By Hugh Holland
President Trump likes to believe the auto industry belongs to the USA. But like many of his theories, that, too, is not true. The first internal combustion engine was invented by François de Rivaz in Paris, France in 1807. Karl Benz in Baden, Germany, founded Benz & Company in 1885 to design and build the world’s first practical automobile powered by an internal combustion engine. William Durant founded the Buick Motor Company in 1904, which later became General Motors. The McLaughlin Motor Car Company in Oshawa, Ontario, began producing cars in 1908. Henry Ford did not invent cars, but he revolutionized automobile manufacturing by introducing the moving assembly line in 1913. That innovation greatly increased production efficiency and made cars more affordable.
I started as a mechanical engineer at GM Canada in 1962. At that time GM Canada had two car assembly plants and a truck plant in Oshawa, along with a plant to manufacture stampings, radiators, batteries, and other miscellaneous components. Engines and rear axles were made at St. Catharines, Ontario.
In 1963, car companies were producing the same models on both sides of the border, so PM Lester Pearson proposed a Canada-US auto trade agreement to allow each plant to specialize on specific models and trade back and forth across the border to be more efficient. GM Canada opened three new plants in 1965 to create the capacity for balanced trade. By 1985 GM had 15 component and assembly plants in Canada.
In 1994, President HW Bush, PM Mulroney, and Mexican President Salinas de Gortari signed the North American Free Trade Agreement (NAFTA), which went far beyond automotive trade and called for overall balanced trade between the three countries, again to enable manufacturing efficiency through specialization.
The first commercial operation in the Alberta oil sands was opened in 1967. Since then, oil sands production has grown to 3.4 million barrels per day or $130 billion per year, and GM was shrunk from 15 plants in Canada to five plants in 2018. In essence, Canada’s auto industry was sacrificed to make room inside the overall trade agreement for the US addiction to crude oil. Left to their own resources, US-proven reserves of oil will last only 6.6 years.
In 2023, there were eight vehicle assembly plants in Canada producing 1,760,000 vehicles or roughly 240,000 vehicles each, which closely matched total sales in Canada (Ford in Oakville, GM truck in Oshawa, GM EV in Ingersoll, Stellantis Jeep in Brampton, Stellantis Van in Windsor, Honda in Alliston, Toyota in Woodstock, Toyota in Cambridge). And there is Magna, Linamar, and dozens of other Canadian supplier companies. Basically, Canadian production matches Canadian sales, and efficiency is maintained by having each plant produce specific models and trading across the border.
What would be the cost of moving production to the US to avoid Trump’s 25% tariff? To start with, every job that moves from Canada to the US will cost companies an additional $28,800 US per employee in wages and exchange, plus $23,900 US in employer-paid health insurance per family, or a total of $52,700 US per employee per year or $527 per truck or $126 million per year or $630 million for a typical 5-year product cycle. Add to that the cost of creating or adjusting plant capacity, training, and rearranging supply chains, and the move could total $1.6 billion per plant for a typical 5-year product cycle. That is why production is only moved to coincide with retooling for new five-year product cycles. But the impact on sales and profits is even more important.
Trump’s tariffs and uncertainty have already led to significant declines in stock market value for all vehicle manufacturers, including US companies Stellantis, GM, and Ford. US Analysts have projected the tariffs could add around $3,000 US ($4,285 Ca) to the cost of components in vehicles assembled in US plants and around $7,000 US ($10,000 Ca) on complete vehicles now imported from Canada or Mexico. The increase in cost is likely to be passed on to consumers, or it would wipe out all profits. GM, Ford, and Stellantis requested a one-month exemption to avoid immediate serious financial impacts. The exemption was granted two days later to allow both sides to double-check. Apparently, Trump’s math talent doesn’t work any better in large-scale manufacturing than in his bankrupt casino businesses.
Trump’s plan to bring “America’s auto industry” back home would have wide-ranging consequences in costs, prices, market share, and profits on both sides of the border. The answers depend on economic conditions and what competitors can do. Is the cost, disruption, and uncertainty worth the risk? I expect that all foreign manufacturers with a solid share in the Canadian market will want to keep it.
But according to Trump, due to all his “much less-talented predecessors,” the poor USA has been ripped off everywhere by everyone. They have the world’s highest total GDP and the highest GDP per capita for a large country. However, according to Trump, the US deserves to have all the world’s wealth. According to Trump and his ilk, trustworthy friends mean nothing, and nobody but the USA deserves anything.
Hugh Holland
References
https://www.waterlooedc.ca/blog/6-major-auto-manufacturers-that-call-canada-home-and-why
Hugh Holland is a retired engineering and manufacturing executive living in Huntsville, Ontario.
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A couple of other things to note that Trump doesn’t consider. American plants have lower quality than Canadian and Mexican plants. That is a fact. Mexican plants have cheaper labour. Again a fact. US employees are less engaged and more interested in football fantasy pools and gambling on their phones. US plants can’t find people to work in Michigan plants right now. That’s a fact and getting unskilled labour will get worse in the US after Trump reports all aliens.
I know this as a former worker at a big 3 plant. They had a metric for new plant feasibility that took into account quality, efficiency, employee engagement, and other important factors. US plants were always at the bottom. Canadian and Mexican plants were always at the top.
Mr. Holland, thank you, again I have learned something from your commentary. Great history lesson. Much appreciated.
Arts wise, I think I am watching, not just reality TV from the White House, but “Peter Pan” and his lost boys, looking for a mother (Wendy) and blonde Tinker Bell” communications spokeswoman (no disrespect intended to smart blonde women).
“Lord of the Flies” also fits the tribal comparators. We need to hold up our “honourable men” from all walks of life (not just the ones with “Honourable” in their position titles). Thanks for reading.
Excellent analysis and well stated as usual Hugh.
Too bad Trumps base and now his elected and non-elected supporters only have ears or the intelligence for his rampant soundbites.
Your well presented analysis will never see the light of day amidst the more newsworthy bombast that spews from his mouth on a daily basis.
We can be ever hopeful that the slight glimmer of light we see is the faint recognition that the man is indeed quite insane, and not a freight train coming in our direction.
The longer this trade dispute persists, the more long-term damage it will cause, and the greater the collateral damage to Canada and those nations like us.
US Citizens….rise up and be heard before it’s too late!!