The loonie gave Canada the bird in 2007.
The Canadian dollar, so nicknamed because it features the image of a loon, was the lynchpin in a tumultuous year for Canada’s auto industry. Soaring in value to a modern-day record against the plummeting greenback, the loonie cut into a labor-cost advantage Canada had long enjoyed over the U.S., its largest trading partner.
Dependent on the U.S. market, auto industry suppliers suffered. So did their workers.
Canadian consumers rebelled against a well-entrenched vehicle-price structure that favored their neighbors to the south. And as they trickled across the border to exploit new-found bargains, auto makers sparked legal battles by voiding warranties in a bid to protect their Canadian dealer networks.
Meanwhile, in moves more closely related to declining demand than the currency crunch, Canadian assembly plants saw their model lineups depleted by eight program cancellations. By year’s end, however, the net loss was two because auto makers were poised to add six nameplates before 2009.
Still, conventional indicators showed the overall economy barely flinched, evidenced by a 2.7% hike in real gross domestic product and unemployment levels that hit a 30-year low. And Ontario continued its industry-leading streak to four consecutive years as the top North American region for finished-vehicle production.
Ontario’s light-vehicle output totaled 2.5 million units, besting Michigan and Mexico which produced 2.3 million and 2.0 million, respectively.
These underlying conditions, coupled with the more visible turmoil, prompted the federal government to dub 2007 a year of “turbulent stability.”
Light-vehicle sales totaled 1.65 million units, 2.4% better than 2006 but just short of 2002’s record 1.69 million, according to Ward’s data. The 808,977 light-truck deliveries not only were a volume record, they marked the segment’s highest-ever share of the Canadian market: 49%.
Records also were set for total truck sales and share. Factoring in medium- and heavy-duty models, Canadian truck sales totaled 848,760, tipping the balance against car deliveries for the first time ever by accounting for 50.2% of market, according to Ward’s.
The sales hikes helped boost gasoline consumption 3.6%, despite record high gas prices, said Industry Canada, a federal government arm that monitors commerce and manufacturing.
By year’s end, the national average per-liter price of regular-grade gasoline had risen C$0.04 to C$1.02 ($3.87 per gallon), according to Natural Resources Canada, another government body.
Against this backdrop, Canada’s trade in automotive products maintained a trend that emerged in 2006 with imports increasing 0.2% and exports declining 6.1%, Industry Canada reported.
Product discontinuations contributed to the export shortfall. Four of the six light-vehicle assembly sites in Canada killed off programs in 2007.
The most drama involved DaimlerChrysler Canada Inc., which becameCanada Inc. when DaimlerChrysler AG sold its Chrysler assets to Cerberus Capital Management LP in August.
After green-lighting a production version of theImperial concept car, a regally-proportioned sedan that debuted at the 2006 North American International Auto Show in Detroit, the pentastar company sought modified work rules at the intended assembly site in Brampton, ON.
Among the proposed changes was the forfeiture of about C$134 ($115) per week – extra pay negotiated by the Canadian Auto Workers union as compensation for shortened break times, which were necessary to accommodate the plant’s transition to three 8-hour shifts in 2005.
Union leaders recommended acceptance of the deal to secure the new product. But with a previous commitment to build the new Dodge Challenger already in hand, workers rejected the concessions.
Five weeks later, having reportedly gained the understanding that an incremental product was contingent on acceptance of the concessions, workers demanded a second vote. This time, the deal was accepted by nearly 80% of those who cast ballots.
However, it was all for naught. As North American gas prices inched upward, the Imperial already was beginning to look irrelevant and a Cerberus-led transition team killed the program.
But to preserve the concessions it won from the CAW, the auto maker agreed to transfer European-market production of the Chrysler 300 to Brampton following the 2010 expiry of a supply arrangement with Austria-based contract assemblerSteyr Fahrzeugtechnik AG & Co. KG.
With the launch of Chrysler’s redesigned-for-’08 minivan lineup, the auto maker also discontinued production of the Dodge Caravan short-wheelbase model that had been assembled in Windsor since the nameplate debuted in 1983.
Chrysler said it expected short-wheelbase customers to gravitate toward the all-new ’09 Dodge Journey cross/utility vehicle, scheduled for a 2008 production launch at the auto maker’s plant in Toluca, Mexico.
By November, as part of a sweeping Cerberus-inspired capacity reduction, Chrysler had axed two more vehicles from its lineup – the Windsor-built Chrysler Pacifica and the Brampton-built Dodge Magnum. Sales of both CUVs had been tepid, and Chrysler was anxious to streamline its portfolio to avoid competing with itself.
Jim Press, who was lured away by Chrysler after serving as’s top North American executive, championed the downsizing strategy. Press joined Chrysler as vice chairman and president, sharing both titles with former CEO Tom LaSorda, who had stepped aside in favor of Robert Nardelli, ex-Home Depot CEO and one-time General Electric wunderkind.
Meanwhile,Motor Co. officially abandoned the minivan market by sending the Ford Freestar to an early grave. Production had been slated to continue through the first quarter, but the vehicle entered the year in a tailspin.
Sales for December 2006 plunged more than 58% below prior-year, andrevealed during the 2007 North American International Auto Show in Detroit that Freestar production would end in January.
Successor to the Windstar, at one time the segment’s benchmark model, the Freestar had been built at Ford of Canada Ltd.’s assembly plant in Oakville, ON. In keeping with the auto maker’s strategy to load its CUV pipeline, Oakville was given over to the Ford Edge, Lincoln MKX and for 2008, production of the all-new ’09 Ford Flex.
In addition, Ford’s other Ontario assembly plant, St. Thomas, stood to add production of the Lincoln Town Car in 2008, following the 2007 closure of the auto maker’s assembly site in Wixom, MI.
This plan was significant because St. Thomas also was on the brink of closure. Its only products were the Mercury Grand Marquis and Ford Crown Victoria. Ford confirmed the latter would be sold exclusively to fleets after the ’08 model year.
The Town Car, Grand Marquis and Crown Victoria shared Ford’s Panther platform, whose origins spanned four decades.
Another industry era ended atof Canada Ltd. with the retirements of two storied nameplates: the Pontiac Grand Prix and Chevrolet Monte Carlo. Flagging demand led GM to kill the Monte Carlo in June, followed by the Grand Prix five months later.
The Monte Carlo nameplate launched in 1970 as GM’s answer to the Ford Thunderbird, while the Grand Prix debuted 15 years earlier. Both were built at GM’s assembly complex in Oshawa, which was scheduled to produce the all-new Chevrolet Camaro coupe beginning in 2008, followed by a convertible version in 2009.
In a demonstration of its industry-leading manufacturing flexibility, AmericanMotor Co. Inc. marked April by transferring production of its Honda Pilot CUV from its plant in Alliston, ON, to Lincoln, AL. The move was designed to free up 60,000 units of Alliston’s capacity for Honda Civic C-car production.
The Pilot followed a trail blazed by theOdyssey minivan. To make room for the Acura MDX CUV, the minivan’s production was shifted from Alliston to Alabama in 2004.
Motor Mfg. Canada and CAMI Automotive Inc., both of which operated plants in Ontario, stood pat in 2007. But construction continued on a new Toyota plant in Woodstock, ON, where RAV4 CUV production was slated to begin in 2008.
After a steady climb that began in earnest two years earlier, the Canadian dollar peaked in November, trading at a 10% premium against the dollar, the greatest disparity since the Civil War. By year’s end, it fell back near parity.
While auto makers felt the pinch, Canadian suppliers that negotiated agreements when the loonie was closer to $0.90 against the dollar, were caught in a vise.
They responded with job cuts. By year’s end, supply-chain employment was estimated at 87,000, down from 106,000 in 2003, according to the Automotive Parts Manufacturers Assn.
Hope was on the horizon in the form of a promised corporate-tax reduction and an end to an Ontario tax on new machinery and equipment slated for 2010. But that would not be soon enough, warned APMA President Gerry Fedchun.
“We need the relief right now,” he said. “With the dollar being what it is, we’ve got a lot of members in financial difficulty.”
Consumers, especially those living close to the U.S. border, also found themselves in a hole. Frustrated by sticker prices as much as 39% higher on identical vehicles in the U.S., Canadians anxiously awaited re-pricing initiatives.
But only Porsche Cars North America Inc. relented. Revising its ’08 pricing in Canada, the German auto maker wiped out discrepancies ranging from $4,900 for the Cayenne SUV to $16,100 for the 2-seat GT3 RS.
“We cannot ignore our customers and dealers in Canada who can look to the U.S. and recognize a substantial price difference,” PCNA President and CEO Peter Schwarzenbauer said in a statement. “We listened to the market and did what is best for our customers in Canada.”
When relief failed to come for mainstream buyers, Canadians began purchasing vehicles in the U.S. and importing them – a dynamic that threatened to short-circuit the nations’ dealer network. So auto makers rode to the rescue of their retailers by announcing they would not honor the warranties of vehicles imported for personal use.
Enter a Toronto law firm with class-action aspirations. The resulting suit, filed on behalf of four Toronto residents, sought C$2.1 billion ($2.1 billion) from American Honda Motor Co. Ltd., Honda Canada Inc., Chrysler LLC, Chrysler Canada Inc.,Corp., General Motors of Canada Ltd., North America Inc, Nissan Canada Inc., the Canadian Automobile Dealers Assn. and National Automobile Dealers Assn.
“They’re not letting the natural laws of competition take effect,” said Jonathane Ricci, partner in Juroviesky Ricci LLP. “The government of Canada does allow Canadians to import vehicles, and there’s a whole (legal) procedure that allows them to do it.
“The issue is, when you prevent Canadians from doing that because of your own policies, your own agreements; your own directives, that’s preventing Canadians from taking advantage of a weaker U.S. dollar at a time when they should be able to do so.”
Still, most auto makers stood firm.
Noting parity had just arrived after three decades of U.S. dominance, Chrysler’s Press pleaded for patience.
“I don’t think anybody watches the currency and as soon as it moves, they start changing the price,” he said. “You can’t do that. Currency is a long-term move. It goes one place to another, and when cycles come up, you take (that) into account. What you have to do is price at where the market is, and that’s what we’ll continue to do.”
Steve Landry, Chrysler’s executive director-North American sales, said he sent memos to U.S. dealers, warning them against selling vehicles to Canada on the gray market.
“We do have some Canadians coming to buy U.S. vehicles to take back to Canada, but it’s fraught with complications,” he said, citing daytime running lights as an example. In Canada, they are required.
“So it’s not just homologation of an odometer,” Landry said. “You have to also change the daytime running lights, which is a pain. Our dealers are more into selling vehicles where they can take care of the entire lifecycle of that customer in that vehicle.
“Some dealers are actually calling in to say some Canadian brokers are trying to buy vehicles. We’re going to watch it, but I’m hoping it doesn’t get out of hand.”
The year finished amid labor tension. Production cuts by GM and Chrysler cost the CAW thousands of jobs, setting the stage for conflict heading into a contract year.
Adding to November’s product cancellations at Chrysler’s Brampton plant, the auto maker cut its 3-shift operation by one – a move that chopped 1,100 hourly jobs.
Meanwhile, GM announced it would cut one shift from its 3-shift Oshawa pickup plant in January due to slumping sales.
CAW President Buzz Hargrove called the cuts “devastating” and railed against governments “who act like Boy Scouts (believing) that somehow this is all fine.”
Hargrove’s criticism of Canada’s trade policies was a recurring theme in 2007. The CAW compiled a report that blamed the nation’s open border for 35,000 vehicle assembly jobs over five years.
Hargrove often singled out South Korea-based auto makersMotor Co. Ltd. and Kia Motors Corp., claiming they benefited from a protectionist agenda in Korea.
“Our most unbalanced automotive trade relationship is with Korea – from whom we purchase 183 times as much automotive value as we sell there,” the union said in a scathing report issued in October.
“The CAW calls on the federal government to stop its (free-trade agreement) negotiations with Korea in light of the devastating deterioration of Canada’s automotive trade performance, and other structural challenges facing the Canadian industry. Future trade talks must be integrated with a broader strategy to support auto and other high-value Canadian industries, and must feature focused measures to ensure that our automotive imports are matched by equivalent automotive exports.”
While Canadian auto exports to Korea were virtually nil,and Kia marked 2007 with Canadian-market sales declines of 1.6% and 4.2% respectively, according to Ward’s data. And their combined market share totaled less than 4%.
However, as a harbinger of the 2008 talks, Hargrove demonstrated the CAW’s creative approach to bargaining as he forged an historic deal with longtime adversary,International Inc.
The union had for decades coveted the Canada-based mega-supplier as a target for organizing. But leveraging its unique, entrepreneurial culture, Magna consistently won out over the union’s overtures.
This time, Hargrove pitched a proposition that had the potential to end the conflict.
Dubbed the “Framework of Fairness,” it opened the door for Magna’s 18,000 Canadian workers to join the CAW, but only under certain conditions – not the least of which was a revolutionary no-strike clause.
The framework agreement established a protocol of workplace elections and referenda, a multi-faceted dispute-settlement process and the use of final-offer arbitration in place of work stoppages to settle contract disputes.
If workers at a given site elected to join the CAW, they would be covered by terms of a national contract with Magna.
Said Magna founder and Chairman Frank Stronach: “The traditional, confrontational model of labor relations is unproductive and wastes energy that would be better focused on creating the conditions which would be fair to employees and would ensure that Magna remains competitive in the global auto industry.
“Magna recognizes that the CAW has the ability to be an important ally in addressing the many competitive challenges our industry is facing.”
Such an arrangement also was a hedge against the trying conditions Canada confronted in 2007, said Hargrove.
“With the level of imports coming in and shift reductions and closures, it’s a very tough environment for people that work in the auto sector,” he says. “People see this as a positive.”