Investment Tempers Angst in Canadian Auto Industry

Special Report

2006 Year in Review

In a year marked by angst for the North American automotive industry, the Canadian market fared well overall, albeit with a few ups and downs.

For the third straight year Ontario, Canada, was the top auto-producing state or province in North America in 2006, keeping Michigan in the No.2 spot.

Ontario production fell to an estimated 2,557,294 in 2006, down 4.4% from 2,675,788 in 2005, and its share of the North American total dropped 0.2 points to 16.2%. However, its gap over Michigan widened, as the Big Three’s home state saw production decline 9.3% to 2,281,417 cars and trucks. Michigan’s share fell a full point to 14.4%.

Michigan was expected to rally in 2007, but not overtake Ontario.

On the sales side, the Canadian market notched its second-highest total in the country’s history, with a 2.0% increase to 1,612,292 light-vehicle deliveries.

Ford Invests in CUV Production

For employees of the Detroit Big Three, it was an emotional ride.

Ford Motor Co. started the year with confirmation it would invest C$1 billion ($820 million) to transform its Oakville, Ont., minivan plant and shuttered Ontario Truck Plant (F-Series) into a flexible campus to make the all-new Ford Edge and Lincoln MKX (Aviator replacement) cross/utility vehicles.

The 5.4 million-sq.-ft. (486,000-sq.-m) complex would continue to employ about 4,000 people, ending job security fears at a plant reduced to one shift due to slow sales of the Ford Freestar and Mercury Monterey (sold only in the U.S.) minivans.

Ford contributed C$800 million ($654 million) and each level of government chipped in C$100 million ($82 million).

Bill Osborne, Ford of Canada Ltd. president and CEO, said it made Oakville Ford’s most flexible plant.

In February, Ford announced it would be the first auto maker to produce hybrid-electric vehicles in Canada, with plans to make hybrid versions of the Edge and MKX by 2010 in Oakville.

And in April, Ford appointed Dominic DiMarco to executive director-Canada and South America.

Meanwhile, to make room for the Edge and MKX, Ford in August stopped building the Monterey. The minivan, launched in 2003 as an ’04 model, never resonated with buyers.

Sales of the Freestar also were in decline, and Ford exited the minivan segment entirely when production ceased in November. Speculation was a production version of the Ford Fairlane concept would become the new family vehicle and also would be assembled in Oakville.

In December, Ford began shipping the Edge and MKX, after a delay of several weeks to ensure a high-quality launch in a plant with all-new body and paint shops and a new line building new vehicles with a new supply chain.

Shortly after the delay, Ford said it would replace Oakville Plant Manager Frank Gourneau with Ken Minielly, formerly manger at Ford’s Wayne, MI, assembly plant.

Ford expected to sell 100,000 units of the Edge annually and had 50,000 online “hand-raisers” and 20,000 dealer orders for the new CUV prior to its sale date.

The outlook was not as rosy at the St. Thomas (Ont.) Assembly plant, with the announcement in May that Ford Motor Co. of Canada Ltd. would eliminate nearly 1,200 jobs, initially, with reduced output initially and followed by the elimination of the second shift producing the Ford Crown Victoria and Mercury Grand Marquis in July 2007.

The reductions were part of Ford’s Way Forward restructuring plan, announced in January, that called for the shuttering of 14 plants by 2012 and the elimination of up to 30,000 jobs over two years in an effort to return the auto maker to profitability in North America.

Among the casualties: the Windsor, Ont., casting plant, the closing of which had been announced previously.

In September, Ford announced acceleration of its Way Forward plan upon realization the auto maker was not on track to fulfill its promise to return to profitability by 2008 – it was delayed to 2009.

CAW Made St. Thomas Proposal

In a proactive move, in August, the Canadian Auto Workers union proposed Ford twin the St. Thomas plant, with the second facility half owned and run by a contract assembler, such as Magna International, to expand Ford’s lineup to include small B-segment cars.

Canada could cost effectively assemble entry-level cars, said CAW President Buzz Hargrove. He said the two plants could share management and engineering; Canadian workers offered a per-unit assembly rate of 15 hours vs. 18 hours in Mexico; and logistics and transportation costs would be lower.

But the proposal had gained no traction by year’s end.

It was a year of highs and lows for employees of General Motors of Canada Ltd. as well.

GM Canada named a new president, Arturo Elias, in July, replacing Michael Grimaldi, who took over as president and CEO of GM Daewoo Auto & Technology Co. in South Korea. Elias had been president and managing director of General Motors de Mexico S.A. de C.V.

Canadian workers got good news in August when General Motors Corp. said it would invest C$740 million ($662 million) at its Oshawa, Ont., car plants for a new-model lineup to include the ’09 Chevrolet Camaro. Output was to start at the end of 2008, with sales slated to begin in first-quarter 2009.

The Camaro was to be a lower-volume vehicle, with initial sales of about 100,000 units. Hargrove said the size of the investment clearly indicated GM had more product plans for Oshawa.

The Camaro was to stem from GM’s pending Global Rear Wheel Drive Architecture, formerly known as Zeta, under development by GM Holden Ltd. in Australia.

The RWD platform also was expected to underpin the next-generation Chevrolet Impala and Monte Carlo in 2009, as well as the new Pontiac G8 sedan and perhaps a replacement for the Buick Park Avenue.

The two existing car lines in Oshawa were producing front-wheel-drive cars. No.1 made the Impala and Monte Carlo. No.2 built the Pontiac Grand Prix, Buick LaCrosse and Allure, and was the second most-productive plant in North America according to the annual Harbour Report on productivity.

And, in April, Buick confirmed it would expand itaneup with the V-8 powered LaCrosse Super, based on the Velite concept from 2004, to go on sale by fall 2007.

In September, the CAW submitted a proposal for redesigned facilities in Oshawa with two flexible vehicle lines – each capable of building FWD or RWD vehicles – with combined capacity of 500,000 vehicles annually.

GM had not formally responded to the union’s proposal by year-end.

The Camaro announcement saved about 2,900 Canadian jobs as cuts announced in November, 2005, as part of GM’s North American turnaround plan called for mothballing the No.2 line when the models it built were phased out in 2008, resulting in a loss of about 2,000 jobs.

The planned elimination of the third shift at Oshawa No.1 in August, 2006, was to result in 900 immediate job losses, but stronger-than-expected sales of the Impala delayed that action until 2007.

To win the Camaro contract and other vehicles on the RWD architecture, and keep the two car plants open past 2008, the CAW agreed in March, 2206, to changes to its 3-year national contract negotiated in the fall of 2005.

The changes allowed GM to contract out nearly 400 custodial and maintenance jobs at the plant; reduce paid relief time; hire a temporary workforce of about 200 to prepare for a new model launch; and gain more control over worker transfers if the plant closes or loses a shift.

The union subsequently agreed to 2,500 early retirements to further reduce the workforce and operating costs in Oshawa.

CAMI Plant on a Roll

It was a good year for CAMI Automotive Inc., GM’s joint venture with Suzuki Motor Corp. in Ingersoll, Ont., with the launch of the all-new Suzuki XL7 in September.

The XL7 CUV was derived from GM’s Theta Global Compact Crossover Architecture that already had spawned the Saturn Vue, Chevy Equinox and Pontiac Torrent.

Capacity at CAMI, on two shifts, was about 270,000 units, with GM using about 200,000 annually.

Plant profits were shared by the two auto makers, based on their respective volumes.

Suzuki had not assembled any vehicles at CAMI since January 2004, when it discontinued the Vitara and Grand Vitara.

The XL7 shared body, paint and final assembly with GM’s Equinox and Torrent, but the 7-passenger CUV had separate stamping and welding stations in the body shop and in final assembly to accommodate differences in the wheelbase and the need for a third row of seats.

Suzuki officials said there were no plans for additional Japanese models at the Canadian plant, but did not rule out that possibility for the future.

Rounding out the Big Three, DaimlerChrysler Canada Inc. got a new president and CEO. In July, Freightliner LLC executive Reid Bigland, 40, replaced Steven Landry who took over as Chrysler Group vice president-sales and field operations.

On the product front, Chrysler augmented its Pacifica CUV lineup, built in Windsor.

A Limited front-wheel-drive model was added in March, and in June, the full lineup got a refresh. Slammed for being underpowered since its launch in 2003, the CUV got a new 4L SOHC V-6 for ’07 that became standard on all Pacificas except the base FWD model that retained the 3.8L OHV V-6. The new 4L was rated at 255 hp – an increase of 5 hp over the 3.5L SOHC V-6 that had been the line’s premium powerplant.

The 4L was mated to a new 6-speed automatic transmission with variable line pressure.

Outside, the CUV was freshened with hood, fender, headlamp, grille and front fascia revisions, three new colors and an enhanced rear-seat entertainment system.

Meanwhile, reports surfaced in November that work had ceased on the next-generation Pacifica. Officials suggested the auto maker might be eyeing a different platform for the next-generation Pacifica, rather than basing it on Chrysler’s pending next-generation minivan architecture, known as RT.

While the original Pacifica was on a unique platform and built in Windsor, the plan had been to migrate the second generation to RT and build it in St. Louis, which also would build minivans for export as part of a consolidation of Chrysler’s minivan assembly operations.

But financial woes at Chrysler revealed in third-quarter earnings made timing of the Pacifica’s move to St. Louis unclear, with officials suggesting it could be delayed until 2009.

On the minivan front, the year began with a formal agreement with Volkswagen AG for Chrysler to build VW-brand minivans for the North American market.

The St. Louis plant also was expected to get this work, but the CAW was lobbying for Windsor – which became the first Chrysler plant to win a J.D. Power quality award – to perform the assembly.

The new VW minivans were to be based on Chrysler’s RT platform, and begin production in 2008. The VW vans would be distinctly styled, but were expected to share powertrains and carry a slight price premium.

Word was VW would not have access to Chrysler’s proprietary Stow 'n Go seating system.

Chrysler had limited exclusivity to the technology based on its supply agreement with Magna International Inc., whose Intier Automotive subsidiary helped develop it. Some patents were centered on the seating system itself, others related to its use in Chrysler minivans.

Magna was shopping the innovative system that allows the second and third rows to fold into the floor. The supplier was quoting on similar technology for use in a variety of vehicles, including CUVs and SUVs, in the future.

The next-generation of Chrysler minivans were designed to continue to offer Stow 'n Go, but the ’08 models were to feature other innovations as well.

Chrysler to Invest in Brampton

Meanwhile, the auto maker’s Brampton, Ont., plant was considered the logical site to build the all-new Dodge Challenger when Chrysler President and CEO Tom LaSorda in July confirmed the muscle car’s return to production. The 2-door Challenger was to share the RWD LX platform that produced the Chrysler 300, Dodge Charger and Magnum.

The Challenger was to launch in April 2008 as an ’08, and go head-to-head with the Ford Mustang and pending Camaro.

Chrysler Chief Operating Officer Eric Ridenour said the Challenger would come as a coupe only – no convertible was planned. But he hinted a Street and Racing Technology version was possible, and the SRT-8 could launch simultaneously with the conventional Challenger.

Another concept’s fate was less certain.

By year-end, the auto maker had yet to confirm production of the Chrysler Imperial, a premium sedan that would positioned above the Chrysler 300.

Chrysler still was determining volume and features for the Imperial that would ride on a stretched version of the LX platform, with an elegance reminiscent of the Rolls-Royce Phantom.

Looking to other players, Canada was pivotal to growth plans for Toyota Motor Corp., which announced in February it was expanding its new Woodstock, Ont., plant, still under construction, to adjust to future market demand.

The plant, scheduled to begin producing the RAV4 small CUV in 2008, was to have an annual capacity of 150,000 units, up from the 100,000-unit goal set in 2005 when the plant announcement was made.

Employment was to rise from 1,300 to 2,100 workers and investment increased to C$1.1 billion ($950 million), up from C$800 million ($650 million).

In March, Hino Motors Ltd. (50% owned by Toyota) announced it would open a new plant in Woodstock with production to begin in April, 2006, of up to 2,000 medium-duty trucks annually for the North American market.

Hino invested C$3 million ($2.6 million) in its first Canadian manufacturing facility to better meet demand in Canada for its Class 4-7 trucks.

Hino said it would employ 77 at the 129,167-sq.-ft. (12,000-sq.-m) building.

With the addition of truck production, Hino Motor Sales Canada Ltd., headquartered in Mississauga, Ont., was renamed Hino Motors Canada Ltd.

Rival Honda of America Mfg. Inc. in October announced it would consolidate Pilot CUV production at its Lincoln, AL, plant in February to free up capacity to build 60,000 more Civics annually in Canada.

Honda began building the Civic in April at its Alliston, Ont., Plant 2, maintaining capacity of 390,000 units annually.

Alliston already assembled Civics at Plant 1; Plant 2 made the Honda Ridgeline compact pickup truck and Acura MDX CUV.

As for the Ridgeline, which struggled to find its place in the market as the only unibody pickup, Honda in June added a new trim level above the base model for ’07.

The RTX edition made standard such features as a trailer hitch and wiring harness as part of its towing package. It began at $28,300, above the base RT model ($27,800) but below the RTS and RTL trims.

Citroen Considering Launch

The Canadian market stood to be shaken with the addition of a new player.

In October came news Automobiles Citroen was considering Canada as its beachhead into North America if it could homologate its cars.

Canada’s rules on automotive homologation were not as strict as those in the U.S., and more than half the 1.6 million light vehicles sold annually were passenger cars, the sector in which Citroen would compete.

Canada’s conservative government was developing new rules to reduce automotive greenhouse gas emissions for 2010 called “Green Plan Two” that could make Canada more attractive for Citroen with its reliance on diesel engines. Modern European diesels are about 25% more fuel efficient than gasoline engines.

Diesels were more popular in Canada, and Citroen had an advantage with francophone Quebec accounting for about 23% of the total market.

On the big-truck market, in December Freightliner said it was cutting production at all vehicle and component assembly plants, affecting as many as 4,000 workers.

The first action was at the St. Thomas truck plant that produces Sterling-brand heavy and medium trucks, where Freightliner laid off 800 workers beginning April 2, representing more than one-third of the plant’s 2,100 employees.