Could GM Canada “Envision” a Solution for Oshawa?

In our last article, “Are we at the Tipping Point of the Canadian Automotive Industry (Sept 1, 2016)” we addressed the issues currently being faced by Unifor as the deadline to the existing labour contract approaches. We focused on the fact that the issues presented are not solely labour related, but many stakeholders are involved (i.e., government, supply chain, utilities, local communities, etc.). The unfortunate conclusion, and something we have been saying for years, is that there is no easily identified product for GM to offer to Oshawa without punishing recent plant investments in the US and Mexico.

It is important to know AutoForecast Solutions (AFS) is neutral on this topic and not taking any one stakeholder’s position in these negotiations. In general, we are pro-prosperity and pro-automotive. Our outlook is based on empirical evidence; minimal product investment in Canada while billions of dollars are invested in the rest of NAFTA over the last several years. Coupled with excess capacity in other GM plants outside Canada, the direction of our outlook doesn’t change course. But let’s take a closer look and try to apply some out-of-the-box thinking that could rationalize a long-term GM Canada footprint.

First, all of the GM vehicles assembled in Canada today can be or are already assembled at other plants in the US and Mexico – not new information. GM has made a significant investment in Ingersoll to assemble Chevrolet Equinox – again not new news. Manufacturing in higher cost jurisdictions requires higher profitable vehicles (for example, crossovers, SUV, and pickup trucks). It is unlikely that GM will return Silverado and Sierra pickup production to Canada since their exodus in 2009. This leaves a crossover (CUV) or SUV as the target vehicle for domestic production. Now, because of excess plant capacity at other GM NAFTA facilities, it is safe to say that a currently produced CUV or SUV in the region will not be earmarked for Oshawa. This leaves looking at larger vehicles which are consumed in NAFTA but NOT assembled here. And the answer could be …. the Buick Envision.

This vehicle hits the core marketplace by targeting consumers between the subcompact Buick Encore and larger Buick Enclave. The Buick Envision, which began production in late 2014, is GM’s first Chinese-built vehicle to be imported into NAFTA. Produced at the SAIC GM Dongyue facility, the CUV’s annual production volumes are expected to reach over 225K units/yr. Initially, GM is forecasting only 20-25% of production to head to our region (50-60K/year). Importantly, as a joint venture, GM can only extract their ownership percentage of profits from this relationship. Historically, when an imported vehicle is moved into a region for domestic consumption, sales tend to increase therefore resulting in higher production volumes. From an AFS viewpoint, the Buick Envision can find more than 100K buyers per year in this CUV-focused market. Was it easier for GM to forecast 50K/year in order to not have any of the unions upset with it coming from China; could be? But if a) out-of-the-box thinking is needed, b) a non-NAFTA produced, high-value vehicle needs to be targeted, and c) the higher cost of producing in Canada offsets the lost profits and logistics cost of importing from China, then the Buick Envision starts to make sense.

This is just a “What If” exercise. There are many moving parts why shifting Envision production to North America may not be feasible. Agreements in place between GM and its Chinese partner could require volumes over 200K in China. Supply base issues could affect the overall cost equation. Or many other cost/political based issues could come into play. At a minimum, Canada has the ability to be nimble and look at any and all possibilities. Investment by a Chinese OEM, for example, could be a secondary benefit for the migration of Envision production here. It comes down to the simple fact that this type of out-of-the-box thinking from all of the stakeholders needs to happen. By putting the lion's share of effort and emphasis into the labour/cost equation could be a distraction to the ultimate goal of finding ways to maintain and grow the Canadian automotive footprint.

AutoForecast Solutions (AFS) provides business intelligence and forecasting services to the global automotive community. Our customers gain access to detailed light-vehicle, powertrain, and drivetrain production databases and advisory services supported by our world-class proprietary planning tools. Authors Joe McCabe and Sam Fiorani, along with the staff of AFS, each have over twenty years of direct experience in the automotive industry.