Canada, sharing in auto slump, hopes for looser ties with US industry

When the US auto industry gets a flat tire, its Canadian subsidiaries wobble along, too. Assembly lines in Windsor, across the border from Detroit, and in Oshawa, St. Thomas, and other Ontario locations have felt the impact of the recession-squeezed US industry and rising Japanese imports, even though car sales in Canada have been stronger than those in the United States.

Canada, however, sends roughly 75 percent of its auto production to the US. Thus, the downturn south of the border has been felt in Canada even though car sales here did not dip as low as in the US. At one point in 1980, unemployment in the Canadian industry rose to 20,000 out of 117,000 workers. But the number of jobless has been reduced considerably since.

The Canadians think that once the automobile world returns to normal, the US-Canada auto pact should be changed. The pact now says that for every car imported into Canada, another has to be assembled there. However, Larry Grossman, minister of industry and tourism for the province, said in an interview: "When the pact was signed in 1965, the world was different. Assembly plants were important; now they aren't. Now, the parts business is the place to be."

Partly in support of his argument, Mr. Grossman points to Canada's auto trade deficit, which was running at more than $3 billion in 1980, up from about $1.5 billion in 1979. Total auto trade came to $22 billion in 1979.

Mr. Grossman says he is concerned that countries like Mexico will get all the new- parts business. "I know they have more clout than we do," he says, "because they have all that oil the US is interested in and really low wage rates."

He concludes: "IF the US has the attitude [that] 'a deal is a deal,' then I guess we're stuck with it. But I just hope we don't get penalized for a deal we entered into in 1965. The US shouldn't attach an anchor to all its neighbors and friends."

The federal government in Ottawa is attempting to determine if the pact should be renegotiated and has set up a task force, headed by Herb Gray, minister of industry, trade, and commerce, to study the issue. It has already made a trip to Washington (the auto pact is a country-to-country arrangement) to talk to top trade officials, who have been noncommittal.

The auto companies aren't so sure the pact should be changed, however, F. Alan Smith, president and general manager of General Motors of Canada Ltd., said in an interview: "Sure, the parts business is big. that's true. But it may not necessarily be cost-effective to just produce parts here; you really should have a combination." And Mr. Smith points out that Canadian suppliers have always been involved in supplying glass, tires, and other parts that have to be produced close to the assembly lines.

At Ford Motor Company, a spokesman says the company would like to see the agreement "amended" so that the companies would have more flexibility in production. Specifically, Ford would like to see the agreement include the production of cars and trucks together instead of separately. But the company stresses it does not want to see the whole agreement "renegotiated." A spokesman at Chrysler says the company feels the pact is working just fine.

Not only are the Canadians unhappy with the deficit in parts and trade, but they are also grousing that the US manufacturers have not been producing more small cars in Canada. chrysler makes no K-cars in Canada, GM no X-cars, and Ford no "world cars."

"We're not getting our fair share of small car production," says Mr. Grossman. Norman Clark, vice-president of the Automobile Manufacturers Association, agrees, noting, "We're building a lot of intermediates -- which have been strong -- but the growth market is in small cars."

This should change in 1981, however, GM will begin production of its J-cars in the spring at its Oshawa plant, and Ford will manufacture its two-seater version of the Ford Escort and Mercury Lynx at its St. Thomas plant in April. Chrysler won't start producing small cars in Canada until mid-1983 for the 1984 model year.

Despite the problems raised by the government, the auto companies are investing a considerable amount of money in Ontario. GM has announced that it will spend some $2.25 billion through 1982; Ford is investing more than $700 million over the next two years; and Chrysler ha s announced new investments of