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NOTE Ontario.docx

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Western University
Geography 2010A/B
Suzanne Greaves

Chapter 5: Ontario Key Topic: The Automobile Industry  Automobile industry remains the key manufacturing activity in Ontario; has become leadingmotor vehicle producer in N.America since 2004  85% of Canadian manufactured vehicles are exported to the US; after the economic crisis in 2008, there was a major drop in the demand for cars in the US, and consequently the manufacturing production in Canada dropped by 20% to 2.1 million vehicles; in 2009 production hit its all time low of 1.46 million but was expected to rise by 2010  Expected to increase because of the need to replace an aging fleet of vehicles and demand from those entering the workforce  Automobile Production: Industrial Core or Dead End? o North American auto industry and its Big Three automakers are in a state of crisis, with recent bankruptcy bailouts from governments, falling sales, and strong competition from Asian car manufacturers o Global events raise a critical question for the future of Ontario’s economy and its workers, namely: is the automobile industry in Canada going the way of the textile industry? Low cost labour and easy access to the Canadian market encouraged Canadian textile producers to move offshore where much lower production costs of labour more than offset high transportation costs  The Auto pact o Auto pact (1965) is an example of a successful single industry production sharing agreement between Canada and the US o The auto pact served three objectives  Secured guarantees that Canadian automobile plants would not close  Brought to Canadian plants the advantage of economics of scale by allowing them to specialize in a few types of automobiles that would supply the North American market  Reduced the price of cars for Canadian customers o Value added in vehicles produced in Canada had to be no less than the dollar amount achieved in 1964  The Growth of the Auto Industry o Drive the Ontario economy; The incomes, regardless high or low, enable the workers to make substantial purchases, thereby stimulating the retail sector o When value of exports dropped in 2005 to 88 billion, Ontario’s strong hold on automobile production was largely due to:  Canadian assembly plants had higher productivity than comparable US plants  The low Canadian dollar allowed Canadian exports of cars and trucks to cost less than similar vehicles produced in the US  Health care costs are covered by Ontario while these costs are part of the wage package in the US o Federal and Ontario governments supported the industry by supporting research into advanced technologies and by providing training in automotive manufacturing technologies at Ontario universities o 2002—two problems surfaced  (1) N. America developed a mismatch between production and sales, forcing companies to close less productive plants  (2) From Canadian dollar rising from 64 cents to 96 from 2002-2007, the price exports to the US rose significantly  Automobile Parts Firms o Consists of two separate operations: the assembly of automobiles and trucks and the production of their parts; in Ontario fabricating firms produce steel, rubber, plastics, aluminum, and glass parts for automobile assembly and parts plants in Canada and the US; service firms manage the finished product o Auto products are produced in small batches and quickly delivered as needed to their customers; allows the assembly plants to achieve considerable savings by reducing their inventories, warehousing space, and labour costs o Practice of subcontracting parts is called outsourcing; outsourcing has two advantages for automobile companies  (1) Allowed automobile manufacturers to concentrate on assembling automobiles, reducing their costs and improving the quality of their product  (2) parts companies were not unionized and therefore had lower wages o Canadian advantage encouraged the expansion of Canadian based auto parts firms; based on Canadian workers higher productivity as compared to their American counterparts, Canada’s health care program, and a weak Canadian dollar o Since then advantage has slipped for two reasons  (1) Strengthening of Can. Dollar cause the exchange advantage to largely disappear  (2) access to the US market became more complicated because of security concerns related to the Sept 11 attacks on NY and Washington o Automotive crisis affected the Ontario economy directly and the Canadian economy indirectly; diversify or die: successful parts companies have turned to a broader range of clients (solar and wind energy, forestry and mining, aerospace components); diversification provides greater stability  Automobile Assembly Plants o The big three dominated the automobile market by controlling 90% of car and trucks sale  Troubled Times: Lose some, Win some o For the big three the recent drop in sales is due to: (1) shift from the larger vehicles
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