The province of Ontario now runs neck and neck with the U.S. state of Michigan in the production of automotive vehicles.

Why Canada? The country offers "just about everything you could ask for in an investment opportunity," former Federal Industry Minister John Manley told an automotive symposium in Stuttgart, Germany last year. "We have been ranked as the best fiscally managed country in the G-7, with low inflation and interest rates coupled with a growing domestic economy. With NAFTA (North American Free Trade Agreement), we have assured access to the North American market of nearly 400 million people and a combined Gross Domestic Product of US$9.4 trillion."
        And Canada's manufacturing costs are among the lowest in the industrialized world. "Our highly skilled labor market is even more attractive when you consider Canada's manufacturing wages are currently the second lowest in the G-7," said Manley. "Top that off with the fact that Canada is again No. 1 on the United Nations Human Development Index for the seventh year in a row, and we have a pretty strong case for investment."
        These advantages have kept Canada's auto manufacturing industry in high gear, and they're continuing to pay off. The country is fifth in the world in automotive production, and its trade surplus in automobiles was more than C$4 billion in 1999. And the minister predicted that these numbers would keep growing in the new millennium.
        A simple look at any map reveals another key reason why Canada is such a hot investment target. Many production hubs based here are actually closer to the U.S. market than American production sites. Major auto manufacturers have been serving rich North American markets with plants located primarily along the narrowly defined corridor that runs north from Ontario down to Detroit, and extends all the way to Nashville. The province of Ontario now runs neck-and-neck with the state of Michigan in the production of automotive vehicles. Many of the larger Canadian facilities are clustered around Highway 401, a high-traffic route that stretches from Windsor in southern Ontario, past Toronto.
        Back in the late 1980s, the auto industry invested approximately US$6 billion in Ontario over a three-year period. That strong investment trend toward Canada continues in the new millennium. Since 1998 a number of automotive firms have moved to that province's Sarnia-Lambton area.
        Companies which have built new facilities include Waterville TG Inc., Woodbridge Foam Corporation, Advanced Finishing Technologies and UBE Automotive North America.
        George Mallay, general manager of the Sarnia-Lambton Office of Economic Development, says that while the highway running from Oshawa to Windsor has been the principal corridor for trade between Canada and the United States, increasing traffic congestion at the Windsor crossing and a very tight labor supply in Michigan have sparked automotive firms to eye alternative locations.
        Today, 29 automotive assembly plants are established within a 190-mile radius of Sarnia-Lambton. "With the opening of the second span of the BlueWater Bridge and a doubling of the number of processing stalls, more trucks are coming through Sarnia. In fact, the number of trucks is growing at about 8 percent per year, with approximately $32 billion in trade between Canada and the U.S. at the Sarnia crossing," he says, adding that the area's unemployment rate is estimated at 7 percent, compared with about 4 percent unemployment overall in Michigan.

Innovation and Investment

A slowing American auto market and increased competition have turned up the heat on the automobile manufacturers and parts makers. Tough competition has forced tough decisions.
        DaimlerChrysler announced in February 2001 that it would cut 27,000 jobs, including approximately 3,600 in Canada. The Canadian cuts include 2,700 shift jobs at assembly plants and auto parts operations in Ontario. In addition, Chrysler said it will kill its plan to expand a van assembly operation in Windsor.

General Motors opened its new Canadian Regional Engineering Centre in early spring, 2001 in Oshawa, Ontario.

      Competitive times are also, however, catalyst for innovation and investment. In the midst of cutbacks and increased competition, the province of Ontario is gaining a reputation for its capabilities in the "intellectual" components of automotive production. And in the same month DaimlerChrysler announced its restructuring plan and job cuts, General Motors completed construction on its new Canadian Regional Engineering Centre in Oshawa, a state-of-the-art $20 million facility which represents the largest commitment to engineering and technology development by any automaker in Canada.
        GM already had a strong presence in Oshawa. Its Canadian headquarters and autoplex are located here. And other new projects reflect the continuing confidence in Canada as a vital site location. General Motors Canada invested $575 million in its two sprawling facilities at Oshawa, as well as $440 million in facilities in St. Catherines, and $300 million toward production of a new mid-sized Pontiac at its Oshawa car assembly plant.
        In London, Ontario, Keiper Canada, a division of Keiper GmbH and Co. of Germany, is building a $100 million plant which, when completed next year, will assemble approximately 2.8 million seats annually for DaimlerChrysler. Kemper Canada's director of production, Theo Wolf, said London's economic development department made a strong case for investing in the city. Infrastructure, a skilled work force and training capacity "were all essential ingredients in our choice," said Wolf.
        The challenge these days is to meet increased expectations and still make a profit. "That means becoming more creative and innovative to meet new market demands," says Farouk Ahamed, a partner with Ernst & Young Corporate Finance Division's automotive industry team in Toronto. Ahamed sees another round of consolidation taking place in the auto parts sector as companies face pressure to do more, faster and better -- for less. "And that is putting even more pressure on companies' margins," says Ahamed. As a result, automotive companies are "downloading to their suppliers a lot more of the design work and concept work ... as they manage their profitability and balance sheets."
        GM's new engineering center in Oshawa, for instance, will be a key player in General Motors' global engineering enterprises. The facility will be linked with other GM engineering centers around the world, allowing for sharing, modification and exchange of 3D math-based computer models on a real-time basis.
        Automotive manufacturing is a major growth sector in Vaughan north of Toronto. Vaughan is one of Canada's top five fastest-growing cities in terms of construction activity and home to more than 55 companies and 6,222 employees involved in automotive manufacturing. Fourteen of these companies and 2,850 employees represent Magna International Inc. Magna's biggest presence in Vaughan is Cosma International Inc., one of the world's largest auto metal stamping companies, with sales last year totaling $3.1 billion.

Financial Sense and
Labor Force Advantages

When industry observers list the reasons companies set up in Canadian locations, financial considerations are out front: "First, it comes down to being cost competitive," says Ahamed. "The Canadian exchange rate means a tremendous cost advantage for American companies locating in Canada, even when you factor in transportation costs to the U.S. Factor number two is our availability of a skilled labor force compared to other parts of the world. And three is taxation."
        Canadian tax regimes are becoming user-friendly, he says: "The rates are going down [as] federal and provincial governments have an-nounced reductions in tax rates." As well, local and provincial tax incentives are making it worthwhile to locate here. "Toyota, for example, has been able to access various tax incentives that are very situation-specific -- ranging from local property taxes to other land costs. Incentives are negotiable: they're not hard and fast. Certain regions are a lot more open to doing business."
        A subsidiary of Japanese giant UBE Industries Ltd. found what it was looking for in Sarnia, Ontario. UBE Automotive's North American Sarnia Plant Inc. is investing $150 million in a new aluminum automobile wheels plant for General Motors and DaimlerChrysler.
        In 1987, the company developed a high-pressure die-casting technology and began producing aluminum wheels in Ube City, Japan. As North American demand increased, UBE opened a factory in Ohio. The plant is expected to enable UBE to gross 2.25 million wheels annually by 2003. Equipped with a highly skilled labor force, as well as an impressive mixture of serviced and available land, the Canadian site proved ideal, allowing UBE to stay out front as a world leader in large wheel manufacturing.
        When Toyota considered where to build the first Lexus vehicle outside of Japan, it also settled on Canada. The car maker invested $650 million last year in its plant at Cambridge, Ontario, southwest of Toronto in the Kitchener-Waterloo area. The facility will produce about 60,000 Lexus RX300's in 2003. Toyota says it will also produce a new vehicle, the "Matrix," in Cambridge. It will manufacture 70,000 of these per year starting in 2002 and will continue with the manufacture of 90,000 Corollas per year, adding 300 jobs to the line when production starts. This brings the total investment at Toyota's plant to $3 billion. Total production of cars will be 220,000 per year.
        Yoshio Nakatani, president and CEO of Toyota Canada Inc., says the company "loves doing business" in Canada and cites "quality, efficiency and attention to detail" as key factors for making Canada its site investment choice. Company officials say manufacturing facilities in Cambridge are ranked among the most efficient in North America.
        Meanwhile, on the West Coast, Toyota has "expanded three times and invested more than $100 million" in its autoparts plant in suburban Vancouver, says Gary Smallenberg, president of Canadian Autoparts Toyota Inc.
        The buzzword today is "value-added," says KPMG's Farouk Ahamed. As the various tiers of the automotive sector start to consolidate, companies are looking for economies of scale. "And delivering value to customers is the major factor which will determine who the winners and losers are." A winner in Québec is Intral, a subsidiary of the Venezuela-based Sural Group. It has doubled its production of aluminum-clad steel wire at its Princeville, Qué. plant and set out to conquer the automotive parts market.
        Intral's Princeville plant has been enlarged and modernized at a cost of $16 million, with investments made in partnership with the province of Quebec. A $1 million contribution from Investissement Québec will help the enlarged plant double its production of aluminum-clad steel wire, and the acquisition of ultra-modern equipment will allow Intral to branch out into a new line of tubes, bars and coils used to transport fluid in certain automotive parts and air-conditioning systems.
        Over the next three years, this new production could represent from 30 percent to 40 percent of the company's annual sales, which now stand at $20 million. Says Intral President Michel Lemairel: "We're already negotiating with a European multinational in the automotive parts industry which we'll initially supply with aluminum tubes for air-conditioning systems." In the long term, he says, this client could represent "several million dollars in sales a year."