The CAW Canada s Auto Industry Considering a

The CAW & Canada’s Auto Industry: Considering a Health Care Cost Advantage Presentation to: Invitational Roundtable on Health Care and the Economy Jim Stanford, CAW Economist stanford@caw. ca CMA House, Ottawa, Ontario March 7, 2006 1

The Canadian Auto Industry: Key Features • 100% foreign-owned (OEMs) – investment attraction/retention challenge not new • Assembly-focused – 40 -45% automotive GDP • Superior productivity • Superior quality • Labour cost / labour quality advantages – health care – demographics – skill set – currency? ? ? • Active auto policy framework – 1965 Auto Pact – modern incarnations • Pro-active union 2

Canadian Costs • Public health care system – all core services – most prescription, some long-term care after 65 • Demographics – Canada Big 3 average: 1. 1 retirees per active • Canadian currency – no longer undervalued • Labour costs 3

Canadian Healthcare: Such a Deal EHT=$30/veh. Source: CAW Research, Industry Sources 4

Average Productivity Big Three Assembly Plants 5

All-In Labour Costs Approximate Average, Canadian Big Three ($Cdn. per hour worked, 2004) Wages Premiums shift, overtime, etc. 32 4 Paid Time Off vacation, holiday, SPA, personal hours 10 Benefits & Pensions (active) health, pension, insurance, income security, training 12 Benefits & Pensions (legacy) pension & benefit costs for retirees 8 Statutory payroll taxes for pension, EI, workers’ compensation, health 4 TOTAL $70 Cdn. ($57 U. S. @avg. ’ 05 ex. rate) Pension & benefit expense includes cash and pre-booked future expenses. 6

C$: Now a Commodity Play C$ begins tracking commodity prices 7

A Continuing Advantage • Even at current exchange rates, Canadian assembly facilities enjoy labour cost advantages – health care – statutory costs – demographics • CAW plants $5 -10 U. S. / hour cheaper than UAW plants • CAW matches blended average labour costs in North American vehicle market 8

Blended Labour Costs North American Vehicle Sales, 2004 Source Share N. A. Sales (%) Approx. Hourly Labour Cost ($US) UAW 42. 5 65 -75 Transplants 20. 0 50 -55 CAW 10. 0 55 -60 Japan 10. 0 50 -60 Mexico 7. 5 5 -10 Germany 5. 0 55 -70 Korea 5. 0 15 -20 Blended Avg. 100 $56 Source: CAW Research from industry sources, U. S. Bureau of Labor Statistics, and KPMG. NB: At a 70 -cent $C, CAW cost is lower than any other developed country supplying N. A. market. 9

• Mergers, organizing have expanded CAW membership base • Auto parts: 50% union • Credible unionization effort at transplants • Policy influence – auto – health – border – environment • Not a shrinking organization 10

Big Three Financial Crisis: Root Causes • It all starts with market share: – down 13 points in N. A. since 1996 – each point = $1 billion operating profit – each point = one assembly plant • Less market share means: – less production – less employment – less capacity utilization – less profit – less investment in new product – higher unit fixed costs (for health care, etc) 11

Big Three Financial Crisis: What Can Turn it Around? • Standard story: – big cost concessions (esp. U. S. health/legacy) – big capacity reductions – address product quality / innovativeness – address perceptions of product quality – cross fingers: hope to stem the tide • Can it work? 12

What CAW is Delivering • • Productivity to match transplants Quality to match transplants Utilization better than Toyota’s Health costs = $120 (U. S. ) per vehicle Competitive labour costs Flexibility with new investments, technology Gov’t support for new investments Pressure for fair trade policy 13

Conclusions • Health care costs in Canada are significantly lower than they are in the U. S. – This is a significant advantage 14