Alberta Politics
The city of Shanghai. The New China is determined to leapfrog the West (Photo: Carlos Adampol Galindo, Creative Commons).

Thoughts from the road: General Motors, China and Alberta, a new landscape emerges from Monday’s dust

Posted on November 29, 2018, 9:06 am
9 mins

OTTAWA

Now that the dust is settling from Monday’s announcement General Motors Corp.’s last auto assembly plant in Oshawa, Ont., will soon be closed, the emerging landscape is not promising for Alberta.

Leastways, it’s not hopeful from the perspective of an Alberta that has no plan to transition from a single resource-based economy based on a commodity for which demand is projected to decline.

Rhetoric notwithstanding, there’s not much can be done to keep GM Canada’s last Oshawa plant in operation (Photo: Automotive News Canada).

Consider the reason Detroit-based General Motors Corp. gave for its decision to close one of only two auto-assembly plants it operates in Canada. In future, it intends to concentrate on building electric and hybrid gas-electric vehicles, it said.

Of course, small electric vehicles can be bolted together in any GM auto-assembly plant, so that may not be the reason the corporation chose Oshawa and four plants in the United States for its restructuring upheaval. But the important part of this story from Alberta’s perspective is that the direction the company intends to head is clear.

Despite its downsizing, GM remains a huge corporation – and one known for its arrogance. It has seen the future and made up its hive mind to go there. And the future, in GM’s estimation, does not run on petroleum, or nearly as much of it as the present does, at any rate.

We know, of course, that other major globalized automakers like Toyota and Volkswagen, both now bigger than GM, have made much the same judgment.

So the key message in this for Alberta is that whether we like it or not – even if we stamp our feet – the domestic and international market for our oilsands bitumen is likely to decline, probably steeply, and perhaps quite fast.

Someone is sure to remind me at this point that with low retail oil prices in North America, car makers have been moving toward – not away from – larger and less fuel-efficient vehicles.

An all-electric Baojun E100 vehicle manufactured in the city of Liuzhou and now sold only in China (Photo: SAIC-General Motors Corp. Ltd.).

This is true enough in the current model cycle. Automakers have moved to maximize profit from old lines and take advantage of current U.S. policy that is unlikely to survive much past the Trump regime. Just as clear, though, is that GM and other carmakers see the long term and even the medium term differently, and this should be the key takeaway for Alberta.

What’s more, “the Motors” is not for turning – an observation that might apply to the road handling quality of some of its vehicles as well as its business strategy.

GM’s top executives have made up their minds and they are shrugging off the protests of Donald Trump, supposedly the Most Powerful Man on Earth, not to mention those of a cast of characters in Canada that includes Prime Minister Justin Trudeau, Ontario Premier Doug Ford (now pathetically reduced to blaming the NDP provincial government that lost office there 23 years ago for the closing), and Jerry Dias, the president of Unifor, the Oshawa workers’ union.

None of this will make any difference to GM. The company has a history of doing what it pleases without much consideration for national leaders, local economies, or employees.

Nor will anything Mr. Trump says now do much, although the politics of the United States certainly influenced GM’s decision to include a Canadian plant in this week’s industrial carnage.

Given the timing, another important takeaway for Canadians generally is that international “trade” deals like the USMCA will not do much to alter the decisions of globalized corporations on either side of the Medicine Line, or anywhere else for that matter.

Cursory research into General Motors – I’m talking about a one-second Google search – will establish that China is a more important market for the corporation than Canada, and possibly more important even than the United States, notwithstanding GM’s nominal headquarters.

This goes a long way to explain GM executives’ coolly dismissive response to President Trump’s bombastic protests in the face of the company making him look like a charlatan to the voters of Ohio.

Herein lies another unhappy lesson for Alberta.

For what is China doing? It’s pursing a conscious state-directed industrial strategy of not just waiting for the future, but creating it.

China’s goal is to leapfrog its national and regional competitors in Western Europe and North America. In practice, this means a swift move not only into new technology, but toward dominating world markets for such technologies. We have already seen this in China’s swift domination of the manufacture of solar power panels.

So how are we going to retrain Canadian workers in new technologies as their old jobs disappear in the car industry and the oilpatch if China dominates all of those new businesses?

I can tell you one thing: no strategy will work if it is not directed by the state, especially if managing the transition is left to foreign-dominated resource extraction industries like the one in oil and gas. Quasi-theological faith in a market-fundamentalist ideology, and not even 1,000 press releases from the Fraser Institute and its ilk, can change any of this!

It is also already understood that a major popular concern in China is the health impacts pollution – and this means efforts to clean energy technology will likely be a major part of China’s emerging state-directed “Leap Manifesto,” to borrow a term.

How do you think that will affect the market for Alberta’s bitumen shipped through a pipeline to the West Coast?

Even if increasing the supply would result in higher prices as long as we have access to new markets via the pipe, it’s probably not a good sign that the biggest of those new Asian markets is moving as quickly as it can to generate electricity with atoms, running water, sunshine and wind.

To summarize: Alberta faces declining markets for our principal product at home in North America and overseas, and increasing hostility to the planetary environmental impact of our principal industrial activity. As a result, the best market will likely remain the United States, at least until we can develop more domestic upgrading and refining capacity, which will take even longer than building a pipeline.

Increasing the pace of extraction to increase the supply is not a sound strategy.

9 Comments to: Thoughts from the road: General Motors, China and Alberta, a new landscape emerges from Monday’s dust

  1. J.E. Molnar

    November 29th, 2018

    If Canadian and American governments simply cave in and let China and Mexico build the vehicles of the future, without a fight to secure assembly plants in their countries, the result will be a serious decline in manufacturing GDP and the standard of living for the thousands of workers employed in the auto industry.

    North America is responsible for 90 per cent of GM’s global profits and it’s estimated that there are 7-9 spin off jobs that are key to the local economy. The 1965 Auto Pact guaranteed 1:1 ratio of cars sold and built in Canada, protecting workers and plants. The agreement resulted in lower prices and increased production in Canada, creating thousands of jobs and increasing wages. Unfortunately, the Auto Pact was discarded in 2001 after the WTO ruled it was illegal. Like a Phoenix rising from the ashes—perhaps it’s time to resurrect the Auto Pact and discard the WTO and other trade deals that don’t provide a 1:1 ratio of sales/production for Canada. That seems worth fighting for!

    Reply
  2. Political Ranger

    November 29th, 2018

    According to the UN Environment organisation Emissions Gap Report China, India Japan & Russia are all on track to meet their commitments to the Paris agreements. The US and Europe are not.
    So, if we’re going to continue rip-n-ship, then the US is going to be it for us.

    Reply
  3. David

    November 29th, 2018

    I don’t know whether to laugh or cry about GM’s statement about electric and hybrid vehicles, but I think their marketing department is living in a different universe than the rest of the company, you know the one that just cancelled the Volt electric car. I suspect in 10 years GM will still be trying to figure out how to build electric cars, while Toyota and many others will be eating their lunch. No, their statement was just to give a facade of innovation to a company that is in serious danger of becoming the Sears or Polaroid of the auto industry. I don’t doubt that electric and hybrid cars will be the future, I just doubt the future much includes GM. The once great auto company is in a great retreat, particularly bad for those current workers who thought the Oshawa plant offered a permanent secure job – Toyota would have probably been a better choice.

    Here in Alberta we too will have to eventually face up to reality – I get the feeling much of the province is still in the anger and denial stage. I suspect one way or another, enough pipelines will somehow get built to bring the current crisis to an end in a year or two. We probably have a bit more time than those GM workers, but maybe not as much as some think or would want. In the long run concerns about climate change will not go away and Trump will go away, whether that be through removal, retirement or a realization that he may not be re-elected. Heck, that most powerful climate change denier is already into his 70’s, so he will not be around forever.

    I suppose if the GM situation offers any lessons, it is that things are often not as permanent as they seem. The Alberta PC’s learned that lesson in 2014 in a very hard way and were caught by surprise with no real Plan B. Alberta’s energy industry may be the next to learn this.

    Reply
  4. Tana

    November 29th, 2018

    THANK YOU! I really am so tired of the left/right rhetoric that chooses to ignore history and real-world market realities..

    Reply
  5. Sam Gunsch

    November 30th, 2018

    This is a very good summary of the reality of how AB got into this pickle, and what hast to be done to get out: ‘I can tell you one thing: no strategy will work if it is not directed by the state, especially if managing the transition is left to foreign-dominated resource extraction industries like the one in oil and gas. Quasi-theological faith in a market-fundamentalist ideology, and not even 1,000 press releases from the Fraser Institute and its ilk, can change any of this!’

    But the market faith is strong, i.e. the leadership of corporate CEOs on economic policy that has been followed by PC govt’s and a bit less by NDP, but not much, has got us where we are, and good gawd almighty they’ll dig us out.

    Or not.

    Reply
  6. Albertan

    November 30th, 2018

    Agreed….I will be surprised if the TMX addition and Keystone XL pipelines even get built, or whether even the acquisition of $100s of millions worth of rail locomotives and oil tankers even happens. It will take enough time that the impact, again, of the huge change in global oil economics with regard to LOOP on the eastern shore of the USA, will probably come more to the fore of public knowledge. I am reminded again of Premier Peter Lougheed’s ‘principles’ for resource development: “Behave like an owner, Collect your fair share, Save for a rainy day, Add value and Go slow.”

    Quote re: Go slow: “Last but not least, Lougheed often lamented the speed of bitumen development in the province. His motto was ‘one project at a time.’ Over the last decade libertarians rubber stamped more than 100 projects and the gold rush overwhelmed infrastructure, bloated wages, drove up house prices and generally inflated the cost of living. Why bother with a trade or education when a petro job will garner you 10 times the income, asked Lougheed. Knowing the busts invariably follow booms, he viewed overheated growth in the tar sands as a great calamity. Real owners don’t overheat their economies or stress out their communities: they go slow. The architect of Norway’s oil development, Farouk al Kasim, a brilliant Iraqi geologist, cautioned the Norwegians to do the same.”
    Just think what “collecting our fair share” with adequate royalties would have done for perhaps, a few $100 billion in our Heritage Trust fund for jumpstarting investment in renewable technology. That’s what Norway is doing, investing in renewable tech and they are a society that drives the most electric vehicles per capita. Their $1 trillion Sovereign Trust Fund worth, thanks to collecting decent oil and gas industry income would make Lougheed smile. They didn’t charge royalties, but they did charge a fair tax on industry profits while allowing the industry to thrive.
    Now, we need to do the hard work over time to add value to what is left of our industry and investing in the burgeoning global renewable tech revolution.

    Reply
  7. Farmer Brian

    December 1st, 2018

    If you look back 10-15 years ago Germany and Japan were the 2 top producers of solar panels in the world. Today China is number 1 and Taiwan number 2, Japan and Germany produce just a fraction of what they did in the past. In Canada the environmentalists talk about this great new renewable energy revolution where all this money can be made. China took over as the world’s largest solar panel producer because of cheaper electricity, lower labor costs and lax environmental regulations. Canada has at present reasonable electricity prices but much higher labor cost’s and better environmental standards.

    I am always reading about how China is greening its electricity production system and how Canada is not spending enough. If you look at a photovoltaic power potential map and compare China and Canada you will find that China has greater potential than Canada. They also have the benefit of producing all their own hardware and can certainly install and produce solar power much cheaper than Canada. Canada has the third largest oil reserve in the world in the oilsands. I read every day how this production must be curtailed. What I don’t understand is how importing Chinese made solar panels and receiving a government subsidy to install them is a way to a more prosperous future. We have the wealth in the ground and we have developed a lot of the technology to produce it and the world uses 100 million barrels of it a day. The path seems obvious. Enjoy your day.

    Reply
  8. zalm

    December 5th, 2018

    By far your best article David, and most prescient. With your permission, this link will be forwarded again and again….

    Reply
    • David Climenhaga

      December 5th, 2018

      Permission granted. DJC

      Reply

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