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Markus Gaertner

Asian producers are a key factor in Ontario's thriving automotive sector. For the past two years, the eastern Canadian province has topped Michigan as the leading hub for  car production in North America.

Last week's announcement by Honda Motor  that it will build  a US$137 million engine plant  near Alliston, Ontario - its first in Canada -  has helped to cement the province's  leading position. Now, Canadian officials are trying to persuade Nissan Motor to build an assembly plant in eastern Canada's industry powerhouse by 2010.

Ontario is bucking a key trend in North America's  automotive industry - the shift of jobs and investment to the south.

Ontario's economic development minister, Joe Cordiano, is  making  a trip to Japan next month to  persuade Nissan  to set up shop in the province. His   plans received a big boost from Honda's announcement last week.

In June last year, Toyota Motor Corp revealed  a plan to invest US$656 million  in a new assembly plant in  Ontario by 2008. The operation will create 2,000 jobs.

In less than three years the province had  attracted more than US$6.2 billion worth of new investments, said  Ontario Premier Dalton McGuinty.

Honda's new  plant will be  near its vehicle assembly plant  northwest of Toronto. Honda employs about  5,100 people in Canada, 4,300 of them in Alliston where  it makes 390,000 vehicles a year, among them the Civic, Canada's best-selling  car for eight years.

When it reaches full production soon after its start in 2008, the new factory will churn out 200,000 four-cylinder engines per year. The investment is part of Honda's global expansion and  a milestone in Mr Cordiano's development strategy for Ontario.

'We have that critical mass now so we can make the pitch that more should be coming,'  he said.

Several municipalities in the province were  courting Japanese carmakers  and components producers to follow leads for potential investments,  said industry analyst Dennis DesRosiers.

Ontario is in midst of a major marketing effort to position its southern region,  across the  border from  Detroit, as the  centre of North America's  car industry.

At the centre of the campaign is the provincial Automotive Investment Strategy which  has committed US$410 million to recent investment projects by DaimlerChrysler, Ford Motor and General Motors. The financing is targeted at encouraging innovation in the  sector.

As a contribution to Honda's new project, Ontario pledged to improve its infrastructure in the Alliston area for an amount equal to 10 per cent of the company's investment.  After Toyota's announcement last June, Canada's Industry Minister, David Emerson,  said: 'Canada  can win the battle of inches for North American product mandates.' Most of the cars  from Ontario's assembly lines are  exported to the United States.

Signalling the next possible move by a major Asian car manufacturer, Nissan said it  was considering building a plant in Canada once its sales in the country accounted for 10 per cent of its total North American sales - a threshold  it may reach by the end of the decade, according to Mr Cordiano.

Nissan already assembles cars in Mississippi, Tennessee and Mexico. Last month, it reported 2005 sales in North America  of close to 1.08 million vehicles, a record year for Nissan in that market.

For Ontario the new investments could not come at a better time. Major industries such as  pulp, paper, furniture and cars are reeling  as the Canadian dollar has soared,  making exports more expensive. The car industry is suffering from its strong focus on American producers who see their market share being taken away by expanding Asian competitors.

General Motors, the world's largest carmaker, announced late last year  that it would cut 30,000 jobs and close nine factories in North America, among them its car plant No2 in Oshawa, Ontario.

Amid  the onslaught by Asian  carmakers in the North American market, Ford  earlier this year  announced that it would reduce its capacity by 36 per cent on the continent, idling a casting facility in Windsor, Ontario, and  cutting production at St Thomas, Ontario, to one shift.

But while Michigan has lost 18 per cent of its car-related jobs since 2002, Ontario has suffered a loss of  only 0.5 per cent.

The car and car parts industry, with annual shipments of  about US$89 billion, is the engine of  the province's economy,  accounting for almost half of  its exports. All the industry's Canadian assembly plants are  in  Ontario.

For  new  investors - among them  Canada's second-biggest parts supplier, Linamar,  which said earlier this month it would spend almost US$1 billion in the province over the next five years - the rapidly rising Canadian dollar is not a  major problem.

Although the currency has gained  one-third in value against the US dollar since 2003,  industry insiders point out that many of the parts and components that go into  vehicles in  Canadian plants  come from the US,  cutting import costs.

'We're creating the best environment for our auto industry to compete with any jurisdiction around the globe,' said Mr Cordiano who claims that the province offers cheaper health insurance,  better qualified workers and higher productivity than comparable  regions in Michigan or Ohio.

Ontario also provides tax credits that can cut the after-tax cost of  research and development by nearly 60 per cent.

With its Automotive Investment Strategy, the province  is trying to persuade car companies to do more  research and development  locally. The bet is that funding will help Ontario create leading-edge manufacturing technologies for long-term competitiveness and that research spending will be the key to expansion.

While politicians are celebrating  new investment in the province, the car industry is under heavy pressure, not only because of the struggles of North America's  big three  carmakers.

Although the  strong Canadian dollar  makes it cheaper for carmakers to buy parts  from the US, it is also causing  headaches,  especially in the car parts industry which exports most of its  output to the US.

At the annual convention of Canada's Automotive Parts  Manufacturers' Association  early this month, the organisation's president, Gerry Fedchun, said:  'The high dollar is killing us right now.'

Many of the  400-plus parts  makers in Ontario  sell a  large part of their  output to US assembly plants and are suffering  due to the strong Canadian dollar which rose past  90 US cents  against the US dollar for the first time in 28 years this month.

The car parts industry in Ontario employs more than 90,000 people and generates annual sales of more than US$22 billion. Chip McClure, chief executive of Arvin Meritor, a supplier of engine and transmission parts, said: '[The industry] has its back up against the wall. We are making parts at the lowest margins in history.'



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