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The Canadian Auto Industry: Key Features

The CAW & Canada’s Auto Industry: Considering a Health Care Cost Advantage Presentation to: Invitational Roundtable on Health Care and the Economy Jim Stanford, CAW Economist stanford@caw.ca CMA House, Ottawa, Ontario March 7, 2006. The Canadian Auto Industry: Key Features.

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The Canadian Auto Industry: Key Features

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  1. The CAW & Canada’s Auto Industry: Considering a Health Care Cost AdvantagePresentation to:Invitational Roundtable on Health Care and the EconomyJim Stanford, CAW Economiststanford@caw.ca CMA House, Ottawa, Ontario March 7, 2006

  2. The Canadian Auto Industry:Key Features • 100% foreign-owned (OEMs) • investment attraction/retention challenge not new • Assembly-focused • 40-45% automotive GDP • Superior productivity • Superior quality • Labour cost / labour quality advantages • health care – demographics – skill set – currency??? • Active auto policy framework • 1965 Auto Pact – modern incarnations • Pro-active union

  3. Canadian Costs • Public health care system • all core services • most prescription, some long-term care after 65 • Demographics • Canada Big 3 average: 1.1 retirees per active • Canadian currency • no longer undervalued • Labour costs

  4. Canadian Healthcare: Such a Deal EHT=$30/veh. Source: CAW Research, Industry Sources

  5. Average ProductivityBig Three Assembly Plants

  6. Pension & benefit expense includes cash and pre-booked future expenses.

  7. C$: Now a Commodity Play C$ begins tracking commodity prices

  8. A Continuing Advantage • Even at current exchange rates, Canadian assembly facilities enjoy labour cost advantages • health care – demographics • statutory costs • CAW plants $5-10 U.S. / hour cheaper than UAW plants • CAW matches blended average labour costs in North American vehicle market

  9. Mergers, organizing have expanded CAW membership base • Auto parts: 50% union • Credible unionization effort at transplants • Policy influence • auto – health • border – environment • Not a shrinking organization

  10. Big Three Financial Crisis:Root Causes • It all starts with market share: • down 13 points in N.A. since 1996 • each point = $1 billion operating profit • each point = one assembly plant • Less market share means: • less production – less employment • less capacity utilization • less profit – less investment in new product • higher unit fixed costs (for health care, etc)

  11. Big Three Financial Crisis:What Can Turn it Around? • Standard story: • big cost concessions (esp. U.S. health/legacy) • big capacity reductions • address product quality / innovativeness • address perceptions of product quality • cross fingers: hope to stem the tide • Can it work?

  12. What CAW is Delivering • Productivity to match transplants • Quality to match transplants • Utilization better than Toyota’s • Health costs = $120 (U.S.) per vehicle • Competitive labour costs • Flexibility with new investments, technology • Gov’t support for new investments • Pressure for fair trade policy

  13. Conclusions • Health care costs in Canada are significantly lower than they are in the U.S. • This is a significant advantage

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