What Happens if GM leaves Oshawa

A Visionary Analysis by Bill Longworth

“An Example of the Kind of Academic and Creative Leadership and

Forward Thinking that a Bill Longworth Mayoralty would bring to Oshawa”

Sept. 28, 2014

 

Recently, Oshawa Mayor Candidate, John Gray, has raised concerns about the possible pullout of General Motors from Oshawa, and raised dire warnings about this bordering on scare-mongering. This analysis will prove that the situation is not as dire as Mr. Gray insists.  In fact it may bring new opportunity and renewal to our city.

Video– Oct. 7 Mayoral Candidate’s Seniors Center Debate…Bill Longworth Closing Remarks…compliments of Robt. Bell, Oshawa

 

Gray stated that the loss of GM property taxes and the loss of the last 4000 GM jobs here spell a Detroit-like disaster for our city.  In addition to the giant tax losses from the GM plants that will have to be made up by all citizens as increased residential taxes, he states the 4000 displaced GM workers will dump their 4000 homes on the market, flooding it with listings, thus depressing house prices for all owners.

Gray’s words are far from truthful…so read on.

While GM has not yet assigned product to the Oshawa facilities past 2016, GM has a history of leaving the city and the workers on pins and needles every time a new worker contract comes up and every time they change the product line in Oshawa’s plant.  It’s all part of their bargaining ploy where they’ve called “Wolf” and got concessions too many times in the past.  We should be used to it now.  But like the fool whose been told by his girlfriend, she has no intention of ever seeing him again, we keep wallowing in tears while sending GM roses, hoping it’ll change its mind.

Oshawa GM production has become nothing more than a giant poker game.  While they’re holding a pair of deuces, we have a hand of aces…and its about time we called their bluff.

Unlike John Gray, I’m an optimist and with the city holding all the aces, we’ll have a glorious future as an auto production center no matter what decisions GM makes about keeping production here….and in fact our auto future would likely be better if GM were to pull out of Oshawa.

First the Detroit like disaster cannot and will not happen in Oshawa. That occurred for reasons other than the demise of Detroit’s auto industry.

There has been no indication of plant closures there and Detroit remains the lead auto manufacturing center in America, despite the fact that, like Oshawa, they have been transitioning for a decade or more to lower employment, with job losses mostly stolen by computerized technology.

And proximity of the GM Head Office and major production facilities in Detroit with Canada’s auto manufacturing center in Oshawa is to GM’s advantage.

Detroit’s ruin has to do with the sub-prime mortgages that ravenged many communities in America where lower income people were given low rate mortgages that they would otherwise not have qualified for.

When mortgage interest rates increased to the REAL RATE at the term end, many could not afford the higher rates and so bank foreclosures stole the houses. Others simply abandoned their houses leaving them empty.

All of this happened in a short period of time flooding the market with so many houses that prices seriously declined to just thousands of dollars in many cases. Because house taxes were not being paid to pay the city bills, even the city fell behind in paying its bills thus driving Detroit into bankruptcy.

Of course, like always, those in the financial services industry and investors made millions on the catastrophe they had caused.

The bankers were left with an ever increasing inventory of repossessed homes they couldn’t sell and so they virtually gave them away in droves for a few thousand dollars, if they could.

Often, almost complete neighbourhoods of empty abandoned and unsellable houses were bulldozed.

This happened throughout America in many cities and not just in Detroit.

Loss of real estate taxes was the Detroit problem that left it bankrupt and unable to pay its workers or its worker pension and benefits obligations.

Oshawa has become a commuter community for Toronto and few of the remaining GM workers live in Oshawa. Gray knows this but that ddn’t stop him from raising concern in the hopes that it would propel him back into the Mayor’s Chair.  He also knows that there’s not a damn thing he (or even the Prime Minister) could do to keep the plant here except to hand out billions of dollars of taxpayer money as giant inducements to bribe GM to stay here for one more production contract.  While we’re concerned about the loss of GM jobs and the displaced workers, none of this spells disaster for Oshawa.  We will never experience the tax meltdown like Detroit.

In fact, a pullout of General Motors may signal a new rebirth of both the auto industry and extra concentration on industrial diversification which has been forgotten for too long with our concerns and interests focussed only on GM

GM has had no really committed relationship with Oshawa since the days of Colonel Sam McLaughlin, and those days are gone forever.

GM’s only interest now are the heartless and greedy corporate interests of record executive salaries and bonuses, the bottom line, giant corporate bank accounts of dead money, and record dividend payouts, and not one iota of interest in Oshawa or its workers.  Just today, (Oct. 1, 2014), Chrysler Canada has announced a gain in year-over-year sales of 19% and Ford (Oakville) has announced 1000 new hires by year end.  They’re enthusiastic about Canada and GM is not!

Long gone are the days when Colonel Sam left his Oshawa home every morning greeting most everyone he met by name all the way to his office.

So now, let me explain why I am an optimist about Oshawa’s auto manufacturing future.

GM has located the world’s largest and most modern auto production plants right here in Oshawa, and these plants are not going to leave.

Even if the plants are empty and not making any GM product, GM will still be paying giant tax revenues to the city which will be a continuing giant cost albatross around the GM profit picture into the future, unproductive costs GM will want to jettison, even at fire-sale prices, as soon as possible once they make the final decision to pull out of Oshawa…a decision being pushed by American Politicians and Lobbyists wanting to bring the jobs back home.

So who would be the potential buyer of the world’s largest specialized auto manufacturing facility?

How about the Japanese Car Companies who have already demonstrated commitment to Canada with plants around Woodstock/St Thomas/Allison, and are successfully winning an increasing share of the auto market despite our high labour costs….or MORE LIKELY China who is not in North America yet but is already challenging the Japanese for worldwide auto manufacturing supremacy with many huge auto manufacturing companies. Despite the nature of their government, it is the most dynamic capitalist country in the world ever since former leader Deng Xiaoping stated, “To be rich is glorious,” and opened the country to free enterprise.  With our newly negotiated European Free Trade Deal, even European Manufacturers like Volkswagen, or others, would be interested in a modern automobile manufacturing plant in Oshawa particularly with our unencumbered access and cheaper product transportation costs to the American Market.

Perhaps our different plants might even be purchased by different auto manufacturers compounding Oshawa’s influence as Canada’s Auto Center.

So what are the aces Oshawa has in this high stakes poker game?

  • First Ace—The largest and most modern auto making plants in the world.
  • Second Ace—Along with Detroit, world leading auto production traditions.
  • Third Ace— According to independent quality product reports, one of the most skilled auto manufacturing workforces in the world.
  • Fourth Ace—Our many specialized local industries supporting auto production are all valuable infrastructure assets to allow any auto company to locate here and hit the ground running.  They will be a goldmine in attracting any offshore manufacturer wanting to pierce the North American Market should GM decide to leave. But our—
  • “Ace in the Hole?”—Our unencumbered access of Canadian Manufactured Automobiles to the US market guaranteed by NAFTA (North American Free Trade Agreement) which will be key to attracting bidders from around the world, and particularly those car producers who want to pierce the North American Market but who are not here yet.  All-in-all—an unbeatable poker hand for Oshawa!

Labour rates will not discourage car manufacturers from coming to Oshawa any more than it did for the Japanese manufacturers who have located just west of Toronto.

Research indicates it takes 30 hours to build an average car so we’ll assume production workers are paid for 30 hours work to build a car as the production line moves cars past them. Estimated hourly wages including benefits and legacy costs are from $75 to $78 for an estimated labour costs to build a car from $2250-$2340.  These are not the entire costs by any means since it doesn’t include parts delivery on the work floor for example or clerical/supervision/executive salaries but criticism is usually laid directly at the Unifor worker salary as the deterrent.

Other figures i’ve read list actual labour costs of building a vehicle, as anywhere from $1,255 to about $2745 including all benefits and legacy costs and that car companies make about 12,000% profit on the average car.

These Costs are a small proportion of the selling price with advertising, shipping costs, selling commissions, raw materials, etc. all being more expensive. Other significant costs are R&D, plant retooling, technology upgrade costs, warranty costs, head office costs, all necessary costs wherever a car is produced.  However, there is never any public criticism of these costs.

Interesting is the higher selling price in Canada than in America even for Canadian-made cars.

Japan and Europe already have high labour rates so Canadian Labour Rates will not be a deterrent for locating here. High Labour rates will not detract the Chinese manufacturers whose own labour rates are escalating quickly and North American produced cars escape the expensive shipping charges from Asia.

In any case, Labour rates, no matter what they are, are only a minor input to car production costs. According to Unifor, Direct Labour Costs (for assembly, powertrain, and stamping work) account for less than 5 percent of the total selling price of an average new vehicle.

Perhaps the most tragic result from a GM pullout and takeover by foreign interests might be the renaming of our storied Oshawa Generals Hockey Team to the Dongfeng Tigers….if this fourth largest Chinese auto manufacturer with plans to expand internationally as the pre-eminent auto maker in the world, who built 2.76 Million Vehicles in 2012, moved just a portion of its production to Oshawa where GM has produced a measly 370,491 vehicles so far this year—We’d get all our plants going full steam and good full time jobs wouid be coming out our ears!  The Generals name change?  Now that’d be really a tough pill to swallow!

But make no mistake about it….those who wallow in the past, worried about keeping GM and its minimal production here, are costing the city giant opportunity and tens of thousands of good paying autoworker jobs here in Oshawa.

We must look forward to our future, not backward at our past.  And to reach this objective, I will make no concessions whatsoever to GM to keep our crumbling GM presence here, doing everything I can to get GM to sell their plants to a manufacturer who will get our plants working at 110% capacity and bring good auto manufacturing jobs back to record levels in the city once again.  Our future depends on it!  And remember, every concession we give to GM to try to keep them here is an increase of your already sky-high property tax bill….money that immediately flows South to America to contribute to record GM profitability, increased executive salaries and bonuses, huge capital inflows to their record high corporate bank accounts of dead cash, and record dividend payouts.  And I don’t believe our hard earned residential tax money should be spent that way.  Do you?

A decision by GM to pull out of Oshawa would spark a worldwide bidding war for the Oshawa plants.  The Federal Gov’t would have to approve such a sale based on strategic needs of the nation and undoubtedly would demand monetary guarantees to be set aside from the GM sale revenues to protect retiree benefits, provide employment guarantees for existing autoworkers by the new employer, provide for continuation of existing worker pensions and benefits, and protections for CAW 222 to continue as the bargaining unit of the autoworkers.

Our love affair with GM is over!  They don’t care about us!  Why should we care about them?

The world is constantly changing and we need some visionary “outside the box thinking” to make sure we don’t fall off the turnip cart.  We can’t progress into the future by trying to resurrect the past.

The rocket is taking off boys!   If you’re coming, better get onboard now!

Recent Press—Links

Is GM Planning On Pulling Out Of Canada?

Editorial:  It’s too late for Oshawa!

 

 

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