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Driven to negotiate: How Unifor rode U.S. auto sales

Unifor national president Jerry Dias, left, shakes hands with bargaining committee member Chris Taylor, right, of Ford Motors, after the conclusion of a news conference in Tornoto on Aug. 11.

Nathan Denette/THE CANADIAN PRESS

As Jerry Dias negotiated $1.5-billion worth of new investments from the Detroit Three auto makers, he was backed by a powerful force that wasn't in the room or even near the Toronto hotel where the deals were made.

That force is the U.S. vehicle market, which was roaring along at full throttle when the talks between Unifor and the three companies began this summer, but showing signs that it was starting to soften as the talks entered their crucial phase after Labour Day.

The state of the market – and the hints that it was beginning to ease – meant that Fiat Chrysler Automobiles NV, Ford Motor Co. and General Motors Co. didn't want to miss out on a single vehicle sale or the thousands of lost sales that would have been caused by a strike that lasted a few weeks or a month.

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"We've never had seven years of sales like this," said industry analyst Joe McCabe, president of consulting firm AutoForecast Solutions LLC.

If the vehicle a consumer wants is not available, that consumer will buy elsewhere, "so it's a lost sale," Mr. McCabe said. "I don't think [the Detroit Three] could afford that in this market."

Mr. Dias acknowledged that the robust market played a role.

"I have to admit timing hasn't hurt us and having the [Canadian] dollar where it should be didn't hurt us either," he said. But he also credited Unifor members and numerous quality awards they have won at Canadian plants in recent years.

"The Detroit Three understand this is a great place to invest," he said. Unifor estimates their Canadian plants generated $2.5-billion in operating profit in 2015.

The $1.5-billion worth of new investments solidifies a future for some key Canadian plants that were on the chopping block.

Fiat Chrysler, for example, has promised $331-million in spending, most of which will go toward rebuilding the paint shop at an assembly plant in Brampton, Ont.

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That's a significant investment that will likely lead to a new vehicle program for the plant.

Measured, however, against Fiat Chrysler's revenue of €26.8-billion ($40-billion) in the three months ended Sept. 30, it's tiny.

The $331-million is the equivalent of about seven days' worth of revenue generated by production of minivans at Fiat Chrysler's other Canadian plant in Windsor, Ont.

Nonetheless, Fiat Chrysler chief executive officer Sergio Marchionne summed up the auto maker's need for labour stability last week by saying the Unifor deal "buys us peace on the farm for the next four years."

It also bought peace right now, keeping Fiat Chrysler in the game amid the hottest sales market in more than a decade. A strike would have interrupted production of the new Pacifica minivan, the most important new vehicle in the Chrysler lineup.

The Pacifica has only been on sale since the spring, so Fiat Chrysler still hasn't recovered the more than $2-billion it spent designing and developing the minivan and revamping the Windsor plant to build the vehicle.

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For GM, the shutdown of its St. Catharines, Ont., engine and transmission plant would have choked off the supply of engines to its Cami Automotive factory in Ingersoll, Ont., which is running flat out to meet to produce the hot-selling Chevrolet Equinox crossover.

Output from Ford's Oakville, Ont., plant includes the Ford and Lincoln MKX crossovers, so a strike would have halted production of those vehicles.

The settlements will boost the Detroit Three's employee costs in Canada because of $12,000-per-person worth of bonuses and 2-per-cent wage increases in the first and fourth years of the deal, but represent "the price of doing business," said Mr. McCabe, the analyst.

"If this was a different time and the market was flat or going down, they would say [to Unifor] 'knock yourself out.'"

The U.S. market is the destination for about 80 per cent of the vehicles churned out by the Detroit Three's assembly plants in Canada.

There is evidence that it has hit a plateau and is starting to soften from the level of more than 17 million sales annually.

Incentives as a percentage of average transaction prices have been running at about 12 per cent in the past four months, the highest level since the 2008-09 recession, industry analyst Brian Johnson of Barclay's Capital Inc. said in a note to clients.

"Moreover, pricing softness has spread beyond the sedan segments and into some of the sport utility vehicle segments – which had generally been strong until recently."

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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