Canadian Auto Sector "Uniquely, Consistently Profitable," CAW Report Shows

April 13, 2009, 9:30 AM EST


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A new study from the Canadian Auto Workers union confirms that Canada's automotive manufacturing industry has been uniquely and strongly profitable in recent decades.  While the industry is financially fragile at present in the wake of the global credit freeze and the resulting temporary collapse in vehicle sales, its long-run economic record indicates that the sector has been a lucrative component of Canada's economy.

The report reviews the longer-term financial performance of automotive manufacturing in Canada, dating back to 1972, and continuing through to 2007 (the latest year for which industry-wide profitability data is available from Statistics Canada, and the last year prior to the onset of the global credit freeze).  Summary data is also presented regarding the profitability of the Canadian arms of General Motors and Chrysler (the two companies which face the most urgent financial challenges).
 
On an industry-wide basis, automotive manufacturing has generated positive net after-tax income in every year but one since 1972.  Adjusted for inflation (and stated in 2008 constant-dollar terms), the auto manufacturing industry generated cumulative net after-tax profits in excess of $100 billion during that time.  That makes the auto sector far more profitable, in the long-run, than other sectors of heavy industry in Canada (including primary metal industries, metal fabrication and machinery, chemical products, electrical products, and aerospace).

The Canadian arms of GM and Chrysler were profitable in most of those years, as well.  Based on a combination of public and estimated data, GM Canada's cumulative profits over the same period (again expressed in 2008 constant dollar terms) exceeded $30 billion.  Chrysler Canada (which through this period was a much smaller company) earned cumulative profits of $5 billion. 

According to the study's author, CAW Economist Jim Stanford, this historical record of profitability provides important context to current discussions regarding so-called "legacy costs" in the auto industry.  "Today's retired autoworkers are the ones who provided the real economic foundation for the long-term financial success that this industry has enjoyed for several decades.  Their work produced the value-added which created the profits which GM, Chrysler, and other auto manufacturers enjoyed almost every single year for the past 35 years."

CAW President Ken Lewenza said that the profitability data confirms that today's retired autoworkers should not have to pay for the current crisis.  "It's an incredible injustice to imagine that the workers who created over $100 billion in profit, which the corporations and their owners happily pocketed for decades, should now face the loss of pensions and benefits because of a financial and industrial crisis they did not create," said Lewenza.

What analysts term "legacy costs" (the continuing expense for pensions and health benefits for retirees) are in fact deferred compensation for the work which underwrote decades of sustained, lucrative profitability, Stanford argues in the report. That work was completed on the basis of a compensation contract which included promises of pension and health benefits to be paid after the workers retired.

The full 10-page report is available at: http://www.caw.ca/en/7310.htm
 

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