The Economic Footprint of a Canadian-Made Car

Like most dailies, the Globe and Mail produces a honking big weekly supplement on cars; theirs is called Globe Drive, and comes out every Friday.  One feature of the section is a mildly amusing column called “My Wheels,” each edition of which features some minor Canadian celebrity discussing their personal choice of vehicle.

I recently pitched an idea to the section’s editorial staff for a “My Wheels” feature that would go beyond the usual personal profile — such as asking why the owner chose those particular wheel rims.  I proposed a story based on my recent purchase of a new Canadian-made Chevrolet Equinox, that would focus instead on the spin-off economic impacts generated when a Canadian consumer buys a Canadian-made vehicle.  Of course, being a minor celebrity myself (at least in my own mind), I just know that Globe readers are perched on the edge of their seats waiting to find out about my wheel rims. 

But more important (and, I suggest, newsworthy) is what happens when consumer spending power is retained within our regional and national economies — rather than being diverted off to another part of the world via import leakage through the purchase of an import.  It’s an elementary principle that used to be taught in first-year economics (namely, that the GDP multiplier on expenditure is higher if the rate of leakage lost to imports is smaller).  This principle is still front-of-mind for policy-makers in many parts of the world. (For example, China, Germany, and Korea all intervene powerfully with macroeconomic and trade policy levers to limit imports and generate trade surpluses).  Putting a human face (namely, mine!) on this economic story might be an interesting twist on the usual trivia that shows up in “My Wheels”.

The folks at Globe Drive initially liked the idea, so I gathered the research (with the help of the good folks at CAW Local 88 and GM), but then a higher force subsequently canned the story for unstated reasons.  I had already assembled all the relevant facts regarding the economic footprint of a made-in-Canada motor vehicle, and they make an interesting story anyway.  Here it is:

 

 

 

 

 

 

 

 

 Photo credit: Thea Baines.

First off, let’s look at the vehicle itself (photo above): the Equinox is a compact crossover (built on an all-wheel-drive car platform, but with the inside features of a station wagon or SUV).  It gets great gas mileage (6.1 litres/100km), thus reducing greenhouse gas emissions.  It’s stylish and a very pleasant ride.  In my version, bum-warmers, sun roof, and ad-free satellite radio (my favourite station is “The Joint” … all reggae, all the time!) give welcome respite from the daily stresses and strains of life as a union economist.  The only annoyance: a silly little sign that appears on the dashboard when you start up in cold temperatures, stating (what for Canadian drivers) is already obvious: “Ice possible. Drive with Care.”  Duh!  I’m gonna hate that sign by the time late-February rolls around.

Now to the main point of the story: the economics of “my wheels”:

• The Equinox is produced, along with its close cousin the GMC Terrain (identical basic structure, small differences in design & features) for GM by a subsidiary company called CAMI, at a factory in Ingersoll (near London Ont). 
• But demand was so strong for it this year (in excess of 250,000 units), that GM tried a pioneering approach: they added some stamping, paint, and trim work 200 km away in Oshawa – whereby partly manufactured Equinoxes are shipped from Ingersoll to Oshawa, where the final assembly takes place.  This is the only vehicle I know of in North America where individual vehicles are worked on in two different plants.
• The CAMI plant is one of the most efficient assembly plants anywhere in North America.  It takes only about 17.5 hours of labour to assemble one vehicle there (data from Harbour Report, the “bible” of auto productivity studies), so CAMI topped the North American productivity charts.
• The Equinox/Terrain uses 80 different Canadian-made parts.  Their production is spread all across southern Ontario (a few of the feeder plants are listed on the map below).  Each vehicle contains, on average, $8000 worth of Canadian-made parts.  That leads to $2 billion per year of business for Canadian auto parts suppliers.  Thus the Equinox directly supports about twice as many jobs in the auto parts sector (over 6000), as are employed at GM/CAMI assembling the vehicle itself (around 2700 in Ingersoll at last count, and a few hundred more in Oshawa).
• GM has committed to maintain high production levels at the CAMI plant (as well as its Oshawa and St. Catharines plants) until beyond 2017, under a “Canadian manufacturing footprint” agreement that was part of last year’s Canada-Ontario-U.S. bail-out of GM.  So those economic benefits will continue for years to come.

 

 

 

 

 

 

Locations of key Equinox-related production:

• A. Main assembly (Ingersoll).
• B. Secondary assembly (Oshawa).
• C. Engines (St. Catharines).
• D. Seats (London).
• E. Molding (Etobicoke).
• F. Fascia (Guelph).
• G. Exhaust (Cambridge).
• H. Metal products (Windsor).
• I. Electronics (Markham.)
• J. Engineering (Oshawa).

In addition to those extensive “upstream” supply chain linkages attached to that Equinox assembly plant, there are also important “downstream” benefits generated when autoworkers and others with a stake in the plant spend their income (on housing, consumer goods and services, and even — through their tax dollars — on public services). Past research has indicated that the total multiplier effect (including upstream and downstream links) is around 7.5  jobs in total for each direct job in a major auto facility.  (See, for example, the Center for Automotive Research, “Contribution of the Automotive Industry to the U.S. Economy“).  That would mean a grand total of over 20,000 jobs that depend, in one way or another, on the continuing production of that assembly plant in Ingersoll.

No wonder governments around the world will bend over backwards to attract or retain a new vehicle assembly plant: the economic benefits are enormous.  And no wonder Canada’s manufacturing sector, and I would argue our national economy, have yet to recover from the crippling loss of 5 assembly plants since 2001 (and another that’s still scheduled to shutter, Ford’s car plant in St. Thomas, next year — despite Ford’s profit renaissance).

[Incidentally, exactly the same economic logic applies to the manufacture of public transit equipment — like the subway and street cars made by CAW members in Thunder Bay. That makes it equally important to be fighting for public transit investments, with made-in-Canada content. Rob Ford’s decision to cancel Transit City, if Toronto city council lets him do it, would have devastating impacts on Canadian transit manufacturing.]

The fiscal benefits of auto production for all levels of government are also humungous.  Research by the Centre for Spatial Economics indicates that the Detroit Three (GM, Ford, and Chrysler) directly and indirectly generate $4 billion per year worth of fiscal benefits for Ontario, and $13 billion for Ottawa.  (This estimate counts both tax revenues and the avoidance of fiscal costs that would be incurred if the Detroit Three ceased producing, like higher EI payouts, etc.)

By buying a Canadian-made vehicle, therefore, I can claim a bit of credit for about one-250.000th of all those billions of dollars worth of spin-off economic benefits.  Of course, the future of this vastly important economic engine cannot be left solely up to individual “choices” like mine.  Rather, we need government to actively and effectively support the auto industry, ensuring that Canada keeps a fair share, through its industrial, trade, and macroeconomic policies.

The latest “My Wheels” column featured a profile of a Canadian TV personality who owns six different vehicles — not one of them made in Canada.   I wish that Canadian consumer automotive journalists (those who write for the “cars” section, as distinct from the business section reporters who DO cover automotive economics) had a bit more sensititivity to the economic side of their beat, rather than being overly preoccupied with the wheel rims.