[LINK] "Auto sector failure would deal a blow to Canada's GDP"

[rfmcdonald]

The National Post's Jacqeline Thorpe writes about how the economy of Canada is even more dependent on automobile manufacturing than the United States'.

"In terms of the hit to economic growth Canada is more vulnerable to any pare back in production on the auto side," said Michael Gregory, senior economist at BMO Capital Markets. "Employment numbers are smaller but as a share of total jobs Canada is even more exposed."

The value of Canadian auto vehicles and parts totalled $26.2-billion at the end of 2006, or 2.2% of overall gross domestic product -- the last year for which comparable U. S. figures are available. That compares with 1.3% for the United States if the figures are compared on strictly a value-added basis, that is the total value of the output of the sector, less the value of all the inputs.

Figures being bandied about the United States put the share of the U. S. auto sector as high as 4% of GDP, but Mr. Gregory said those tend to layer the raw material costs such as rubber, steel or electricity on top of the value-added cost.

The Canadian auto sector has dramatically shrunk, of course, since 2006, and now it totals about 2% of GDP.

As for employment, the Canadian auto sector totalled about 1.1% of the labour market in 2006 while in the United States they made up just 0.6% of total U. S. payrolls. Both have tumbled in recent years with Canadian jobs now totalling about 130,000 and U. S. jobs at about 732,800.

Mr. Gregory said the sales and distribution end of the auto sector is much bigger in the United States than Canada.

A recent report by the U. S. Centre for Automotive Research said that if the entire Detroit Three went belly up, nearly 3.0-million jobs would be lost throughout the U. S. economy in 2009 as vehicle manufacturing, parts and spin-off jobs disappeared.

The loss to personal income would be US$150.7-billion in the first year and US$398.2-billion over three years. The cost to government would be US$60.1-billion in 2009 or a total tax loss over three of US$156.4-billion.

No-one has actually crunched the numbers for Canada of such a doomsday scenario -- and it is highly unlikely the whole sector would collapse -- but the fact is the industries are inextricably interlinked.

David Paterson, vice-president of corporate and environmental affairs for General Motors of Canada Ltd., said at an editorial board meeting at the National Post yesterday that the Canadian industry is about one-tenth the size of the U. S. industry so the costs of total losses would be commensurate.

"We're about a tenth [the size] of their market so there is an enormous cost of doing nothing and we have moved past the discussion because of that " Mr. Paterson said.

Michael Bryant, Ontario's Economic Development Minister, and Tony Clement, federal Industry Minister, were slated to travel to Washington this week to gather information about the U. S. rescue package.

The Canadian automobile industry is located exclusively in the single province of Ontario, so the results of any shakeup will be relatively much worse than indicated above.