Commentary: Chrysler and Canada

Sep 21, 2012

We’ve got a lot going on in Michigan, to put it mildly, and I would guess that you haven’t been paying much attention to the union negotiations that have been going on in Canada.

That’s understandable -- but they could have a significant impact on the economy in this part of the world. The Canadian Auto Workers union used to be part of the UAW, before breaking off and becoming independent in the 1980s.

Yesterday, the Canadian union reached a tentative, four-year agreement with General Motors. But now the focus turns to Chrysler, and those talks are expected to be much more difficult.

Chrysler uses plants in Canada to build a larger percentage of the cars it sells in the United States than either Ford or GM do. The Italian automaker Fiat is now the majority owner of Chrysler.

Company head Sergio Marchionne is believed to want to take a tougher approach to negotiations than his two larger counterparts. All three automakers say labor costs in Canada are the highest in the world, partly because of the strong Canadian dollar.

Marchionne says that isn‘t sustainable, and has been hinting that he could pull Chrysler out of Canada entirely, noting that, “we have other plants, other options.”

Kristen Dziczek, a labor industry analyst for Ann Arbor’s highly regarded Center for Automotive Research, or CAR, says that is entirely possible. She told me yesterday, “The threat of pulling out of Canada completely is real. Not immediate, but real.

“They’re down to just a handful of plants,” she told me. Chrysler’s workforce is aging, she added and many will be eligible to retire within a decade, which would mean that long-term job displacement costs would be limited.

If Chrysler were to leave Canada, that could have an economic impact on Michigan, given that Chrysler builds its popular Dodge Caravans and Chrysler minivans in Windsor. If Chrysler did leave Canada, Dziczek said it wasn‘t at all clear where that manufacturing would go. It might possibly come to the United States.

But it could also go to Mexico. However, she’s been analyzing labor and labor trends for many years, and doesn’t think Chrysler wants to move yet. In fact, the union has an advantage in the short-term, since production is at near-capacity levels at nearly every domestic auto plant in North America.

Nevertheless, Marchionne seems insistent on taking a hard line. There are indications that he doesn’t like the traditional American labor practice of one-size-fits-all “pattern bargaining.”

In fact, he wanted Chrysler to be the company the Canadian Autoworkers Union negotiated with to establish the pattern. They opted for Ford instead. It is important to note that the Canadian union’s philosophy is different from its American counterpart. 

Canadian autoworkers make from five to seven dollars an hour more, on average, because they have insisted on negotiating for annual raises instead of profit-sharing and lump-sum bonuses. 

The CAW has also been concerned with protecting as many jobs as possible, and dislikes the two-tier wage system even more than Americans do.

As things now stand, twenty-eight percent of all Chrysler vehicles sold in this country are made in Canada. It will be interesting to see how all this plays out, now and over the next few years.     

Jack Lessenberry is Michigan Radio’s political analyst. Views expressed in the essays by Lessenberry are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.