Canada is on the cusp of signing the United States-Mexico-Canada Agreement (USMCA) at this week’s G20 summit in Buenos Aires, but even the revamped trade deal wouldn’t have saved the General Motors (GM) plant in Oshawa, Ont.
Under USMCA, 75 per cent of a vehicle will have to be made in North America to qualify for duty-free movement within the continent. Under NAFTA it’s 62.5 per cent. The increase is aimed at shifting production away from Asia and Europe.
Forty to 45 per cent of a vehicle must be made by workers earning at least US$16 dollars an hour.
“USMCA’s auto rules are slanted to incentivize more production in the U.S. and Canada versus Mexico,” Flavio Volpe, president of the Automotive Parts Manufacturers Association told Yahoo Finance Canada. “Companies making cars for U.S. and Canadian consumers post USMCA transition will do so more profitably from those 2 countries.”
“The decline of demand for the product allocated to Oshawa over the last 10 years had nothing to do with tariffs invoked in July 2018 and more to do with buffering the business model for the underperforming Hamtramck plant they designated for their EV production.” says Volpe. “Ultimately, it sunk the fortunes of both facilities.”
An unsustainable business model
The writing has been on the wall for GM in Oshawa for a long time now. The number of jobs has been steadily dwindling over the years. Autoforecast Solutions CEO, Joe McCabe told Yahoo Finance Canada he doesn’t think USMCA could have saved the day. He blames excess capacity and a product mix going back to 2014.
“This was pre-Trump, this was pre-NAFTA 2.0., it was even pre-Tesla and pre-‘dieselgate’ and pre-China.” says McCabe.
Oshawa as well as the U.S. plants in Detroit-Hamtramck and Lordstown, Ohio plants produce sedans, but SUVs and crossover are all the rage these days. McCabe says USMCA couldn’t have done anything to reverse that trend.