The federal government is challenging Stalantis' decision to shift production of the Jeep Compass down south. Is it time for Canada to look beyond the big three automakers? Should we embrace China's ascendant auto industry instead?

I asked Greg Moru, associate professor in the W. Booth School of Engineering Practice and Technology at McMaster University and former general manager at Toyota Motor Manufacturing Canada. Greg, welcome to the program. How are you doing today?

>> Good. Glad to be here.

>> I want to start with Ottawa and Stalantis. Ottawa is launching a dispute resolution process uh against Stalantis for moving a planned vehicle production from Bmpton to the US. Does this have any teeth? Does does this move anything substantial uh to hold them accountable?

Well, every one of those agreements are different and I'm sure that Stellantis signed agreements for their for their uh work in Windsor and their extension of what we're talking specifically about in Bmpton as well as their joint venture with LG to uh to build batteries in Windsor. So, all of those will be different. They may have some connections between the two of them. I don't know the details of that. They haven't shared them. they it's considered proprietary. But I've looked at those in the past and they typically are they they are funded in such a way that if you know there's an agreement you're going to bring this technology you're going to build this product and if you meet your requirements and you spend the money the government of Canada in the province of Ontario will send the funds uh in kind and one and if you don't do that you'll have some kind of a discussion about what to do going forward or change plans change and plans do change as they go through. The issue is at this point from what I understand in so far as the Bmpton is concerned is that they funded $110 million.

>> Sounds like a lot. It's more than walking around change. But if uh frankly, if Stalantis comes through this and someone says for you to get out of BMPon it's going to cost you $110 million, I think they'll probably say we're out of there. Um so you got to be careful what you ask for. Having said that, I don't think it's a terrible thing, frankly, for uh the government of Canada to put the put pressure on Stalantis. I mean, the the first and and perhaps most satisfying aspect of that is it it holds their feet to the fire. But by holding this feet to the fire, frankly, it c it may cause them to say, "Listen, we don't have anything for Bmpton." Admit that they don't have anything for Bmpton.

>> And frankly, they'll be doing those employees their existing employees that are hanging on with those $45 an hour jobs or the promise or the hope of those $45 an hour jobs, they'll be able to cut their ties and get and frankly get on with their lives. And uh and the sooner they can do that, it'll be tough. It's difficult for everyone. Frankly, it's easy for me to sit here and uh and and and make that pronouncement, but it it allows them to do to go forward because nobody in in Bmpton wants to hire anybody that makes $45 an hour because they know understandably that they're gone the very next day when they get called back. So,

it's a it's a it's a tough pill, but in in and per but perhaps it's a uh it's a positive attribute of of what uh the industry minister has added to the conversation.

>> Well, speaking of tough pills to swallow, is there a conversation right now that we should be having about how much faith we should Canadians should have in the big three US automakers right now?

Well, it's it's common to say that in the year 2000, which or 1999, which was the the high water mark for the Canadian auto industry, we made 3 million vehicles in this country. The the vast majority of those were made by the D3. Last year, we made 1.3 million vehicles in Canada. The big uh the big manufacturers were Toyota at number one, and number two was uh was Honda. They're responsible, excuse me, for about three quarters of the production in in this country. So, we've had a steady diet of uh of promises and pronouncements by the D3 and and and uh corresponding with that is a steady decline in their production. Frankly, uh you know, Stellantis is still hanging in there in Windsor. um that's basically their foot their manufacturing footprint and that's the largest D3 manufacturing uh out outlet in in Canada. But General Motors has gone from well over a million including a million in production in Ashawa in the early parts of this uh century to a rump of about a 100,000 today. They they used to be the largest automaker in Canada. Now they're the fourth largest. Frankly, they'd be the fifth largest, in other words, the smallest, if it weren't for the fact that Ford isn't making anything right now.

>> I want us to uh stay on [clears throat] this page. I'm hoping you can give us a bit of a history lesson here. This isn't the first time uh that Canada's auto industry has faced challenges. Take us back [clears throat] to the 50s and 60s uh and how that uh how we've sort of come through that uh and what we can learn from theirs.

So there there are a lot of good lessons to be learned from the industrial policy measures that the governments of Canada primarily alongside the government of Ontario have have taken us. Back in the late 50s early 60s the industry was starting to suffer. It had we had 17 and a half I believe percent tariffs on vehicles coming in from uh from the US which essentially made for an environment where if you wanted to sell a car in Canada you had to make that car in Canada.

So Canadians were understandably uh a little a little flumxed because they were paying more for for essentially the same vehicles because it when you can't achieve economies of scale, you can't uh you can't offer products at a at a competitive price. Meanwhile, we had the devaluation of uh of of currencies in Europe at that time and we had a uh had a uh influx of European vehicles. Um and then and then the economy was suffering and so all that meant was that the uh that employment started to crater in the Canadian auto industry. So there was pressure placed upon the industry. So what Canada did was what Canada does is set up a royal commission and kick it down the road a little bit. And Vincent Bladen, I'm going to tell you lots of stories. Vincent Braden was appointed the uh the Royal Commissioner and he heard lots of interesting things including the a presentation from the United Auto Workers of Canada that we should have a uh have a Canadian-owned automobile company which sound which will probably resonate in local times current times as well. But ultimately from out of all of that came something called the auto pact in 1965.

And the way it was implemented is you needed to to make a vehicle in Canada for everyone you sold. Didn't need to be the vehicle, but if you if you were a company selling a 100,000 vehicles a year in Canada, you had to commit to make a 100,000 vehicles a year in Canada. and to make sure that uh you weren't just uh um bringing in vehicles from the US for example and uh and and and putting some hub caps on them for example and saying there we made it here it we had a 60% Canadian value added for every for for the uh for the vehicles.

>> Uh you mentioned I want to pick up on the auto pack. You mentioned the auto pack but and and [clears throat] you mentioned the people behind it. To what extent do the personalities uh behind these negotiations make the difference of a of a good deal?

Um well that that's the auto pact and and and there are personalities associated with that as well. But if you really want to talk about personalities, you come to the next uh crisis point for the Canadian auto industry, which is the 19 the late 70s, early 1980s. We had uh the the um OPEC oil crisis of 1973, 1979.

Gas prices went way up. North Americans wanted cheaper cars. North American automakers didn't make good quality um small cars at that point in time. So the Japanese entered the market and caused all kinds of upheaval by the uh by the then what we known we called to the the big three and this notion of if you sell here you must build here and we still hear that today and uh in the aftermath of of Bmpton's issues and challenges. So the personality at the time was uh was Ed Lumley and he was the uh trade and industry minister. He he he passed away earlier this year but he frankly for auto industrial policy um researchers such as myself, Ed Lumbly becomes a bit of a hero. And frankly, there would be no auto industry in Canada today if it weren't for the personality and forcefulness of Ed Lumbley because he took that build here uh sell here build here mantra and he took it to Japan and he was very forceful and he used the steady diet of of of

sticks. If you don't build here, we're going to tariff the heck out of you. We're going to require content provisions. We're going to we're going to inspect every car in the port of Vancouver to make sure that they're safe and and back up the port and uh make it difficult for you. These were the threats, but he said also, "But if you come here, you're going to be welcomed and uh and we're going to make it uh positive for you, and we're going to use this uh tool called duty remission um to uh to make it more advantageous for you to be here." In other words, we're going to remit those duties you pay or some of those duties you pay on your incoming vehicles

if you commit to build vehicles here or purchase parts here or some combination of the above. So, they established all of these interesting um policy tools to encourage Japanese production. So from that we had uh Suzuki which came into uh to to uh alongside General Motors for the Cammy plant in ingresol which is under discussion right now and Toyota came into Cambridge and uh and and and Honda went to Allist and so and they were very small plants 50,000 for Toyota um 40,000 for Allist when a uh when a when an when a full scale um assembly plant is about 250,000 but they grew and now Toyota makes about 500,000 vehicles a year in Cambridge and Woodstock and Honda makes about 400,000 give or take every year in Allist which comes back to the point that personalities are important. Greg, you I want to have a conversation of in our last minute where do we need to go now? Your research has shown uh in your research you have probably seen that China looks like a very attractive partner for Canada in the auto industry. Tell us why we we may should or why we should be looking in that direction.

Well, if you look at it purely from the perspective of of automotive industrial policy, there's no question China is the is the is the avenue we should pursue. And there will be all kinds of people that disagree with me about that and and and we need but we need to have that debate. Um

I understand that China is difficult for lots of other reasons as well. We don't need to and and and I won't get into those. of China. If we follow the lessons that that you and I have gone through between attaching ourselves to the strongest or ascendant automakers, first in the 60s with the US, second in the 80s with Japan, and now clearly the ascendant automaker, particularly as we move into the electrification of mobility. We're not moving as quickly in in in North America as the rest of the world, but if we move in that direction, China is clearly the leader. My own research, for example, shows that China generates automotive patents and have had and have for the past decade at a rate of about 5 to one over the US.

So you can get away with with with not innovating for to the same degree as your competitors for a while and uh and and and be okay. But over the long term, there's nothing about the US auto industry that suggests that it is going to be a global leader going forward. And there's nothing about the US industrial policy measures or the energy policy measures that suggest that the uh that tethering continuing to try to tether our industry to the US industry is the best bet. So I know China is is challenging for lots of different reasons, but if we're looking at it pure from where do we want to be in in so do we want an auto industry in Canada? We need to have that conversation.

>> Greg, we are going to leave it there. really appreciate your insights and we appreciate the history lesson as well.

>> Thank you.