Produced by
Massive battery plant investments support vast supplier network and world-leading workforce
Stop people on any street anywhere and ask them to name the world’s top auto-making centers. You can expect to hear “Detroit, Nagoya, Wolfsburg” – and other hometowns of the world’s leading brands. The one name you are least likely to hear is “Ontario.”
But Canada’s most populous province (16m people) is the only state, province or prefecture anywhere with major assembly plants of five global brands – the Detroit Three plus Toyota and Honda – that make Ontario a motor vehicle producer second only to Michigan in North America.
Ever since the 1920s Ontario has been the quiet giant of the global industry, with a strong hand of locational assets, an extensive network of suppliers, a deep reservoir of skilled labour and a healthcare system that does not burden manufacturing.
Still, the value of these advantages has always been balanced against the terms of trade: tariffs on exports to the U.S. and elsewhere, exchange rates between Canadian and U.S. dollars, protectionist sentiments and, more recently, low Mexican wages.
Terms-of-trade headwinds and declining fortunes at GM, Ford and Chrysler (now Stellantis) put Ontario on the back foot in recent decades as several plants closed or scaled back.
Now though, the governments of Ontario and Canada are moving aggressively to secure the industry’s future in the EV age with billions of dollars in investments to attract massive battery plants by Stellantis/LG, Volkswagen and Honda, plus related plants by Asahi Kasei among others.
While these government initiatives are a gamble for sure, doing nothing would likewise be a gamble on the survival of an industry that directly employs 104,000 Ontarians and generates $11 billion in GDP.
Success or failure will likely ride on the underlying strength of Ontario’s hand of cards, that starts with…
From the get-go, Ontario’s locational advantage has been its proximity to Detroit. Henry Ford’s massive, iconic Rouge complex and GM’s Ren Center HQ are both a stone’s throw across the Detroit River from Windsor, Ontario.
Ontario’s auto industry is tightly focused on the 400-kilometre Highway 401 corridor from the Detroit frontier to GM’s massive Oshawa complex 50 kilometres east of Toronto. A long-time rule of thumb among suppliers held that any location more than 10 kilometres off the 401 was risky. Indeed, auto plants in Canada beyond the corridor have rarely lasted long.
What is more, in the 1980s this tight geographic focus went from ‘useful’ to ‘critical’ as the industry shifted to production methods that bring together the 30,000 or more parts that go into each car ‘just-in-time.’
Ontario’s historic advantage as Detroit’s neighbour was amplified by having just what Detroit needed, just when it was needed – right after WWI.
Before 1914, the province’s economy was still mainly agriculture and resource-based. But over the following four years, metal-bashing industries proliferated across Ontario, fed by inputs imported from the U.S. (which was neutral until 1917). When the war ended, Ontario was left with a large pool of skilled labour and sizable industrial capacity… just as Detroit automakers were gearing up to meet huge demand in the ‘Roaring ’20s.’
Alarmed at the prospect of a wave of imports, Canada, slapped a 35% tariff on U.S.-built cars. Ironically though, as Canadian-made cars had preferential tariff access across the British Empire, this combination motivated Detroit makers to build branch plants in Ontario. So, by the end of the 1920s, Canada was the world’s second-largest vehicle producer.
Over the following three decades Ontario’s automotive fortunes seesawed through Depression, war (another massive wave of industrialization) and post-war boom. But even in the good times, lack of assured access to the U.S. market made prosperity fragile.
It was not until the mid-1960s that Ontario’s industry achieved long-term stability, thanks to two momentous developments. First was the 1965 U.S.-Canada auto pact that essentially created an automotive free-trade zone (underpinned by a commitment by U.S. makers to build as many cars in Canada as they sold). The second was Canada’s 1966 Medical Care Act that ushered in universal health care and severed the link between employment and medical care.
Canada went universal just as Detroit’s automakers were signing generous healthcare deals in the U.S with the United Auto Workers. But what the employers never bargained for was massive increases in pharma costs and costly new treatments for things like erectile dysfunction.
This creates a crucial advantage over U.S. competitors: employer healthcare contributions in Ontario are on average only a third of what U.S. employers pay.
It being doubtful whether anyone calculates locational advantages with sharper pencils than Japan’s automakers, the 1980s decisions by Honda and Toyota to locate plants in Ontario massively affirmed the province’s competitive strength. After all, north of the border there was no Japan-bashing senator or congressman to appease.
“Decisions by Honda and Toyota to locate plants in Ontario massively affirmed the province’s competitive strengths”
Today, on a massive 890-acre site at Alliston near Barrie, Honda has an engine plant and two assembly plants. And Honda will soon (see page 14) start building a massive EV battery and assembly complex next door.
Toyota meanwhile has two manufacturing complexes west of Toronto, one at Cambridge (with two assembly plants), the other at Woodstock. Toyota is now Canada’s largest automaker with capacity to build 500,000 cars per year.
While the province has proven itself as a place to produce at competitive cost, what both Japanese automakers have found is that Ontario offers a workforce able to consistently deliver the world’s top level of quality.
“Japanese automakers have found that Ontario offers a workforce able to consistently deliver the world’s top level of quality”
Toyota’s Cambridge South plant – the first outside Japan to earn a Lexus production mandate – is tied with a plant in Japan as the top-quality producer in the Toyota world. Honda similarly ranks Alliston among the top plants in its global system. The workforce at Ontario’s Detroit Three plants are no slouches either, leading U.S. plants in metrics like low rates of absenteeism.
On top of all these charms, Canada’s Loonie has been undervalued versus the U.S. dollar for decades. But none of it has been enough to stem the southward flow of manufacturing to union-free Southern states and ultra-low-cost Mexico. That has meant the closure of assembly plants like Ford Talbotville, the scaling back of GM’s giant Oshawa Autoplex and the inability to attract other brands to Ontario.
For several years that cast a pall over the economies of Southwestern Ontario cities like London and Windsor. But in recent years Ontario and Canada have started to fight back with investments aimed at securing the region’s automotive future.
The first initiative aims to break a bottleneck that has for decades constrained an estimated 30% of the U.S.$1.3 trillion volume of cross-border trade. Until now, the only truck link between Windsor and Detroit has been the aging 4-lane Ambassador Bridge. Its private American owner blocked every effort to build a new crossing until 2012 when Ontario and Canada stepped in to pick up the entire tab. Now pegged at U.S.$6.3 billion, both sides of the 6-lane Gordie Howe Bridge were recently joined. Named after a much-loved Canadian hockey player for the Detroit Red Wings, the critical artery is slated to open in September 2025.
The second broad initiative aims to counter an existential threat to Canada’s auto-making future. The coming shift to EVs will radically reorder the locational logic of manufacturing, potentially decimating the industry in established producing areas. Even places that find a new niche in EVs will suffer the loss of industries that produce parts like engine blocks, gas tanks, exhaust systems and more.
So far, the shift to EVs has been slow. But once batteries with decent performance (say, 500-km range) cost less than all those parts EVs don’t need, the shift is expected to become a landslide.
Which producing regions will be left standing? The ones with battery plants, or so the governments of Ontario and Canada are betting, having offered Stellantis/LG, Volkswagen and Honda multi-billion-dollar incentive packages to support $43 billion in new plant investments. Quebec and Canada have meanwhile offered Sweden’s Northvolt similar support for a plant near Montreal. Although actual amounts (comprising tax credits, investments and infrastructure) have not been disclosed, they are said to be in line with incentives offered in the U.S. under the Inflation Reduction Act. Had Canada not at least matched these it would have been left out.
“Government support seals the deal,” says Christian Howes, Ontario’s trade & investment representative in Japan, “but only if it comes on top of many other key criteria.”
One crucial factor is a carbon-neutral production system – which means no coal powering the plant. With its massive hydro resources, Quebec is the ace in green electricity. But with its mix of nuclear, hydro and renewables Ontario is green enough to pass.
Access to minerals crucial to EV batteries is another key consideration. On this score, Ontario produces a variety of essential minerals, including lithium, nickel, copper, cobalt and platinum. These assets are on top of Ontario’s proven time-tested edge: a workforce that delivers the world’s top quality at competitive rates.
Can these incentives secure Canada’s historic role in the auto industry? Are they worth the gamble? On the other hand, can the nation risk losing its largest manufacturing industry?
