1. 1 The CAW & Canada’s Auto Industry: Considering a Health Care Cost Advantage Presentation to: Invitational Roundtable on Health Care and the Economy Jim Stanford, CAW Economist stanford@caw.ca CMA House, Ottawa, Ontario March 7, 2006 stanford@caw.ca

2. 2 The Canadian Auto Industry: Key Features 100% foreign-owned (OEMs) –investment attraction/retention challenge not new Assembly-focused –40-45% automotive GDP Superior productivity Superior quality Labour cost / labour quality advantages –health care – demographics – skill set – currency??? Active auto policy framework –1965 Auto Pact– modern incarnations Pro-active union

3. 3 Canadian Costs Public health care system –all core services –most prescription, some long-term care after 65 Demographics –Canada Big 3 average: 1.1 retirees per active Canadian currency –no longer undervalued Labour costs

4. 4 Canadian Healthcare: Such a Deal Source: CAW Research, Industry Sources EHT=$30/veh.

5. 5 Average Productivity Big Three Assembly Plants

6. 6 All-In Labour Costs Approximate Average, Canadian Big Three ($Cdn. per hour worked, 2004) Wages 32 Premiums shift, overtime, etc. 4 Paid Time Off vacation, holiday, SPA, personal hours 10 Benefits & Pensions (active) health, pension, insurance, income security, training 12 Benefits & Pensions (legacy) pension & benefit costs for retirees 8 Statutory payroll taxes for pension, EI, workers’ compensation, health 4 TOTAL $70 Cdn. ($57 U.S.@avg.’05 ex.rate) Pension & benefit expense includes cash and pre-booked future expenses.

7. 7 C$: Now a Commodity Play C$ begins tracking commodity prices

8. 8 A Continuing Advantage Even at current exchange rates, Canadian assembly facilities enjoy labour cost advantages –health care– demographics –statutory costs CAW plants $5-10 U.S. / hour cheaper than UAW plants CAW matches blended average labour costs in North American vehicle market

9. 9 Blended Labour Costs North American Vehicle Sales, 2004 Source Share N.A. Sales (%) Approx. Hourly Labour Cost ($US) UAW42.565-75 Transplants20.050-55 CAW10.055-60 Japan10.050-60 Mexico7.55-10 Germany5.055-70 Korea5.015-20 Blended Avg.100$56 Source: CAW Research from industry sources, U.S. Bureau of Labor Statistics, and KPMG. NB: At a 70-cent $C, CAW cost is lower than any other developed country supplying N.A. market.

10. 10 Mergers, organizing have expanded CAW membership base Auto parts: 50% union Credible unionization effort at transplants Policy influence health –auto– health –border– environment Not a shrinking organization

11. 11 Big Three Financial Crisis: Root Causes It all starts with market share: –down 13 points in N.A. since 1996 –each point = $1 billion operating profit –each point = one assembly plant Less market share means: –less production– less employment –less capacity utilization –less profit– less investment in new product –higher unit fixed costs (for health care, etc)

12. 12 Big Three Financial Crisis: What Can Turn it Around? Standard story: –big cost concessions (esp. U.S. health/legacy) –big capacity reductions –address product quality / innovativeness –address perceptions of product quality –cross fingers: hope to stem the tide Can it work?

13. 13 What CAW is Delivering Productivity to match transplants Quality to match transplants Utilization better than Toyota’s Health costs = $120 (U.S.) per vehicle Competitive labour costs Flexibility with new investments, technology Gov’t support for new investments Pressure for fair trade policy

14. 14 Conclusions Health care costs in Canada are significantly lower than they are in the U.S. –This is a significant advantage