Toronto, Ontario – May 13, 2019 – In today’s Tuesday Ticker: Trumps tariffs threaten auto Canadian and American auto jobs, AutoCanada’s costly car dealerships bite into the bottom-line and much, much more!
USMCA’s Unintended Consequences
The U.S. auto sector could be negatively impacted by the new USMCA agreement between Canada, the U.S. and Mexico, an independent study has found.
On Thursday, the International Trade Commission released a paper which concluded that, while the plan would ultimately have a small, beneficial impact on the American economy, the paper concluded the USMCA would cause a precipitous drop in auto assembly jobs.
As part of the agreement, auto manufacturers must heavily rely on labour of North American workers paid more than $16-per-hour. While less than the rates paid to Canadian and American auto workers, it is a considerable wage increase for Mexican workers.
While the Trump Administration says this decreases the advantage of moving jobs into Mexico, the ITC says that it could have the opposite effect. By raising production costs, OEMs will feel more pressure to hire still-cheaper Mexican auto workers.
While the paper did not assess the effect it will have on Canadian jobs, the relative parity between American and Canadian labour rates suggest that—if the report’s findings do prove true—Canadians would also see job cuts.
The Trump administration has denied the ITC’s findings, claiming the new free trade agreement would lead to a net gain of 73,000 jobs in the auto sector.
After campaigning on an anti-NAFTA platform, the USMCA is seen as one of the Trump Administration’s crowning achievements by supporters, though detractors suggest that it imperiled the U.S. economy for the better part of a year for very little net benefit.
Ill-advised Investment in Illinois
Winnipeg-based AutoCanada has not seen a return on last year’s nine-figure investment in south-of-the-border auto dealerships.
In April 2018, the firm purchased nine dealerships from an Illinois MSO. To date, none of these facilities have produced any profit for their new owner.
Worse still, according to AutoCanada, the facilities have had exceptionally high running costs—which the company has described as “abnormal.” The total operations costs exceded $45 million.
The company is considering selling at least some of the low-performing dealerships. In a conference call, AutoCanada chairman Paul Anthony suggested a decision would be made before the second anniversary of the sale.
“If we can’t get a dealership into profitability over the course of the next six to 12 months under our leadership, we think it would be better served under different ownership,” Anthony said.
While Canadian businesses with profitable operations in the U.S. look set to benefit from the low value of the loonie, the cost associated with unprofitable ones rises as the loonie falls.
Volkswagen Meets the Volk
When senior Volkswagen AG executives and board members meet with shareholders tomorrow, they are likely to receive an icy reception. An independent corporate government oversight advisory-firm Institutional Shareholder Services has given Volkwagen the lowest possible rating for its corporate government.
In fact, many shareholders are already demanding the German OEM clean up its act after its Porsche subsidiary signed a deal to pay more than half-a-billion dollars for its role in the 2015 emissions test scandal.
The latest bill is just a drop in the bucket, as far as costs resulting from the scandal go. In total, Volkswagen has lost $37 billion as a result of the scandal, which resulted in the arrest of several senior corporate figures, most notably the former chairman Mark Winterkorn.
In May 2018, the U.S. indicted Winterkorn was criminally indicted on charges of fraud and conspiracy related to the emissions scandal. Last month, the Winterkorn was also charged with fraud and breach of trust by Germany’s justice department.
