A debt ratings agency that covers the auto industry believes that even a short strike by Canadian auto workers could be "painful" and hurt the country's weak economic growth for months to come.
"Even a one-week walkout could jeopardize Canada's increasingly listless growth, shaving 0.25 of a percentage point from September GDP while disrupting North American supply chains and retail spending into the fourth quarter," Moody's Analytics senior economist Mark Hopkins said Friday.
Auto makers are seeking to reduce labour costs because health-care costs are rising and the strong Canadian dollar is eroding competitiveness.
In June, General Motors announced it would shut down its consolidated plant in Oshawa, Ont., next year, a move that will eliminate 2,000 direct jobs. The planned closure comes as the big auto maker restarts production at the former Saturn assembly plant in Spring Hill, Tenn.
Moody's said the auto industry is one of "the few bright lights on the Canadian manufacturing landscape."
Transportation equipment accounted for more than three-quarters of the growth in Canadian manufacturing in the 12 months through June. The resurgence of the Big 3 has helped drive a sharp acceleration in Ontario manufacturing, more than offsetting the slowing pace of shipments from Quebec and British Columbia, Mr. Hopkins wrote in a report.
"Improving auto sales in the U.S. have also been a key component of demand growth for Canada's largest trading partner. Stalling this momentum, even temporarily, would be costly."
Meanwhile, ratings service DBRS said it believes a strike won't likely be long or have a significantly harmful effect on General Motors Co. or Ford Motor Co.
DBRS said the risk of a strike is "manageable" even though it will have some impact on the auto makers' U.S. operations because of the inter-relationship between the operations on both sides of the border.
"We don't expect a prolonged strike and even if the strike were to commence, the impact on the company and consequently the effect on the rating is not that material," managing directon Kam Hon said during a conference call after it raised the ratings of the two companies.
The ratings agency upgraded the ratings of both General Motors and Ford to BBB (low) from BB (high) due to their improved profitability, strong financial positions and strengthening North American operations.
DBRS said the U.S. auto makers are mainly profitable because of past concessions from hourly workers. But abandoning efforts to reduce the $15-per-hour cost differential between the Canadian and U.S. operations would make them uncompetitive with offshore rivals, especially from Japan and Korea.
"Everybody's quality of cars is narrowing and everybody's design and change in products is competitive so you have to always keep an eye on the cost structure," Mr. Hon said.
He said the auto makers "learned the lesson" of past talks and can't give more favourable contract terms in good times and then ask for givebacks in bad times.
The Big 3 U.S. auto makers are continuing tough negotiations with the Canadian Auto Workers union as a countdown continues to a threatened strike at 11:59 p.m. Monday.
The union has offered wage and benefit concessions for new hires but is refusing demands for reductions for existing employees.
"To date, little success has been made, with the union and the companies still very far apart on a number of fundamental issues," the CAW said Friday in a message to its members at Ford, General Motors and Chrysler.
It added that each of the three companies "remains steadfast in their determination to force deep concessions on both existing and future workers."
"The CAW is equally determined to resist these demands and negotiate a fair settlement that reflects the best interest of our members."
The union has warned that it may target more than one of the U.S. auto makers if negotiations fall through.
GM only produces a few models at its sole remaining CAW-affiliated assembly plant in Oshawa, Ont.
Ford employs less than 5,000 workers at its assembly plant in Oakville and two engine assembly facilities in Windsor.
University of Windsor professor Tony Faria said the impact of a strike would be much greater on Chrysler, which derives about a quarter of its production from Canada. All of its minivans are made in Windsor, along with several key sedans and vehicles.
"Chrysler is looking at razor-thin profits. They've got good prospects for this year and next year but the only way their profits are actually going to materialize is they have to be producing vehicles," he said in an interview.
Mr. Faria said Chrysler CEO Sergio Marchionne is a tough negotiator but he can't afford a shutdown.
"Chrysler is only now getting into a profitable situation so this is a bad, bad time for Chrysler to be shut down."