1010 Class 4: Manufacturing and the Automobile Industry

1. 1010 Class 4: Manufacturing and the Automobile Industry

2. Midterm #1 MIDTERM #1 Your first midterm has been changed to Sunday, October 20 from 10 am to 1 pm. It will be in TEL 0010, 0014, and 0016. Good news? No Class Oct 16 and 17th.

3. Midterm #1 Reminder: If you miss a midterm it must be because you are ill.  An attending physicians statement (official APS) must be e-mailed to me and only me at obrien.barry@gmail.com within 5 calendar days exactly of the missed midterm or you will not be able to write the makeup. 

4. Manufacturing in Canada • During the 1870s and early 1880s., the discovery of electricity and the subsequent harnessing of some of Canada's vast hydro resource provided industry with an efficient, low-cost source of hydro-electrical energy. At the same time the extent of the mineral wealth beneath the Canadian Shield began to be realized. • Between 1945 and the 1990s, manufacturing has accounted for 22-24% of Canada's total real output of goods and services.

5. Case: Autos in Canada

6. History of the Auto Sector in Canada • The automotive industry began in Canada when a group of young businessmen in Windsor, Ontario, led by Gordon M. McGregor, formed the Ford Motor Co of Canada, Ltd (1904), only a year after Henry Ford, the promoter and inventor, had begun production in Detroit. Cars were assembled in the works of the Walkerville Wagon Co, Ltd, as parts were ferried by wagonload across the Detroit River.

7. History • Canadian Fords were soon being shipped to most parts of the far-flung British Empire. Colonel R.S. McLaughlin, Canada's pioneer in the industry, converted the family's thriving carriage and sleigh production in Oshawa, Ontario, to the new horseless carriage with its noisy internal-combustion engine.

8. History • In 1908 McLaughlin arranged with William C. Durant, the financial wizard who formed General Motors, to use David Buick's engines. Buick engines with McLaughlin-designed bodies gained world renown. Later, Durant offered McLaughlin the Canadian rights to the Chevrolet "Classic Six," a 5-passenger touring car designed by racing-car driver Louis Chevrolet.

9. History • General Motors of Canada Ltd was formed in 1918, under the presidency of McLaughlin, when McLaughlin Motor Co Ltd and Chevrolet Motor Co of Canada Ltd merged.

10. History • From 1918 to 1923 Canada was the second-largest vehicle producer in the world and a major exporter. Those Canadian manufacturers who succeeded were allied to successful American companies.

11. Why Autos in Canada? • Windsor became the Canadian extension of Detroit because of 2 inducements: a 35% tariff on carriages of all kinds entering Canada and a preferential tariff entry to British countries.

12. Why Autos in Canada? • Detroit River became the world centre for automotive production at the beginning of the century. The reasons for Detroit's predominance seem to have been based on its well-established carriage, bicycle and boat-engine industries and the excellent road system in the surrounding region.

13. Economic Conditions Impacted Growth in Canada • Fluctuating GDP per capita until the end of the Depression • Rising prosperity coming out of the Great Depression

14. GDP Per Capita 1905-1955(1990 International Geary-Khamis Dollars)

15. Relatively low GDP per capita until the end of the Depression compared to 4 other countries

16. GDP Per Capita 1905-1935, 5 Countries (1990 International Geary-Khamis Dollars)

17. Quickly rising GDP per capita after the end of the Depression compared to 4 other countries

18. GDP Per Capita 1935-1955, 5 Countries (1990 International Geary-Khamis Dollars)

19. Almost all of the GDP growth is in manufacturing, not agriculture

20. Total GDP, Agriculture and Manufacturing, 1905-1955

21. People settle in the cities to work in manufacturing

22. Trends in Canadian population, 1901-1951

23. Exports shift from UK to US, prior to the Depression. Then they plummet.

24. Canada’s Main Export Markets, 1905-1935

25. Some exports during the war, but truly astonishing growth after WW2 in exports to the USA.

26. Canada’s Main Export Markets, 1935-1955

27. British investment falls when their economy declines. US increases.

28. FDI, UK and US, % of total 1905-1955

29. Automotive Registration1910 - 1938

30. The Auto Pact • The Canada—United States Automotive Products Agreement, commonly known as the Auto Pact or APTA, was an important agreement signed between the US and Canada in January 1965. • It removed tariffs on automobiles and parts greatly benefiting the large American car makers. In exchange the big three car makers Ford, GM and Chrysler greed that automobile production in Canada would not fall below 1964 levels and that they would ensure the same production-sales ratio in Canada. • Before the Auto Pact the industry was highly segregated. Because of tariffs only 3% of vehicles sold in Canada were made in the United States, but most of the parts were manufactured in the U.S. and overall Canada was in a large trade deficit with the USA in the sector.

31. Manufacturing and FDI • “An investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange.” (Investopedia)

32. Protectionism and the Auto Sector

33. Arguments for Protection • Industries fearful of foreign competition. • Those intended to influence the composition of production. • Those intended to influence the level of employment. • Those intended to influence the distribution of income.

34. Impact of government support Wind Power in the USA

35. Creating a New Energy Industry in Ontario • http://www.theglobeandmail.com/report-on-business/managing/top-employers/green-employers/for-solar-ontario-is-the-california-of-canada/article1997938/ • http://www.theglobeandmail.com/report-on-business/commentary/barrie-mckenna/mcguintys-green-energy-explosion-more-an-implosion/article2057633/ Alison Kemper ADMS 1010

37. Canada’s Restrictions on International Trade

38. Canada and Economic Development Staple Theorey Did other nations share a similar development patter to Canada? Was Canada’s History Unique? No. Many countries shares a migration from staples to manufacturing. 6-38

39. Costa Rica Three Eras of Trade Development 1 Late 1800 - 1960 2 1960 - 1982 3 1983 – Early 1990’s 4 Early 1990’s - Present 6-39

40. Costa Rica Late 1800’s - 1960 First Era of globalization. Most national allowed goods to travel freely from one state to another. Costa Rica specialized in commodities, however, war, low prices and competition led to phase #2. 6-40

41. Costa Rica 1960 – 1982 Import substitution period, if Costa Rica limited imports, then investment would hopefully flow into the country. Results we mixed.

42. Costa Rica 1983 – Early 1990’s The government began to lower tariffs and promotes the export of products that it was internationally competitive in. 6-42

43. Costa Rica Early 1990’s – Present The government continues to resource tariffs and targeted international industries that promised high growth. Educated workforce, English speaking, politically stable, economic freedom. Intel, Baxter, P & G 6-43

44. Globalization’s Impact on the Canadian Auto Sector

45. Internationalization Process Companies that peruse an internationalization strategy create value by transferring skills and products to foreign markets. R&D is done at home, but manufacture often takes place in place. • Marketing and strategy is a head office function.

46. This chart shows the progression in internationalization from licensing (minimum), to foreign direct investment (maximum). The Internationalization Process

47. Diversity against home market risks • Tap into growing markets • Follow competition • Reduce costs (manufacturing) • Overcome trade barriers Why Export Cars?

48. National Competitive Advantage Innovation is not due to just firm strength, but the success of nations. Factors include: Local supply (factor) conditions and demand. Related industries

49. Determinants of National Competitive Advantage

50. Porters Diamond of National Advantage Four conditions are important for competitive superiority: demand conditions factor conditions related and supporting industries firm strategy, structure, and rivalry 6-50