- The Washington Times - Sunday, July 17, 2005

LANSING, Mich. - Ever since the first Model T rolled off Henry Ford’s assembly line, Detroit and its surroundings have been the capital of the U.S. auto industry. But now, thanks to cheap health care and changing tastes in automobiles, Michigan’s Canadian neighbor is challenging the state for the title of North America’s top producer.

Michigan last year alone built roughly 2.6 million Chevrolet Silverados, Ford Mustangs, Jeep Grand Cherokees and a host of other models. But that wasn’t enough to hold off neighboring Ontario, long a car-building center, but largely in Detroit’s shadow. Separated from Michigan by lakes Huron, St. Clair and Superior and an occasional river, Ontario last year produced nearly 103,000 more vehicles than Michigan.

Model changeovers — which forced Michigan plants to close for part of 2004 to retool for new models — are partly to blame, according to WardsAuto.com, which tracks industry trends. But other, more complicated factors were at play, such as health care costs and chronic market share declines for Detroit’s Big Three automakers, analysts say.

Detroit’s Big Three — General Motors Corp., Ford Motor Co. and DaimlerChrysler AG’s Chrysler Group — have shed thousands of jobs and closed U.S. plants to stay competitive while foreign automakers have beefed up operations in Ontario.

“If it was Ford gaining at the expense of GM, it wouldn’t matter,” said Thomas Klier, senior economist with the Federal Reserve Bank of Chicago. But it’s companies such as Toyota Motors Corp. and Honda Motor Co. Ltd. that are growing, he said, and they’re growing outside Michigan.

“It comes down to geography,” said Mr. Klier.

Even in Canada, the Big Three face issues with their unionized workers that their nonunionized foreign competitors largely sidestep. GM, Ford and Chrysler hope during talks beginning this week that they will be able to negotiate new contracts with the Canadian Auto Workers that will help them trim costs.

But CAW President Buzz Hargrove has told his members the CAW won’t accept calls to cut growth in wages, benefits and pensions during negotiations. Tensions are increasing and perspectives are widening on whether cutbacks are necessary at Big Three operations in Ontario.

No such problems plague Toyota, which two weeks ago announced it will open a $650 million assembly plant by 2007 in Woodstock, Ontario, to build up to 100,000 small sport utility vehicles a year. Toyota said it chose Ontario in part because of growing demand for SUVs in that region.

Skyrocketing U.S. health care bills, which the Big Three cite as one of their biggest obstacles for competing with foreign automakers, are another factor.

Canada is attractive because it subsidizes much of workers’ health care tabs, said Jim Donaldson, vice president for business development at the Michigan Economic Development Corp. He noted health care expenses for GM’s current and retired U.S. workers add about $1,400 to every vehicle it makes.

“If all other costs are similar, that would be one of the things that would favor building in Canada,” Mr. Donaldson said.

Ontario’s success also is tied to a $600 million fund the province created to attract automotive projects. In the past year alone, Ford, GM, Toyota and others have committed to invest $6 billion in the province.

Ontario also is working hard to attract more research and development and has established an engineering degree specifically for the automotive field.

“We’re trying to put our auto sector on the most competitive footing for the next generation of products and the next generation of worker education,” said Joseph Cordiano, Ontario’s minister of economic development and trade.

Michigan already touts a concentration of auto-related businesses, a well-trained work force and an education system set up to turn out engineers, materials specialists and designers and to train workers for sophisticated manufacturing jobs.

The state has created a seven-point strategy that includes attracting international automotive investment and helping domestic companies develop international business strategies.

Gov. Jennifer M. Granholm has drawn up a business tax proposal that would lower manufacturers’ bills, and she and other state officials are aggressively pursuing foreign auto-related firms and suppliers.

“It’s not the same world as it was 10, 20, 30 years ago. We need to take advantage of the global economy,” the Michigan Democrat told the Associated Press.

For the moment, Michigan has regained the lead over Ontario in motor-vehicle manufacturing and it might hold the edge for the rest of the year. But WardsAuto.com expects Ontario to retake the title in the next few years.

Michigan has its success stories. GM next year will open an assembly plant west of Lansing that will employ up to 3,000 workers, replacing century-old Lansing plants that closed this spring. DaimlerChrysler this fall will begin making four-cylinder engines at a $700 million plant in Dundee, southwest of Detroit.

The state scored a victory earlier this year when Toyota committed to building a $150 million R&D center near Ann Arbor after Mrs. Granholm and the Michigan Legislature helped secure land for the deal. The state also granted a tax credit worth $38.9 million.

“If you want to expand your technical research, you have to be in Michigan because that’s where most of the engineers are,” said Dennis Cuneo, senior vice president for Toyota Motor North America Inc. “That type of thing builds on itself.”

Despite the fierce competition, Ontario and Michigan officials say they are happier to see new auto-related work go to each other than to states in the South because it lifts the region’s overall economy.

“We are our biggest trading partners and each others’ biggest allies,” Mr. Cordiano said. “We never forget that.”

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