 10 months of 2007. The axing of the Pacifica will
eliminate an additional 200 jobs later in November at Chrysler's
Windsor assembly plant. The Brampton layoffs are expected to start
in February 2008. In February of this year Chrysler announced plans
to build the Dodge Challenger "muscle car" at its Brampton plant
starting in 2008 (ref (C)).

--------------------------------------------- ---------
Canadian Auto Workers (CAW) Union Calls for Assistance
--------------------------------------------- ---------

7. (SBU) CAW President Buzz Hargrove has again called on the
Canadian federal government to immediately end free trade talks with
Korea and implement restrictions on imports from Korea and Japan
until Canadian exports are given fair access abroad (ref (A)).
Federal and provincial government officials reportedly responded to
calls for assistance for the auto sector by saying the auto industry
must adapt to the demands of North American consumers for more
fuel-efficient and environmentally friendly vehicles.

Parts Suppliers May Be Next to Feel Pain

8. (U) Concerns are mounting that the recent deals struck in the
U.S. between the UAW and Chrysler, GM, and Ford may impact
Ontario-based Magna and other parts suppliers. Some are speculating
that the terms of these collective agreements may prompt GM, Ford,
and Chrysler to in-source production of components and modules that
are currently being produced by independent auto parts
manufacturers. Magna co-CEO Don Walker recently suggested that
suppliers with weak financials would be dropped before strong
performers such as Magna, which reported a Q3 profit of US$155
million. Guelph, Ontario-based parts supplier Linamar, a darling of
Bay Street, may be hit hard by the collective agreements. Magna, in
an effort to remain globally competitive with a softening North
American market, has already shut down some Canadian factories,
moving production offshore.

9. (U) On November 7, the CAW and auto parts supplier Magna ratified
a three-year agreement which increases hourly wages from C$12 to
about C$15 at Magna's Windsor Modules plant. This is the first
plant agreement formally ratified after the October 15 Magna/CAW
announcement that the CAW would begin organizing Magna plants. Over
the length of the deal, wages at the Modules plant, which supplies
door components to Chrysler factories in Windsor, will rise to about
C$17.85 per hour, still far from the more than C$30 per hour (C$70
per hour with pension benefits) paid at other CAW Chrysler, Ford,
and GM plants. 87% of Magna's 250 hourly workers ratified the deal
known as the Framework of Fairness agreement. Under the agreement,
workers have given up their right to strike, a contentious point
that has met with strong criticism from many CAW members, but the
CAW has secured layoff and job security provisions, which are new
benefits for Magna employees. On November 7, a Magna official told
reporters that the agreement is "neither positive nor negative for
Magna and will have no impact on profitability." A CAW official
said it will try to organize another 40 plants in the Magna system,
but some Magna workers oppose the deal.

10. (SBU) On November 12, Magna's Russian partner, Russian Machines,
said that Magna will build a US$500 million manufacturing plant in
Russia that will produce 150,000 Chrysler vehicles annually for
consumption in that country; a Magna spokesperson called the report
speculative. Today, the Russian automobile market is roughly the
same size as Canada's (1.9 million autos sold in 2006), but is
expected to grow larger than Germany's auto market by 2016. In
March 2007, Chrysler reportedly indicated its plan to expand its
global presence outside of North America to offset slowing demand at
home. 9% of Chrysler's sales come from international markets; it
currently has no production in Russia.

11. (SBU) Comment: While the soaring Canadian dollar continues to
put pressure on the Canadian auto sector, market watchers agree that
it is not easy to target manufacturers to help them out. The
Canadian dollar hit US$1.10 in morning trading on November 7, and
has settled to US$1.04 on November 14. On November 7, Ontario

TORONTO 00000450 003 OF 003

Premier Dalton McGuinty called on the Bank of Canada to lower
interest rates to curb the rise of the Canadian dollar. The Bank of
Canada is keeping an eye on inflation but officials believe an
interest rate cut could overheat Canada's currently hot
commodity-driven economy. Finance Minister Dwight Duncan told
reporters November 7 that the Ontario government will continue
working to support the manufacturing sector. The provincial
government may include an announcement to help the struggling
automotive sector in the upcoming Liberal throne speech to the new
Ontario Legislature on November 29. End Comment.


© Scoop Media

World Headlines


UN: “COVID-19 Is Not Over”, Tedros Warns World Health Assembly

The head of the World Health Organization (WHO) told global health Ministers on Sunday that although reported COVID-19 cases and deaths have declined significantly, it is not time to lower the guard... More>>

UN: Bachelet Calls On Mexico To Step Up Efforts As Tragic Milestone Reached Of More Than 100,000 Disappearances

UN High Commissioner for Human Rights Michelle Bachelet on Tuesday called on the Mexican authorities to step up efforts to ensure truth and justice for victims of disappearances, who now number more than 100,000, according to official data... More>>

ADC: Statement On The Assassination Of Shireen Abu Akleh

Early this morning in Jenin, Occupied Palestine, revered Palestinian voice Shireen Abu Akleh, a Palestinian American journalist for Al Jazeera, was assassinated by Israeli Occupation Forces snipers...

Access Now: Elon Musk’s Twitter Buyout Must Not Come At The Expense Of Human Rights

Following today’s announcement that Elon Musk will acquire complete ownership of Twitter in a cash sale of around 44 billion USD, pending shareholder approval, Access Now urges Twitter’s Board, employees, and shareholders... More>>

UN: Biodiversity And Ecosystem Protection Highlighted On Mother Earth Day

Marking International Mother Earth Day, UN General Assembly President Abdulla Shahid urged on Friday, for collective action to safeguard biodiversity and protect ecosystems... More>>

Ukraine: Hundreds More Reach Safety After Fleeing Besieged Mariupol
In Ukraine, humanitarians said on Wednesday that hundreds of people have managed to reach safety after fleeing Mariupol, where there’s also been condemnation for the killing of Lithuanian filmmaker Mantas Kvedaravicius... More>>