News & Updates

    The Morning Brief - 11.27.18

    Posted by Bruce Carson on Nov 27, 2018 11:02:05 AM


    Economy—GM Plant Closure in Oshawa and the Crisis in the Alberta Oil Patch: Storm Clouds Gathering around Sunny Ways


    GM Closure in Oshawa and the Alberta Oil Patch

    The sunny ways of unicorns and balloons set out in the fall economic update of last Wednesday have given way quickly to the reality of cold, dreary and rainy November days as two economic issues converge to hopefully bring a strong dose of reality to the Trudeau government.

    Reality should have first hit the prime minister last Thursday when he journeyed to Calgary, the center of much oil patch discontent. His appearance at the best venue in town, the Calgary Chamber of Commerce surely meant that the pages in the fall update that specifically address issues in Alberta that Finance Minister Morneau skipped over on Wednesday would be the subject of announcements by the prime minister in Calgary.

    However, that didn’t happen as the only announcement coming from the prime minister dealt with funding for affordable housing. A response to that from a Calgarian last Thursday was that the housing would be needed if the oil price differential is not addressed as we will all require affordable housing soon. The only announcement from Trudeau dealing with the woes of the oil patch was the acknowledgement by Trudeau that “this is very much a crisis” and the usual amount of prime ministerial empathy.

    As recounted here yesterday the list compiled by columnist Don Braid of what wasn’t announced included “no rail cars, no locomotives, nothing to speed up pipeline construction, no specific industry targeted measures for businesses and producers in big trouble.”

    What should have struck Trudeau during his time Thursday in Calgary was the crowd of protestors demanding that the Trans Mountain pipeline be built. It’s fine for the federal government to dole out taxpayers money for the opportunity to build the pipeline, but the protestors want to see shovels in the ground. Braid described the purchase in a recent column “as a dud for Alberta.” The other matter coming out of the Calgary visit was that as nice as the accelerated capital write down announced in the economic update is, in the Alberta oil patch there is no money to spend on capital improvements and will be a while before it is used.

    Then yesterday with the official announcement coming from GM mid-morning the GM workers in Oshawa now felt the pain that has been flowing through Alberta for the last four years. The irony is that just 24 hours earlier Alberta Finance Minister Ceci said in an interview with Global “if the oil sector was Bombardier, Liberals would be “all hands on deck’ to help.” Previously Premier Notley had made a similar comment as to what would happen if Ontario’s automotive sector was threatened with economic collapse. The juxtaposition of Alberta oil issues and Ontario auto layoffs also serves to test Derek Burney’s first challenge for a federal government, national unity.

    Both Ceci and Notley got to see their warnings play out in real time yesterday. And while the federal and provincial governments didn’t disappoint in their reactions, they both seemed shell-shocked by the announcement and any fight against this announcement came not from government but from Unifor’s president Gerry Diaz.

    It is not often one wishes for a Trump like response but yesterday the President faced with the closure of four assembly plants in the U.S. and particularly one in Ohio, he said that he told Mary Barra, Chair of GM, that she better put “something else in there” to replace the Chevrolet Cruze which is not selling well. The president, this time, is not buying the argument that this is a permanent closure for the purposes of restructuring.

    Both the Ontario provincial government and the federal government are reaching for the same solutions which involve extending EI payments and retraining. The idea of keeping the plant open and searching for other solutions came from Conservative Leader Andrew Scheer and Unifor president Diaz. There is an argument that because there are no cars assigned to be built at this plant after December, 2019, it won’t be closed, but could be used to manufacture the electric cars and autonomous autos that GM is now committed to. This makes some sense as the high tech center for the development of these cars is located in nearby Markham.

    The fact that GM is not asking for monetary support or a bail out actually makes it more difficult for governments to deal with.

    Getting GM to reverse itself on Oshawa will be a huge rock to push uphill but worth exploring. So would getting another car manufacturer to take over the Oshawa plant.

    While this may not help the workers who will be laid off at the end of next year, perhaps the convergence of two major drivers of the Canadian economy being in trouble could be used as a teaching or learning experience for governments.

    Premier Doug Ford hinted at this in responses in question period yesterday and later in a media scrum outside his office at Queen’s Park. He talked about getting rid of the steel and aluminum tariffs and creating an environment for investment, recognizing we are competing world-wide for investment and job creation. He spoke about the high cost of electricity in Ontario and the imposition of a carbon tax as inhibiting investment.

    He is right when he said the decision to shutter Oshawa was not made yesterday, but probably a year ago. John Ivison in his most recent column wrote that Liberal governments in Ottawa and Toronto have not been overly concerned about competitiveness and investment until last Wednesday. He goes on to say what we have seen from these two jurisdictions are “rising personal and small business taxes, soaring electricity rates, introduction of higher minimum wage, more onerous environmental laws and the prospect of a carbon tax.” All of this has led to weaker corporate spending in recent years.

    This was the economic backdrop against which the GM decision would have been made. While the accelerated capital write off set out in the economic update would have been a great fit for a company looking to retool and invest in upgrading a manufacturing plant, it goes into the pile of measures too late to be helpful in Oshawa.

    If yesterday’s announcement is to be something our political leaders learn from then they should review and change those initiatives that inhibit growth. As Kevin Carmichael pointed out last week the regulatory review promised in the economic update holds out such promise, but as Carmichael says, only “if the Liberals get it right.”

    With Premier Notley coming to Ottawa and Toronto this week, it will be at a time when Trudeau is trying to come to the aid of auto workers who will be laid off next year, and so far except for buying the Trans Mountain pipeline the Alberta cause has not been advanced. Perhaps this will be a good time for Notley to ask for the regulatory Bill C-69 to be rethought or withdrawn and for money for locomotives and tank cars to be allocated. Trudeau can’t address one set of problems while ignoring the other and if he does, it will play into the narrative that has been coming out of Alberta for at least the last year.

    As Ivison points out fears of retrenchment in the oil and auto sectors, “suggest the government’s buoyant views on the economy are overdone.”  It’s time to recognize that the sunny ways of 2015 have been clouded over by the economic realities of 2018.

    To Come

    --November 30, GDP numbers for September and Q3to be released

    --November 30-December 1, G-20 meeting in Argentina—not much time left for removal of tariffs before USMCA is signed

    --December 3, OPEC meeting on oil outputs

    --December 3-13, COP 24 in Poland

    --December 5, Bank of Canada deals with interest rates--bc

    Topics: Morning Brief

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