Canada has become one of the most expensive places in the world to assemble cars even for Toyota, the company's Canadian president says.
Even without having to pay for the terms and conditions of a CAW or UAW union contract, Toyota is finding the cost of building vehicles in Canada to be rising rapidly, says Ray Tanguay, president of Toyota Motor Manufacturing Canada.

"It's very challenging with the currency right now," Tanguay told analysts and reporters in Windsor during a break from the North American International Auto Show in Detroit.

"My biggest competition is not Ford, General Motors or Chrysler," Tanguay said.

"My biggest competition is the other Toyota plants. We're probably the highest in the industry," he said of his Canadian costs.
Those costs are mainly driven by the currency, which affects all parts purchases and the cost of labour.

"There is more than just labour costs," Tanguay said. Benefits cost more in Canada, and there is more labour cost per car than in the U.S. because of more generous parental leaves and vacations.

There are also higher logistics costs, higher payroll taxes, higher fuel taxes and property taxes and electrical rates in Canada. Most large automotive assembly plants are the largest consumers of electrical power in their host cities.

Given those higher inputs, Tanguay said, it will be increasingly difficult -- if not impossible -- for him to convince his superiors that Canada is a place that should receive more investment.

Toyota's Canadian investments -- it has a highly regarded assembly plant in Cambridge which is the only Lexus plant outside of Japan, and it is investing more than $1 billion in a second assembly plant just down the road in Woodstock -- have been solidly profitable for the company for many years.
But now when Tanguay reports his numbers to his board, he has to remind them of the good old days, he said, because the high dividends of doing business in Canada are gone. About 80 per cent of the vehicles it builds here are exported to the U.S.

Toyota is in the midst of a company-wide drive to cut costs, he said. "We are trying to go back to basics: eliminate waste. We need to eliminate all duplication. We are doing that in all plants in North America." Toyota Canada is also streamlining its administration, and intends to spread its staff over both its Ontario plants.
Most diversified

Fortunately for TMMC, its Ontario operations are among the most diversified in the world in terms of product mix, Tanguay said, which makes their future safer than most. Cambridge builds the compact Matrix -- one of the company's bread-and-butter vehicles in Canada -- and the luxury crossover Lexus 350. Woodstock will build the next-generation Toyota RAV-4 mid-sized SUV.

Tanguay is the latest of several senior Canadian automotive executives to warn that rising costs in this country and slow-moving government are endangering its manufacturing base. Tom LaSorda, a Canadian who is co-president and vice-chairman of Chrysler, publicly made those observations on Sunday.

During a dinner meeting in Windsor, Tanguay was asked by University of Windsor president Ross Paul what Canada could do to make itself more competitive in automotive manufacturing,

"We have to make sure our factories have the latest technology and they are fully invested," Tanguay said -- meaning equipped with the latest systems and processes. The most modern plants are the safest from closure during tough times or from being outperformed by competing plants in other jurisdictions, he said.

"They don't need to hand out money," Tanguay said of governments and policy-makers. "They just need to provide tax credits for the right behaviour" -- referring to investing in new technology and equipment. Remaining cost competitive is also crucial, he said.

Tanguay agreed somewhat with LaSorda -- who is also a product of Windsor's automotive culture -- that "there are some items I think the government is slow to react to" in Canada.

The problems with Windsor's border crossings are one of those issues, he said, as well as harmonizing environmental regulations and fuel economy rules with those in the U.S.

"There are some who say that trade with Korea is a problem, but this is not my view," Tanguay said, referring to mostly CAW complaints that Korea has been flooding Canada with cheap cars while blocking sales of our vehicles over there. "It is very difficult to put barriers on free trade."