The contract between the three "domestic" automakers and the Canadian Auto Workers (CAW) expires at 11:59 p.m. Eastern Daylight Time on September 17. The contract covers approximately 18,000 workers. As of this writing, the two sides have not reached an agreement on terms for a new contract and the CAW is threatening to simultaneously strike Canadian operations at all three companies. A list of models assembled in Canada by these companies is shown below.
There is little doubt a strike would impact new vehicle sales in both Canada and the United States pretty quickly. The manufacturers emerged from the financial crisis with a different mind-set versus their thinking prior to 2009; specifically, there is now more of an effort to match production to retail demand to avoid excessive inventories and the high incentives and damaged residuals that follow. In this new environment, there is less "cushion," if you will, than previously, so an interruption in the assembly process will more quickly impact availability and sales.
The all-new Cadillac XTS (fullsize sedan) is launching right now. While the national days supply for the XTS (85) would appear to be sufficient, this can mask occasional shortages at select dealers. To maintain the momentum of this launch, GM needs to have adequate supply across its entire Cadillac dealer network; anything less will inhibit the XTS's progress.
The other GM models built in Canada are also important to the company's performance with the Equinox and Terrain more so than the others. These two small crossovers are assembled at the CAMI plant in Ingersoll which is not part of the contract in question, but their transmissions and select other components are built at GM plants in St. Catherines and Oshawa GM facilities which are vulnerable. An interruption in supply of these two models would significantly hurt both Chevrolet and GMC.
At the Chrysler Group, the Grand Caravan and Town & Country (produced in the Windsor plant) are both high-volume models crucial to their franchises. The Chrysler Group and its dealer network can ill afford an interruption in supply of these core products. Chrysler's Brampton plant, which produces Chargers, Challengers and 300 models, would also be impacted.
The same logic applies to the Ford Edge and Lincoln MKX, two of the four Ford products assembled in Oakville, Ontario. These midsize crossovers are important elements in their brands' portfolio and reductions in sales of either one would impact share and profits. Further, the V-8 engine used in the F-Series is assembled at the Essex and Windsor Ford assembly plants, even though the F-Series itself is not built in Canada. The F-Series is Ford's – and the industry's – most popular product, so a supply interruption again would be harmful to all parties.
As in most disputes, there are merits to each side's position. The manufacturers need to establish labor costs competitive with those of their competitors as they have recently done in the U.S. The CAW, on the other hand, wants to avoid going "backwards" in its wages and benefits, an understandable position. The CAW could strike and win this battle. However, in the long run, it may lose the war as domestic vehicle manufacturers allocate future production to the U.S. or Mexico in pursuit of lower costs and less adversarial unions (see blog by Anthony Pratt). I also think both parties know this and, therefore, an agreement will come through by next Monday night.
Posted by Tom Libby, Lead Analyst, North American Forecasting, Polk (09.14.2012)