"A Losing Game" discusses trends in the automobile industry. What impact are these trends having on auto manufacturers in Ontario and Quebec, on their suppliers and on the local economies in general?
Ontario is the more industrialized province across Canada (the Ontarian nominal GDP was the 40% of the Canadian nominal GDP in 2008; followed by Quebec (2%) and Alberta (14)); the manufacturing industry represents the 52% of the manufacturing activity in Canada. The automobile industry provides a very important share of this economic power in Ontario. Quebec has a more diversified industrial capacity with focus in other sector such as aerospace.
This industry provide to Ontario and Canada of many direct and indirect jobs, R&S, and mainly exports (90% of the production is exported). According to Industry Canada, this industry provides 51,000 direct jobs plus 98,000 undirected, and shipment for a value of around 80 billion of dollars; this represents around 6% of the Canadian nominal GDP.
Under this scenario, changes in this industry could have a huge impact in the Ontarian and Quebec economy, but also in the Canadian economy.
Should those provincial governments introduce incentives to try to keep the local auto manufacturing industry strong? Why or why not?
I think the answer for this question is absolutely complex, and we need to analyse many factors. The problem is that the trend for most of these factors is not certain and we need to evaluate some forecast. As all forecast, they have a huge uncertainty, and they deliver a broad answer. As conclusion, the general uncertainty is so big and the answer for the main question, incentives for the auto manufacturing, will have the same degree of uncertainty.
Before to answer the question, we need to consider high level questions such as:
- National economic development program. Subsidies for this industry should be very high
o What is the benefit for this national investment?
o Most of automakers are foreign companies. Could it be better to invest this huge amount of money in other industry with more national capitals?
o Do the taxpayers wish to provide subsidies to this industry for long term?
- Technological changes. One of the problems of this industry is the low adaptation of the North American automakers to the new market requirements. Then, they have lost a lot of market share. Why Canadians should subsidize an inefficient industry? The subsidies are for substantial changes or for continuing with the same methodology?
- Vision. The auto industry is changing quickly, and it appears that it will continue changing. The direction for this industry looks to be to lower emitter vehicles, lower resources to produce the vehicles, change in technology (Hybrid, Hydrogen, electric, etc), increase in carbon-based fuels, shortage of carbon-based fuels. All these characteristics have found some resistance in the North American market to be developed and accepted by the customers. So, will we provide subsidy to an industry that it will change strongly in the short time?
- Competition. This industry has become a very competitive industry around the world. Canada is having hard time trying to be competitive face to the new and very cheap markets.
As conclusion, it appears at first glance that Ontario, Quebec, and Canada should find better and more competitive industries where to invest incentives to develop them and absorb the industrial capacity that the auto industry will leave without use.