Shifting Fortunes in Southern Ontario

It’s barely over 100 years ago that Ford Motor Co. of Canada produced its first automobile — the Model C in 1904. Back then, the Detroit-based carmaker let its Canadian arm operate with a great deal of autonomy. For example, there were various departures between American Fords and their homegrown Canadian counterparts, which spec’d a large number of Canadian components.

Canadian innovation actually led the way at times. During the booming Model T era, Canada produced four-door sedans before they were available in the U.S.

Times have surely changed. As Ford, GM, and DaimlerChrysler’s North American operations have become integrated over the years, market shifts have become completely reciprocal and the multiplier effect is felt almost instantaneously by suppliers and service providers on both sides of the border.

The tremors from a series of recent “Big Three” plant closures — resulting from an 87-cent dollar, soaring material and labor costs, and dwindling market share in North America — have some carriers second-guessing the long-term viability of the auto-dependent southern Ontario-Michigan corridor.

GM, the largest U.S. automaker, recently announced it would close 12 plants and cut 30,000 jobs in North America over the next few years. Ford, whose production fell 40 percent last year to 221,809 vehicles from 372,241 in 2004, announced similar measures in a restructuring plan unveiled this past January. Dozens of major suppliers — from instrument panel providers to tiremakers — have reacted by announcing everything from production slowdowns to bankruptcies.

Some transport and logistics firms contracted to the Big Three and their suppliers are looking to diversify in order to avoid sinking further along with their customers. Others, however, see less reason to start panicking, preferring to wait for the automakers’ cuts to have their desired effect in helping the companies make a comeback.

Automotive market guru Dennis DesRosiers of DesRosiers Automotive Consultants in Richmond, Hill, Ont. doesn’t think the sky is falling on the auto-rich Ontario sector. “Ontario has been the number-one auto producer in North America for the past two years and absolutely that’s going to continue over the next five years,” he says. “We’re picking up plants, while Michigan is closing plants.

“As for the GM cutbacks, it was ‘Canada lite,’ you might say. There were some job cuts and plants closed, but much less than what you would have anticipated. Twenty percent of GM is in Canada and you would have expected 5,000 to 6,000 job cuts, but it’s actually more in the 3,000 range.”

Besides, says DesRosiers, the general influence the Big Three have on the total market is softening. “GM, Ford and [DaimlerChrysler’s] share of the North American auto sector has declined for eight consecutive years and will continue declining for at least another three to five years,” he continues. “So they’re quickly getting a smaller piece of the pie. However, the pie itself is growing.”

And it’s the Japanese with the appetite to swallow the extra slices of market share. In fact, DesRosiers predicts whatever is spilled by the U.S. vehicle manufacturers is quickly offset by expanding Japanese firms like Toyota and Honda, which are nestling themselves further on the Toronto-Windsor, Ont. Hwy. 401 corridor. Toyota is ramping up production and is slated to open a new Woodstock, Ont. assembly plant in 2008. Honda is rumored to be considering a third facility to complement its two Alliston, Ont. plants. And Japanese medium-duty truck manufacturer Hino Motors is also seriously scouting plant locations in the region.

If you have 70 or 80 percent of your business with the
Big Three, you’re pretty much at overexposure: Mackie

“We do have some issues in Ontario,” says DesRosiers, “but the growth in the new domestics [Toyota, Honda] far outweigh any declines in GM, Ford, DaimlerChrysler.”

Gerry Fedchun, president of the Automotive Parts Manufacturing Association, agrees that things look better than what’s being reported in the media. Although he was slightly less bullish than DesRosiers in committing to a five-year success forecast, he did reiterate that the core sector is remaining upright on the back of Japanese companies.

“Certainly for the next couple of years at least, the total volumes in Ontario are relatively stable,” he says. “But who’s making what is changing relatively dramatically, and so there will be dramatic realignment where deliveries are going and to who.”

For Ontario line-haul carriers, it means rethinking some partnerships and diversifying across a broader spectrum of sectors and industries. Obviously, trucking companies able to secure lucrative contracts with any of the growing Japanese firms and their providers will be riding shotgun along the Mich-Can corridor. Others will likely look to increase their stake in general goods and blanket-wrap truckload freight like electronics and computer equipment. Bigger companies with capital to burn are making a mad dash for Alberta’s oil patch these days, buying local assets and equipment in hopes of getting a piece of the booming energy sector.

However, while most large carriers are careful to spread themselves out evenly, there is a sizeable contingent of smaller Southern Ontario truckers and owner-ops that could be feeling the pinch for being too heavily invested in a couple of Big Three-related contracts.

“If you have 70 or 80 percent of your business with the Big Three, you’re pretty much at overexposure,” says Norm Mackie, of Oshawa, Ont.-based Mackie Moving Systems. “The long-term planning is you need to try to shift to other markets.”

Mackie says about 30 percent of his business is with GM — still his largest customer, but allowing enough flexibility to position the company in other markets. There’s no denying the desire to pick up other automotive business, both in Japanese auto business and other Big Three freight. “I’ve been trying for over a year to get my foot in the door at Chrysler,” says Mackie. “Obviously the plum of the business right now seems to point towards the Japanese, and we’re going to work at trying to get our foot in the door with those folks as well.”

North American 3PL giant Transfreight’s Manager of Business Development Brian Ashinger agrees that the new Toyota and Hino plants slated for Woodstock “will absolutely add some more freight to the mix.

“A lot of the parts are obviously brought in from Tier 1 supplier bases, and that trickles down to the Tier 2s, 3s, and 4s — though I wouldn’t speculate as to what kinds of freight volumes it will generate,” he says. “If we were to get a piece of the business we’d definitely be doing more hiring of drivers and owner-ops. We’d have to put a lot more trucks on the road.”

Transfreight is already highly integrated into the Toyota supply chain, especially in Kentucky, home to the automaker’s North American manufacturing headquarters, as well as a massive Georgetown facility. It also boasts an Ontario Cross Dock dedicated to Toyota Motor Manufacturing Canada (TMMC), which helps level the flow of incoming materials into the automaker’s Cambridge plant.

Rick Way of Guelph, Ont. doesn’t haul so much as a wheel nut, but he’s still paying close attention to what’s happening in the automotive sector. Way, president of 30-truck general freight and flatdeck carrier WayFreight Services, says that transport providers heavily leveraged on GM and Ford business are looking to maintain volumes by poking around other general freight and niche sectors.

“I sense it’s happening already with (truckers) moving into other markets. There’s some carriers with capital equipment tied-up and drivers looking to work,” he says. “When you need 100 loads, it doesn’t matter whose 100 loads they are. You need to get ’em back somewhere.”

Way knows of a few carriers, including himself, that are watching rates more closely than they were a year ago. After several plush years of raising rates and successfully recouping surcharges, Way predicts a mini-price war in some lanes along the corridor.

“I found myself in the last couple of months paying more attention to the competitive factor, especially on van traffic, whereas on the flatbed there’s still a little more market freedom,” he says. “I just hope it doesn’t reach a point where carriers start to give back some of the gains they’ve worked so hard to get collectively. For some people, I think rates are going to be under attack just to keep the volumes up.”