The Hon. Joe Volpe, Publisher
TORONTO - The British were delivered a dose of humility when General Motors dumped their iconic domestic cars Opel and Vauxhall … to the French-Chinese conglomerate Peugeot SPA. Anti-Brexiters see this as a first sign that British goods will have a tough time entering the European market when a tariff wall is erected.
Hard to come to any other conclusion. Eighty (80) percent of all vehicles manufactured north of the Channel are slated for export, and 55% of the export is to the European Continent; 14.5% to the USA.
Whatever the final ticket price, it would go up by at least the tariff amount, say an additional 10%. But the Free Trade Agreement with the EU also meant that component parts for the production plants could move freely back and forth across the Channel. Not any more.
Add to that the long term impact of the exchange rate on the Pound Sterling and GM’s assessment of the Brexit fallout must have concluded that the additional costs were just not worth it. Its European operations had not shown a profit since the turn of the century. Even in a record-breaking production year (2016) the British market absorbed a meagre 345,000 vehicles of the 1, 750, 000 cars that came off the line.
If there is/was an industry sector more reliant on export markets it would be difficult to find. Even in Canada, the NAFTA allows for [relatively] free movement between and among partner countries of vehicles and/or components that satisfy local content rules. All other factors being equal, this alone is an inducement for assemblers to stay close to supply chains and transportation hubs that allow them to minimize controllable costs and build critical mass for economies of scale.
With Trump in the White House, the American Auto Sector is coming to grips with the reality that it may have to retrench, consolidate and focus on the American market. Canadians know all too well how a Free Trade Agreement can render a National economy and National Industry marginal. GM has been “making noises” about leaving the Canadian operations behind, despite the fact that its Canadians plants consistently rank at or near the top in terms of production efficiency.
Europe is a “mature market”, saturated from the point of view of auto ownership. Countries like France and Italy long ago surpassed a benchmark that saw two vehicles on the road for every three inhabitants. It is difficult to see where [Western] European cities would “fit one more car” – they do not make shoehorns that big.
The market is “so sophisticated” that it has become a “replacement marketplace” where consumers demand innovative and quality products to switch from what they might have. The transportation infrastructure cannot handle anything else and consumers do have choices.
Peugeot SPA (in which both the Chinese and French governments each have a 14% share) accepted that to grow, it needed first to absorb competitors in the marketplace, then expand its product to another market … China(?), India(?) … but not Britain. That would be a place to leave.
Peugeot and GM have mouthed all of the right words for the sake of unions and public consumption in respect of honoring existing contracts and commitments. No problem. They will be done in a year or two, possibly three as Brexit takes hold.
FCA is cut from the same cloth, so to speak. Should it merge with VW, the new entity will follow the well- beaten path of plant closures and lay-offs - in Italy as well as in Canada. Their Chrysler plants in Canada are among the oldest in the business.
Marchionne, their CEO, has already give several signals about his intentions. He demanded $750 Million from the Ontario government as a precondition to remain in Brampton; he has given Trump assurances that he will invest up to $1 Billion in the USA, and he has systematically moved small car production from Italy to other low labour cost production centres.
The truth of the matter is that Peugeot, GM, VW or FCA have no loyalty to their host or their workers; they will do anything they can to gain, retain or expand their market share – the quality of their product is consistent with the level of consumer protection enforced by a willing government. Their mantra for success is innovate, cheat or change the law.
The latter three have been caught cheating. Now it appears that Donald Trump may not indeed change the law.