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Jan. 30, 01:29 EDT 15,000 jobs at risk in auto crunch

DaimlerChrysler layoffs expected to hit hard

Steven Theobald BUSINESS REPORTER Walloped by a continent-wide recession a decade ago, Ontario's auto industry is again under threat.

DaimlerChrysler's move yesterday to slash a fifth of its North American workforce - at least 3,000 jobs in Ontario - is just the first in an expected wave of layoffs as demand for new vehicles softens.

``This is just the lead edge of the knife,'' predicted industry analyst Dennis DesRosiers. ``There is more to come from DaimlerChrysler and we still haven't heard from Ford and General Motors.''

Casualties could reach 15,000 jobs in the first three months of the year alone, he said.

While always a source of high-paying positions, the sector has become even more vital to Ontario in recent years, directly employing 180,000 Canadians at the big automakers and 300-odd parts suppliers.

``Today, Ontario produces just as many vehicles, if not more, than Michigan,'' said Jay Myers, chief economist at Canadian Manufacturers and Exporters.

Including spinoff effects, the industry represented 6.5 per cent of the province's total economic output in 1999, up from 4.4 per cent in 1989, said Carlos Leitao, senior economist Royal Bank of Canada.

``That's quite a significant increase.''

The Ontario economy grew by an estimated 6 per cent in 2000, fueled by the booming manufacturing sector.

This year, economic growth is expected to fall to 2.8 per cent, with the sputtering auto sector accounting for a full percentage point of that drop, Leitao said.

``You will certainly feel it,'' he added, noting that one in six Ontario jobs is linked to the auto sector.

Unlike the downturn in the early '90s, this time around layoffs will come fast and furious.

In the past, production cuts at assembly plants took a while to translate into job losses at parts plants, said Joseph D'Cruz, professor of finance at the University of Toronto's Rotman School of Management.

Ten years ago, parts makers kept huge inventory levels, which acted as a buffer, allowing them to postpone layoffs, D'Cruz said.

But today, thanks to integrated operations with the assembly plants, just-in-time manufacturing is standard practice.

``That means the shocks will reverberate very quickly,'' D'Cruz said. ``So if you lose your job at Chrysler, you won't be able to get one at Magna.''

But the opposite is also true, said Canadian Manufacturers' Myers.

``Once production picks up, suppliers will rebound very rapidly because inventories are so low.''

The auto parts industry, which is believed to employ at least two people for every assembly plant job, has undergone drastic changes since the recession of the early '90s. First, auto makers have outsourced a tremendous amount of parts manufacturing - including fully assembled components such as dashboards.

They have also called on suppliers to do much more design, engineering and quality control work.

This, in turn, spurred a wave of consolidation as parts companies sought economies of scale.

At the same time, however, intense competition has driven down prices, making them more vulnerable to falling orders, said Charlie Reid, national director of automotive industry practice at Cap Gemini Ernst & Young.

``Profit margins are almost always in the single digits and sometimes in the low single digits.''

Just last week, Visteon Corp. announced it will close its electronic components plant in Markham, eliminating 1,200 jobs.

A week earlier, Alloy Wheels International (Canada) filed for bankruptcy, throwing 500 people out of work at its plant in Barrie.

But there is some good news.

Today's parts makers are more efficient and have diversified their client list beyond merely one large auto maker, making them more able to withstand the upcoming slowdown, Reid said.

Jim Stanford, an economist with the Canadian Auto Workers union, stresses the outlook isn't as bad as headlines trumpeting recent layoffs suggest.

``Despite the news, I don't see enough in these numbers to suggest the whole economy will be thrown into jeopardy in terms of the R-word,'' Stanford said.

``We are expecting a 10 per cent decline in output this year, but that's coming off all-time record levels of 3 million vehicles in 1999 and another 3 million in 2000.''

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-- Martin Thompson (mthom1927@aol.com), January 30, 2001

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Tuesday, January 30, 2001

Martin to downplay growth

By ANNE DAWSON-- Sun Media, Ottawa Bureau Chief

OTTAWA -- Finance Minister Paul Martin is seriously considering toning down his high-growth expectations for Canada in light of the dire economic situation south of the border, The Toronto Sun has learned.

Sources say Martin is standing firm on his decision that there's no need for a February budget despite realizations he'll be hammered by the opposition when the House of Commons resumes today.

"There's definitely not going to be a February budget, because the the measures taken in the fall update will hold," said a government source.

"But it's a possibility ... that the minister could give a fiscal statement in the House in March or April updating the economic and fiscal situation."

When Gov. Gen. Adrienne Clarkson reads the throne speech today, she will outline a rehash of Prime Minister Jean Chretien's fall election campaign platform.

There'll be an emphasis on high-tech research and development as well as measures to help those who've been excluded from the economic boom of the late 1990s.

But the speech is also expected to highlight Martin's mini-budget of last fall, which doled out $100-billion worth of tax cuts over five years --most of which kicked in Jan. 1.

But recently, the U.S. has experienced a significant economic slowdown with thousands of job layoffs and plant closures, including those announced yesterday by DaimlerChrysler. Experts say that's only the tip of the iceberg in the automotive industry as other major manufacturers will soon follow suit.

Since the U.S. is Canada's largest trading partner, this is already having a significant effect here.

Martin's mini-budget was based on finance officials' projections of a healthy 3.5% growth rate next year. Since then, many of the major banks and corporations have lowered their expectations dramatically.

-- Rachel Gibson (rgibson@hotmail.com), January 30, 2001.