Canadian partsmakers, dealers will be first to feel the hit — and as soon as this week
Naomi Powell, Financial Post
September 16, 2019
A strike against General Motors’ American factories would deliver a blow to the firm’s Canadian parts suppliers “within days” as a highly integrated cross-border supply chain stutters to a halt.
On Monday, just after midnight, 46,000 workers at 55 G.M. plants across the United States walked off the job in the United Auto Workers’ first strike against the iconic American company in 12 years. The UAW confirmed Monday morning that talks had resumed and were ongoing.
Should a quick resolution prove elusive, the disruptions south of the border are all but certain to reverberate through long-established just-in-time delivery patterns here, putting operations and jobs at risk, analysts said.
“Definitively Canada will be affected, whether it’s harsh or light, quickly or slowly, there’s not a hope in hell Canada will escape the negative impacts of a U.S. strike on General Motors,” said leading auto industry analyst Dennis DesRosiers. “How much depends on how long it lasts and what part of the auto sector you’re talking about.”
Though the overall impact of the strike is expected to encompass a broad range of spinoff industries, autoparts makers including Magna International, Linamar Corp and Martinrea International — all of which sell directly to GM in the U.S. — are likely to be affected first, DesRosiers said.
“The suppliers could be hit as soon as (Monday) because if you’re making components for GM’s U.S. plants, well, they don’t need them now. So sometime this week they would be shut down.”
Most parts warehouses are designed to hold only 24 hours worth of inventory to supply automakers, said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association (APMA).
“That gives you about a day’s worth of flexibility,” he said. “Certainly by (Tuesday) they’ll be affected.”
Job losses at two plants — St. Catharines and Oshawa — could come as early as this week, Jerry Dias, national president for Unifor told Bloomberg News.
Auto dealerships that receive 85 per cent of their vehicles from the U.S. will also start to feel the pinch as they run through inventories that typically hold two to three weeks worth of stock, he said. Meantime, the fate of GM’s Ontario assembly operations in Ingersoll, St. Catharines and Oshawa will depend on what components they receive from the firm’s U.S. operations and how much inventory they have on hand. That information is a closely guarded secret among automakers.
“If what they make uses a major component out of G.M. in the U.S. it could be shut down relatively quickly,” DesRosiers said. “We knew GM had a high probability of being a target for a strike so there might be a little buildup of inventory, but we don’t know how much that might be. They might be able to survive for a week or two.”
GM Canada spokesperson Jennifer Wright said there had been no impact on Canadian operations on Monday. Pointing to the integrated nature of GM’s supply chain, she said the firm is monitoring the situation closely.
“At an assembly plant, some of their components would come from unionized plants south of the border,” she said, adding that GM Canada does not comment on inventory levels. “So if those components aren’t being built we could expect there to be an interruption. But so far so good.”
GM employs 7,400 people across Canada including 1,100 hourly workers at its St. Catharines power train plant and 2,400 workers at its CAMI assembly plant in Ingersoll, Ont. The firm currently has 2,200 workers at a century-old Oshawa plant that is slated to shrink into a 300-employee stamping facility and maker of spare parts for existing vehicles. GM is also turning 55 acres of the Oshawa property into a test track for autonomous vehicles.
Indeed, GM’s presence in Canada has “whittled down” over the years so that it now accounts for slightly less than 50 per cent of auto production, said Doug Porter, chief economist for BMO Financial Group. As such, if all three of the firm’s production facilities were to shut down for a full year, the direct impact on the Canadian economy would be modest, at less than two-tenths of a point of GDP, he estimated.
But that doesn’t include the sizable impact on spinoff industries such as steelmaking and transportation. While motor vehicle manufacturing and parts production accounts for less than one per cent of Canadian GDP, that figure rises to between five and six per cent when those surrounding industries are accounted for, Porter said.
“The strike would have to drag on a long time to have a direct impact on the Canadian economy,” Porter said. “But the auto sector has as big spinoffs as any sector because there are so many related industries up and down stream.”
As for the U.S., should workers remain on the picket line to the end of the month, it would likely shave only 0.1 per cent off annualized U.S. GDP growth in the third quarter, according to Avery Shenfeld, chief economist at CIBC World Markets.
The direct impact on GM is expected to be considerably more harsh, costing the firm about $50 million a day in earnings before interest and taxes due to lost production, according to Dan Levy, an analyst at Credit Suisse.
Given the implications on GM’s finances and on jobs, industry watchers were hopeful the talks would come to a quick conclusion.
“There is so much at risk for there to be a delay for either side,” said Volpe of the APMA. “General Motors needs to be able to deliver cars at a profit and the union can’t spend too much time looking like the biggest hurdle to manufacturing vehicles in the U.S.”
Auto producers employ roughly 250,000 workers in the U.S. while parts makers employ 750,000. In Canada, roughly 30,000 people are employed in auto production with 100,000 workers in the parts sector, Volpe said.
“That’s a one-to-three ratio,” he said. “There are hundreds of thousands of spinoff jobs that rely on making sure those lines are operating.”
Canadian GM workers are represented by Unifor under two separate labour agreements — one for Ingersoll and the other for St. Catharines and Oshawa. The former contract expires in 2021, the latter in September 2020.