1

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 Economiststanford@caw.ca

CMA House, Ottawa, Ontario March 7, 2006

2

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

3

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

4

Canadian Healthcare: Such a Deal

0

200

400

600

800

1000

1200

1400

1600

GM (US) DCX (US) Ford (US) Toyota (US) CAW

Hea

lth C

ost p

er V

ehic

le ($

US)

Source: CAW Research, Industry Sources

EHT=$30/veh.

5

Average ProductivityBig Three Assembly Plants

20

22

24

26

28

30

Canada U.S. Mexico

Hou

rs p

er V

ehic

le, 2

004

Source: CAW Research from 2005 Harbour Report.

1.5 HPV Gap (7%)

6.5 HPV Gap (29%)

6

All-In Labour CostsApproximate Average, Canadian Big Three

($Cdn. per hour worked, 2004)

Wages 32Premiumsshift, overtime, etc. 4

Paid Time Offvacation, holiday, SPA, personal hours 10

Benefits & Pensions (active)health, pension, insurance, income security, training

12

Benefits & Pensions (legacy)pension & benefit costs for retirees 8

Statutorypayroll 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.

7

C$: Now a Commodity Play

60

65

70

75

80

85

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Cdn

. Dol

lar (

U.S

. c)

80

100

120

140

160

180

Com

mod

ity P

rice

Inde

x (8

2-90

=100

)

Source: CAW Research from Bank of Canada data.

Exchange Rate (left)

Commodity Prices (right)

C$ beginstracking

commodityprices

8

A Continuing Advantage

• Even at current exchange rates, Canadian assembly facilities enjoy labour cost advantages– health care – demographics– statutory costs

• CAW plants $5-10 U.S. / hour cheaper than UAW plants

• CAW matches blended average labour costs in North American vehicle market

9

Blended Labour CostsNorth American Vehicle Sales, 2004

SourceShare N.A.Sales (%)

Approx. HourlyLabour 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.

10

CAW Membership

0

50

100

150

200

250

300

1985 2005

Thou

sand

s

• Mergers, organizing have expanded CAW membership base

• Auto parts: 50% union• Credible unionization

effort at transplants• Policy influence

– auto – healthhealth– border– environment

• Not a shrinking organization

11

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)

12

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?

13

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

14

Conclusions

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