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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

Lessons for N.B. in GM’s plant closure

Herb Emery

Oshawa is living a nightmare scenario as General Motors, a major employer with long historical ties to the city of 380,000, is shuttering its auto assembly plant after 2019. The 2,500 high-paying jobs, and likely an additional thousands of non-manufacturing jobs generated by the plant’s multiplier effect, will be lost to the region as GM restructures its global business.

For New Brunswick there are some important lessons from the Oshawa disaster. But first: what explains the turn of fortunes for the Ontario city with respect to auto manufacturing?

Despite the origins of GM Canada in Oshawa over a century ago, history was not enough for Oshawa to hold on to GM. Even billions of dollars in federal and provincial government bailouts for the auto sector after 2008 bought Oshawa an extra decade of manufacturing glory.

Ultimately, the GM home office is not in Oshawa and shareholders of an enormous public company likely aren’t interested in the local development of Oshawa or Ontario.

GM is not exiting the auto industry. GM is leaving Oshawa. While large for the Oshawa region, the GM auto assembly plant is a small part of a large global producer’s supply line. Parts used to assemble the cars were manufactured and sourced from a continental supply chain. When inputs are imported and products are exported, there would be no tie of the production of consumer products to the location and the ongoing location of the plants and the jobs would be dependent on maintaining the competitiveness of a given location as a site of production.

Donald Trump and the threat he poses to the cross border integration of the auto sector in Ontario likely didn’t help the situation either.

Oshawa is on the periphery of GM operations characterized by excess capacity. In this era of scale economies and falling transportation costs, the economics of where to produce comes down to cost of production and transportation of the product to markets, as opposed to producing closer to the larger numbers of customers outside the region. Without an assignment of sufficient volume of cars to produce from GM headquarters, the Oshawa plant was operating well below the necessary scale of production to have costs competitive with other production sites.

GM’s operations in Oshawa today employ one-tenth of its peak work force in the 1980s.

The longevity of the GM assembly plant, and the auto sector in Ontario generally, has likely been the result of mundane things like the pre-2008 periods of a low CDN/USD exchange rate and low and predictable energy costs that moderated the impact of high labour costs. Without “place based” economic advantages of the pre-2008 Ontario and Canadian economy, after the Recession Oshawa likely became a higher-cost marginal site for GM production.

Neither the Ontario nor the federal government have pursued trying to pay GM to stay in Oshawa this time. The massive bailout response of the governments in 2008 was in response to a perceived threat to the auto industry in Ontario. Yet Oshawa is a single plant that is only important for a local economy, making the devastating economic shock for Oshawa an acceptable loss for an otherwise healthy large industry seeking to be more efficient.

Albertans questioned why Oshawa warranted any special attention. Alberta has had job losses equivalent to closing one Oshawa GM plant per month over the period 2014 to 2016 and the rest of Canada did not come to their rescue.

So why should anyone in New Brunswick find the demise of GM in Oshawa interesting? Perhaps the biggest lesson of GM leaving Oshawa for New Brunswick is to not take the large producers in your economy for granted while focusing on attraction of new business and investment.

Most economies without a presence of companies like GM spend a lot of time and tax dollars to get one. Failure to address the conditions required to ensure New Brunswick is a competitive location to produce could result in the exit of a large employer leaving the government in New Brunswick, once again, working on helping devastated communities with their, previously preventable, “economic transition.”

We are learning that Canadian taxpayers don’t worry about regional, or local, economic crises. This means that for a small province like New Brunswick, we are on our own when it comes to our economic sustainability.

Herb Emery is a Brunswick News columnist and the Vaughan Chair in Regional Economics at the University of New Brunswick.

This article first appeared in Brunswick News publications – Dec. 5, 2018

The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.