Analysts: GM Oshawa plant at risk for closing

Melissa Burden
The Detroit News

General Motors Co.'s Oshawa Assembly plant in Ontario is at high risk for closure, analysts believe, after the automaker said it will wait until next year before deciding any new vehicle commitments or investments there. The plant is slated to lose a high-volume vehicle — the Chevy Camaro — this year.

GM Canada President Stephen Carlisle said the company remains committed to Canada. But he said GM but must complete 2016 union contract negotiations with Unifor (the union created by the Canadian Auto Workers' merger with the Communications, Energy and Paperworkers Union) before making a final decision about what might be built at Oshawa.

It's one of GM's two assembly plants in the province, along with CAMI Assembly in Ingersoll. The Oshawa plant, about 41/2 hours from Detroit, employs more than 3,000 hourly workers.

"We are going to be careful and are not expecting to be deciding on any major new mandates or investments in Oshawa until well into 2016," Carlisle, who has overseen Canadian operations since November, said in a statement.

There are several reasons GM might look at scaling back Canadian operations: It has available capacity in many North American plants, and has planned to shutter one line at Oshawa for more than a decade. It's cheaper to build cars in Mexico; GM plans to invest $5 billion there over six years.

And while the Canadian currency exchange rate is favorable to GM now, former CEO Dan Akerson in 2012 said Canada was the most expensive place in the world to build a vehicle.

Officials from the union, as well as from Ontario and Canada, are ramping up meetings with GM leadership. They are lobbying to keep the plant operating and are pushing for a quicker decision on whether the plant will land more vehicles.

GM received about $10 billion from the Canadian and Ontario governments to help bail out the company in 2009. In exchange, GM promised to launch five new vehicles in Canada, including a new Canadian-made hybrid, and to keep at least 16 percent of North American production there through 2016. A GM spokeswoman said all those mandates will be met or exceeded. Ontario and the federal Canadian governments still own 7 percent of GM's common stock.

"Bottom line: It's time they made a longer-term commitment here," said Unifor President Jerry Dias. GM's contract with Unifor expires in September 2016; it will negotiate with the United Auto Workers in the U.S. this year.

The Detroit carmaker has said one of two lines at Oshawa — the one-shift consolidated line that builds the Chevrolet Impala Limited fleet vehicle and Chevrolet Equinox — likely would end in 2016. The plant also has a three-shift "flex" line that produces the Chevrolet Camaro, Impala, Cadillac XTS and Buick Regal. Camaro production is scheduled to shift to GM's Lansing Grand River Plant this year.

Canadian and Ontario government officials met with executives from GM, Ford Motor Co. and Fiat Chrysler Automobiles during the Detroit auto show. Union and government officials say the mood and sentiment about Ford and FCA in Canada are good; Ford and FCA recently made major investments in Ontario. Their concern centers around GM Oshawa.

Brad Duguid, Ontario minister of economic development, employment and infrastructure, said, "We made it very clear that we would like to see an indication on the future of Oshawa sooner, in particular because the timing is very challenging for our supply chain to be able to adjust to potentially future orders or changes, but also to know that there are going to be future opportunities at Oshawa."

Focus on union talks

Some analysts and production forecasting firms don't foresee any vehicles being built at Oshawa after 2017, and others believe there will be some production through 2019. Unifor's Dias said the Regal and XTS at Oshawa are expected to be built there through 2017.

Jeff Schuster, senior vice president of forecasting at LMC Automotive, said, "There is a fairly strong chance that the plant could close."

He said GM appears undecided on Oshawa. LMC tentatively forecasts a new Cadillac SUV could be built there in late 2017 — if GM decides to stay.

"It's really going to come down to negotiations with the union if GM will put additional investment or product into the plant," he said, adding he expects the government will have to step in with incentives.

Dias said with the Canadian dollar below 80 cents U.S., it makes sense for GM to maintain three shifts at Oshawa, lauded by the company and outsiders for its high quality. He said it's now cheaper for GM to build a vehicle there than in the U.S.

Industry analysts agree that for now, it is cheaper. But the labor cost is a relatively small part of the cost equation of building a vehicle. And they note that currency fluctuates over the long term.

"Unifor has about a $5-$6 an hour U.S. dollar hourly labor cost advantage right now, largely due to currency exchange rates," said Kristin Dziczek, director of the industry and labor group at the Center for Automotive Research.

Dias hopes GM will increase production levels of the Impala after Camaro production moves. Loss of the Camaro could mean 1,000 lost jobs at Oshawa, Dias said.

The age of the labor force could be an incentive to GM, Dias says. More than half of Oshawa's hourly workforce will be eligible to retire by the end of 2015, and some elect to retire every month, said Unifor Local 222 shop chairman Greg Moffatt. At GM's St. Catharines powertrain facility, 95 percent are eligible for retirement, Dias said.

A new wage structure, he said, means that GM workers in Canada start at a lower wage — about $20 an hour — with wages increasing to $34 an hour with 10 years of seniority. That could add a significant savings to GM, along with Canada's national health care, he said.

Dias met with Carlisle last week and will meet with GM CEO Mary Barra this month in Detroit.

'Highest-risk facility'

AutoForecast Solutions LLC President and CEO Joe McCabe said every vehicle GM builds in Canada could be built elsewhere in North America — and other plants have available capacity. He said GM sells only about 7 percent of the vehicles it builds in Canada in that country. Canada is GM's fifth-largest sales market.

"Oshawa is the highest-risk facility in the Canadian footprint," said McCabe.

He believes the XTS and Regal will leave the plant by sometime in 2017, and the Impala Limited remaining at Oshawa will be "on life support" through 2019. After 2019, he is not forecasting any vehicles for the plant.

Ontario has been friendly in recent years to automakers that invest there. It recently awarded a grant worth up to $85.7 million over five years to Honda for its $857 million in investment at its Alliston plant that retains about 4,000 jobs. Duguid said Ontario is open to discussions with GM on partnerships.

"Until they've stabilized their labor agreement, (it's) unlikely they would want to come to the table for those negotiations," Duguid said.

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