Short gain, long pain at Cami Assembly plant in Ingersoll
A truck carrying GMC Terrains drives past the Cami Assembly plant where they are built in Ingersoll. Terrain production is moving to Mexico, and GM has announced as many as 625 workers will be laid off at Cami. (MIKE HENSEN, The London Free Press)
When the Ingersoll automaker sheds 625 jobs and shifts production of the Terrain to Mexico, a wide swath of businesses, from the Tim Hortons on the corner to parts makers, will be affected. An industry rep pegs the loss to Southwestern Ontario’s economy at $50 million to $80 million, Norman De Bono reports.
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On Monday morning, 60 people will file into work at their new jobs, earning a high wage, pension and benefits — but they will soon be out of work, and they know it.
The jobs are at the Cami Assembly plant, which announced last week it is laying off 625 workers in July.
These new workers are at the top of the list to get cut this summer, being lowest in seniority, but that is not stopping the applications from pouring in, said Mike Van Boekel, chairperson of Unifor Local 88 that represents workers at the Ingersoll factory.
“I know it sounds stupid, but people are still lining up to get in here,” Van Boekel said.
“They will be the first laid off, they know what is coming, but there is no shortage of applications.”
The new hires are a direct result of 24 workers retiring recently, and increased demand for production because an all-new vehicle, an updated Equinox, began rolling off the line in January, meaning more workers are needed, if only temporarily, Van Boekel said.
“We’ve launched a new vehicle and that means there is always processes that need to be addressed. Right now, we need more people.”
As for the cuts, when they come, the union has about 200 in the early retirement window — 60 and older — meaning the layoffs may be mitigated if an early retirement package the union is bargaining with the employer is good enough, Van Boekel said.
“We have a good shot at it,” he said of lessening the layoff total.
The 60 workers starting Monday at Cami will be the last wave of hiring before the layoffs. The automaker has been busy on the labour front, hiring 600 workers in 2016 alone.
“The bottom line is, no matter what, there will still be 600 jobs lost, but we are trying to reduce layoffs,” Van Boekel said.
But even if there are buyouts and retirements, there will still be 600 fewer jobs at the plant that employs more than 3,000.
That will have a powerful impact on the London-area economy, said Flavio Volpe, president of the Automotive Parts Manufacturers Association.
The loss of annual production of 100,000 Terrain vehicles to Mexico, driving the 625 layoffs, will strip anywhere from $50 million to $80 million from the regional economy, he believes.
When one considers the industry-accepted economic spinoff of seven jobs created for every assembly job — everything from those at parts makers to the Tim Hortons worker — it means that 600 swells to more than 4,000 jobs lost once it trickles down.
“It could have an impact that high,” Volpe said.
The breakdown works something like this:
• An Ontario automotive assembly plant sources about 30 per cent of its parts from suppliers in this province.
• That translates into $200 million in parts bought here.
• With Cami losing nearly a third of its production, that means the loss of anywhere from $50 million to $80 million in parts sales to Southwestern Ontario industry, Volpe estimates.
“That’s in the ballpark, roughly,” he said.
He believes GM Canada is moving the Terrain to make room at Cami because it anticipates a spike in sales for the new model Equinox launched last month.
Now, the plant is over capacity — running six full shifts a week, and some times Sunday, too — with overflow production at the Oshawa assembly plant.
If sales spike for the new model, orders will not be filled because GM Canada won’t have room to make more vehicles.
The Terrain shift will make room at the Cami plant.
“We would prefer to see the (Terrain) platform stay in Ontario, but it is mitigated by the fact the 2018 (Equinox) model is the first year for that model and that means they will see increased sales volumes,” Volpe said.
The bottom line is there needs to be capacity at Cami to handle the increased production. Volpe played down any notion the layoffs and production shift to Mexico is a reaction to protectionist polices in the U.S. There is little concern with the trade balance between Canada and the U.S., he said.
“This decision was made months before the election,” Volpe said. “They will review NAFTA (North American Free Trade Agreement), but they are not worried about us. We are not a red flag.”
GM Canada has said the layoffs are due to the end of an overlap in production of 2017 and 2018 Equinoxes, so Cami does not need as many workers.
Along with the Terrain moving to Mexico, GM announced in 2014 it will start making Equinoxes in Mexico, for the South American market, and in China, for the Asian market.
Tony Faria, an auto analyst and business professor at the University of Windsor, sees the shift of production and loss of jobs as a simpler calculation for GM — costs are lower in Mexico.
“NAFTA companies search for low-cost locations to assemble their products and that is all GM is doing (in) sending the Terrain to Mexico,” he said.
“It all comes down to low cost. It was working pretty well where it was, but they were engaged in a lot of overtime at Ingersoll, not just Saturday, but Sundays, too. With labour costs in Canada as high as they are, overtime is astronomical.”
Well, wages are higher in Canada, but according to the Center for Automotive Research in Michigan, it is one of the least significant differences when it comes to production costs.
According to Bloomberg, a recent centre report on the cost of assembly in Mexico calculated production costs on a $25,000 mid-size vehicle — much like the Terrain and Equinox, which are both crossover utility vehicles.
The average Mexican auto worker makes $8 an hour, compared to $46.35 for an American auto worker. Canadian workers get similar compensation.
That translates into $600 savings per vehicle in labour alone. But half of that is eaten up by higher transportation costs because infrastructure is so poor in Mexico.
The real savings come with parts purchases, $1,500 per vehicle, and savings on tariffs of $2,500.
That means an automaker saves about $4,300 per vehicle in Mexico, but only a small fraction of that is labour.
More importantly, Mexico has free-trade deals with 44 countries and the U.S. and Canada is making up less of their market. By 2018, 28 per cent of Mexico’s vehicle exports will go to somewhere other than its NAFTA partners.
In fact, Equinoxes that will be made at Ramos, Arizpe, in Mexico will be shipped to South America, the Middle East and Asia, the report said.
The center report added that in 2014, automakers saved $770 million in tariffs by making vehicles in Mexico.
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Production started 1989
More than 3,000 workers
The economic hit
625 layoffs at Cami Assembly in July
Forecasted loss of more than 4,000 spinoff jobs
100,000 Terrain vehicle production shipped to Mexico
Approximately $60 million in lost parts business for the region
Doing business in Mexico
Savings on a $25,000 mid-size vehicle
$600 savings per vehicle on labour; Mexican workers earn $8 an hour
$1,500 savings on parts purchases
$2,500 savings on tariffs
Costs: $300 more to ship vehicles
Total: $4,300 savings per vehicle to manufacture in Mexico, versus the U.S.
Source: Center for Automotive Research
Mexico has free-trade agreements with 44 countries, including those in South America, Europe and Asia
By 2018, 28 per cent of Mexican vehicle production will go to nations other than the U.S. and Canada
$770 million in tariffs, saved by automakers making vehicles in Mexico in 2014
Source: Center for Automotive Research