Battle Brewing Between Ontario and the South

By Mike Randle

In late June, Toyota announced it is building its seventh North American automotive assembly plant in Ontario, Canada. It's the second plant for Toyota in Ontario and only the second new foreign auto assembly plant announced in North America outside the Southern Auto Corridor in 13 years. Both of those plants were also Toyota facilities, built in Ontario and Indiana.

Toyota's recent Ontario announcement, in a time when Detroit, the Big 3 and their presence in the Midwest is diminishing, could mean that the Southern Auto Corridor may indeed have a significant competitor for new assembly plants in the future. After all, the only way the Midwest could land a new assembly plant announced by Ford, General Motors or Chrysler in the next few years would be a consolidation move after three or four existing plants are closed. As for the Northeast and the West, there's little chance the automotive industry, foreign or domestic, would expand in those two regions in the foreseeable future. And the only assembly plants located in Canada operate in Ontario, which, if you're not familiar with the province's location, it's within spitting distance of Detroit.

As written, new domestic assembly plants in North America are unlikely in the near future. On the other side of the ledger, foreign automakers, other than Toyota, haven't shown a preference for any other location in North America other than the South. Yet, will Toyota's recent announcement pave the way for other foreign automakers in Ontario? A few people think so.

Shortly after Toyota announced its new plant in Woodstock, Ontario, Gerry Fedchun, president of the Automotive Parts Manufacturers' Association, which calls itself the "voice of the automotive original equipment suppliers in Canada," said "The educational level and skill level of people down there (the South) is so much lower than it is in Ontario." Fedchun made the comment to a member of the Canadian media.

Fedchun went on to say that "The level of the work force in general is so high (in Ontario) that the training program you need for people, even for people who have not worked in a Toyota plant before, is relatively minimal compared to what you have to go through in the southeastern United States." He mentioned that training costs in Canada were much lower than in the South and that in Alabama and Mississippi automakers have resorted to using "pictorials" to teach some illiterate plant workers how to use high-tech plant equipment.

Dennis Cuneo, Toyota's Senior Vice President, who has been responsible for almost all of Toyota's site searches in recent years, including the Japanese automaker's new plant in Ontario, responded to Fedchun's claims that workers in the South cannot compare to labor in Canada. The growing Japanese automaker has placed most of its North American operations in the Southern Auto Corridor. "I can tell you without equivocations that our Alabama work force is literate, well-trained and productive. Not only do we have an educated work force in Alabama, we also have the added advantage of the state's training program, which was ranked No. 1 in the U.S.," Cuneo said.

Toyota operates engine plants in Alabama, Tennessee and West Virginia in the South and assembly plants in Kentucky and Texas. The Texas plant is under construction and will open in 2006. Toyota affiliates and subsidiaries also operate dozens of parts supplier plants in the South.

Honda and Nissan officials responded similarly to Cuneo in that both explained they were quite pleased with the education and training levels of their employees throughout the South. Nissan officials pointed out its employees at its plant in Canton, Miss., have done what no other automotive manufacturing team has ever done and that's to launch five different vehicle lines in less than two years.

While Cuneo defended Alabama's work force in particular, Fedchun's comments targeted the quality of the South's workers as a whole. Let's review a few facts concerning the American South, Ontario and Canada.

The Automotive Industry

* There are eight major motor vehicle assembly plants in Canada, all of which are in Ontario. There are 24 major motor vehicle assembly plants in the South.

* The facility announced by Toyota in Woodstock, Ontario this summer is Canada's first new assembly plant announcement in 16 years. In contrast, Alabama alone has landed three new assembly plants in the last 12 years. Seven new assembly plants have announced or opened in the South since the last one opened in Canada, more than any region in North America and 13 major auto factories have opened in the last 30 years in the South.

* According to the Detroit News, Canada/Ontario currently produces about 2.7 million vehicles a year. Vehicle production in the South will top 7.5 million vehicles this year.

* About 400 automotive companies call Ontario home. In comparison over 1,000 automotive companies operate just in Tennessee and over 200 have built new facilities in Alabama in just 10 years. There are over 6,000 automotive-related companies operating in the South today.

Education

* The South's high school graduation rate of residents 25 years or older was 81.7 percent in 2003, the latest figures available. The U.S. rate in 2003 was 83.6 percent. In 1990 the high school grad rate 25 years or older in the South was 69.2 percent.

* With a headline that reads "Ontario Thrives on Knowledge," the Web site for the primary economic development agency representing Ontario includes "post secondary attainment of population aged 18 and over - March 2002." The figure for Ontario in that category was 56.6 percent.

* On that same Web site we found that Alberta (60.4), British Columbia (57.5) and Nova Scotia (57.7) were Canadian provinces that scored higher than Ontario in the same education attainment category during the same period.

Economy

* The South's economy is almost four-times the size of Canada's economy. The gross national product of Canada is estimated to be about $875 billion currently. The gross regional product of the South has averaged about $3,600 billion since 2000. Because of the South's dominating economic size compared to Canada we see no point in comparing Ontario's economy to the South's economy.

* Using total gross product as the measure, the South's economy tops that of all countries but Japan and the U.S. using the latest figures available. That being the case, the American South represents the third-largest economy in the world. Canada's economy, on the other hand, ranks 8th in the world, situated between Italy and Brazil.

Demographics

* Canada's current population is estimated at 32.1 million. The South's population represents almost 40 percent of the U.S. population or at about 116 million today. That figure is almost four times the population of Canada. Again, we see no point in comparing Ontario's population with the South's other than to reveal that the South's population is more than ten times that of Ontario.

* Corporate, family and individual migration to the South over the last 50 years has been nothing less than extraordinary. In 1955 the South's population was about the same as the Northeast and Midwest, right at 56 million. Today, 60 million people live in the Northeast; 65 million live in the Midwest; 68 million in the West and as written above, about 116 million in the South.

Cost of Training Workers

* Fedchun's comment that it costs less to train workers in Ontario because of their superior intellect when compared to workers in the South is curious. Worker training in the South is free to all expanding and relocating companies. In fact, some of the incentive packages given out to automakers that have announced large assembly plants in the Southern Auto Corridor over the last dozen years have included as much as $50 million in worker training values alone.

Southern Stereotyping Continues

Fedchun's statement that the South's labor force is second-rate and that industry has had to use pictorials as opposed to written instruction to train workers doesn't border on Southern stereotyping; it is a prime example of it. Whether the source is Hollywood, radio and television talk shows, the national media, or a guy in Canada representing its automotive industry, Southern stereotyping has more than a 100-year history. That being the case, it's a tough habit to break.

But recent years have seen the prejudices and innuendo about the South just about end, as even the least informed in the national and international media as well as front men and women in entertainment realize just how far the region has advanced socially, economically and educationally. If anything, the South's greatest accomplishment in its history is earning what is the apparent near end of stereotyping.

But there continues to be pockets, as shown by Fedchun's comments, of Southern stereotyping even today. After Fedchun made his statement that the South's labor force was inferior and the statements were published throughout the U.S. and the world, Paul Krugman, a columnist for the New York Times wrote a story with the headline, "How Ontario beat out Alabama." The story pointed out how superior education and free healthcare under the Canadian government's system were the two primary factors Toyota chose Ontario over Alabama for its latest auto works.

The headline alone showed how much Krugman was misinformed, considering the fact that Alabama was not being considered by Toyota for this particular facility. Krugman also reported that Toyota officials "cited the quality of Ontario's work force" during the announcement. Krugman should have attended Toyota's announcements of its plants in San Antonio and Georgetown, Ky., Mercedes' announcement of its plant near Birmingham, Nissan's announcement near Jackson, Miss., and BMW's announcement near Greenville, S.C., among many others from automakers in the South since 1992. In every case, the executive representing each automaker cited the quality of the area's work force.

Krugman did point out some valid issues in his article, which was published in the New York Times on July 27, 2005. He pointed out Alabama's low tax rates on the rich in that state and the notion that the current federal administration "makes low taxes on the rich the highest priority even if lack of revenue undermines basic public services." He made an even stronger and more accurate statement by writing "Corporate leaders understand quite well that good public services are also good for business."

Krugman's first example that public services are good for business centered on the fact that healthcare in Canada is a "right" and healthcare in the U.S. is a "privilege." With GM, Ford and Chrysler struggling mightily with long-term healthcare cost issues, it makes sense for a foreign automaker to move to a location where the government provides free healthcare, therefore eliminating that cost factor.

But for the most part Krugman was off base when it comes to the automotive industry in general. In fact, we believe he knows little about the automotive industry's current strategy or recent history in site selection. That being the case, we question why he would write about it.

In his article he predicted a "northward movement of auto jobs," all, we assume, because of the single Toyota announcement made this summer and the fact that Canada provides free healthcare. What Krugman apparently doesn't understand is that automotive plants are the largest single investment in the production of consumer goods made on the planet. Power plants, semiconductor facilities, massive pharmaceutical manufacturing facilities and other large investment generators can fall into that group, but none of those projects can compete with large auto assembly plants because they do not attract nearly the spin-off jobs that auto plants create. On average, the typical new assembly plant will create an additional 40 new supplier plants opened within three years of the assembly plant's opening. No other industry can top that.

Krugman also doesn't understand that auto assembly plant location decisions are not made strictly because of healthcare costs or the quality of an area's work force. Dozens of more criteria go into the equation, such as access to ports, highways, rail lines and other transportation infrastructure, tax and regulatory climate, available incentives, labor availability (high quality or not), percentage of labor union organization and proximity to buyers of the product being assembled, whether it be a SUV, pickup truck, compact, mid-sedan or high-end sedan.

But regardless of what automotive officials cite as factors used in an assembly plant location, overall operating costs reign supreme. Yet, those cost factors are relative. For one, an automaker cannot produce large SUVs in China and expect to make a profit by shipping and selling them in the U.S. Shipping costs prohibit that possibility. However, small vehicles, such as the vehicles Toyota plans to assembly at its new Ontario plant, can be shipped and sold to U.S. customers. It should be noted that almost all of the foreign auto assembly plants operating in the South produce high-end, high-cost vehicles such as pickups, SUVs and minivans.

So if costs are paramount, no place in North America can compete with the South and that certainly includes Ontario. Will Krugman's statement that a "northward movement of auto jobs" become a reality? That's a very unlikely event. Operating costs in Ontario or any other place in North America can't compete with the South's low operating costs for the automotive industry, or any industry for that matter. Low operating costs are the single-largest factor in the rise in the South's economy over the last three decades.

More Misinformation

The unfortunate thing about Fedchun's stereotypes about the South is that many people believe the comments were made by Toyota officials when they announced their new plant in Ontario. Internet blogs about the subject shortly after Toyota's announcement ceremony in Woodstock were filled with people puzzled about the negative comments "Toyota made about the South."

Toyota's Cuneo responded with a letter to the editor that was published by the Anniston (Ala.) Star. He wrote, "The primary reason for the selection of the Ontario site was its proximity to our existing plant in the province, which will manage many administrative functions for the new plant. It's unfortunate that Mr. Krugman repeated the uninformed comments of someone (Fedchun) not associated with Toyota to disparage an entire group of people in an area of the country with which we have been extremely pleased."

Fedchun's comments and the New York Times article written by Krugman that followed are not things the South is unaccustomed to. But these slams to the region would be more accurate and therefore better suited for another time, such as the 1950s, 1960s, or '70s.

Yes, today the South is an economic monster and the incredible growth of the automotive industry is one of the biggest contributors to the region's economy. One new assembly plant in Ontario hardly threatens the Southern Automotive Corridor's dominance in foreign automotive manufacturing on the continent. After all, Mercedes, Nissan, Honda, Hyundai and BMW haven't placed major North American manufacturing facilities outside the South in the last 13 years and more. And Kia is expected to announce its first North American plant in the Southern Auto Corridor within six months and rumors are flying German automaker Audi may as well.

It's unfortunate that in 2005 some people still hold outdated views of the South. For almost a decade and a half now we have tried to educate everyone who will read this publication that the South is a progressive place, one that is not all that different than any other U.S. region. In other words, we have made efforts with every issue published since 1992 to help end the stereotyping of the South by the media and any other source where it pops up. We thought our work was done. Apparently it isn't. Maybe with the last few remaining uninformed people, we should resort to using "pictorials" to educate them on just how attractive the South is to industry, individuals and families alike.

mike@sb-d.com