Transcript Slide 1

The CAW & Canada’s Auto Industry:
Considering a Health Care Cost
Advantage
Presentation to:
Invitational Roundtable on Health Care and the Economy
Jim Stanford, CAW Economist
[email protected]
CMA House, Ottawa, Ontario
March 7, 2006
1
The Canadian Auto Industry:
Key Features
• 100% foreign-owned (OEMs)
– investment attraction/retention challenge not new
• Assembly-focused
– 40-45% automotive GDP
• Superior productivity
• Superior quality
• Labour cost / labour quality advantages
– health care
– demographics
– skill set
– currency???
• Active auto policy framework
– 1965 Auto Pact
– modern incarnations
• Pro-active union
2
Canadian Costs
• Public health care system
– all core services
– most prescription, some long-term care after 65
• Demographics
– Canada Big 3 average: 1.1 retirees per active
• Canadian currency
– no longer undervalued
• Labour costs
3
Canadian Healthcare: Such a Deal
Health Cost per Vehicle ($US)
1600
1400
1200
1000
800
600
EHT=$30/veh.
400
200
0
GM (US)
DCX (US)
Source: CAW Research, Industry Sources
Ford (US) Toyota (US)
CAW
4
Average Productivity
Big Three Assembly Plants
30
Hours per Vehicle, 2004
6.5 HPV Gap (29%)
28
26
1.5 HPV Gap (7%)
24
22
20
Canada
Source: CAW Research from 2005 Harbour Report.
U.S.
Mexico
5
All-In Labour Costs
Approximate Average, Canadian Big Three
($Cdn. per hour worked, 2004)
Wages
Premiums
shift, overtime, etc.
32
4
Paid Time Off
vacation, holiday, SPA, personal hours
10
Benefits & Pensions (active)
health, pension, insurance, income
security, training
12
Benefits & Pensions (legacy)
pension & benefit costs for retirees
8
Statutory
payroll taxes for pension, EI, workers’
compensation, health
4
TOTAL
$70 Cdn.
($57 U.S.@avg.’05 ex.rate)
Pension & benefit expense includes cash and pre-booked future expenses.
6
C$: Now a Commodity Play
180
Cdn. Dollar (U.S. c)
80
Exchange Rate (left)
C$ begins
tracking
commodity
prices
160
75
140
70
120
65
100
Commodity Prices (right)
60
80
1992
1993
1994
1995
1996
1997
Source: CAW Research from Bank of Canada data.
1998
1999
2000
2001
2002
2003
2004
2005
7
Commodity Price Index (82-90=100)
85
A Continuing Advantage
• Even at current exchange rates, Canadian
assembly facilities enjoy labour cost
advantages
– health care
– statutory costs
– demographics
• CAW plants $5-10 U.S. / hour cheaper
than UAW plants
• CAW matches blended average labour
costs in North American vehicle market
8
Blended Labour Costs
North American Vehicle Sales, 2004
Source
Share N.A.
Sales (%)
Approx. Hourly
Labour Cost
($US)
UAW
42.5
65-75
Transplants
20.0
50-55
CAW
10.0
55-60
Japan
10.0
50-60
Mexico
7.5
5-10
Germany
5.0
55-70
Korea
5.0
15-20
Blended Avg.
100
$56
Source: CAW Research from industry sources, U.S. Bureau of Labor Statistics, and
KPMG. NB: At a 70-cent $C, CAW cost is lower than any other developed country
supplying N.A. market.
9
CAW Membership
300
Thousands
250
200
150
• Mergers, organizing
have expanded CAW
membership base
• Auto parts: 50% union
• Credible unionization
effort at transplants
• Policy influence
– auto
– health
– border – environment
100
• Not a shrinking
organization
50
0
1985
2005
10
Big Three Financial Crisis:
Root Causes
• It all starts with market share:
– down 13 points in N.A. since 1996
– each point = $1 billion operating profit
– each point = one assembly plant
• Less market share means:
– less production – less employment
– less capacity utilization
– less profit – less investment in new product
– higher unit fixed costs (for health care, etc)
11
Big Three Financial Crisis:
What Can Turn it Around?
• Standard story:
– big cost concessions (esp. U.S.
health/legacy)
– big capacity reductions
– address product quality / innovativeness
– address perceptions of product quality
– cross fingers: hope to stem the tide
• Can it work?
12
What CAW is Delivering
•
•
•
•
•
•
•
•
Productivity to match transplants
Quality to match transplants
Utilization better than Toyota’s
Health costs = $120 (U.S.) per vehicle
Competitive labour costs
Flexibility with new investments, technology
Gov’t support for new investments
Pressure for fair trade policy
13
Conclusions
• Health care costs in Canada are
significantly lower than they are in the U.S.
– This is a significant advantage
14