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Friday, November 29, 2013

Vander Doelen: Windsor’s $1-Billion Baby

The Windsor Star/Chris Vander Doelen

Another powerful wave of growth is about to wash through the automotive world, an annual workshop for Windsor’s tooling industry heard this week. Too bad most of it is outside Canada.

The world’s automakers are nearly all experiencing capacity issues, are short of skilled trades people, and facing a desperate need to build new assembly plants.

But none of them are going to be in Canada; not a chance. Mexico saw $8 billion in assembly investment over the past 24 months and will also likely get the first Hyundai/Kia plant in North America, the annual Export Development Canada conference was told.

The silver lining for Canada is, Ontario’s $1-billion-plus share of the high-value machine tooling industry – nearly all of which is located in Windsor and Essex County – will remain strong through it all.

With dozens upon dozens of new vehicles in the development pipeline at all of the world’s major carmakers – GM alone is launching 11 all-new vehicles this year and 11 more next year – the world’s mould and die-making industry is currently riding a “high tide,” about 200 local tool shop owners and managers heard.

Craig Wiggins, a former EDC banker and consultant to the tooling industry who secures capital on both sides of the Windsor-Detroit border, predicts the wave will remain high through all of 2014 and early 2015 at a peak reaching $14 billion a year before falling into a bit of a trough of only $8 billion by 2016.

But even that low point will be clover for the region’s machine, tool, die and mould companies, Wiggins says, compared to the nuclear wasteland that followed the Detroit bankruptcies five years ago.

“We’re going to have a pretty good run,” he told MTDM executives at the Caboto Club.

This Christmas could be especially good for the Windsor-area companies because much of the tooling for two of the world’s most expensive vehicle launches, the GMC Yukon and Chevy Tahoe, was done here, and payments worth hundreds of millions could soon be rolling into local corporate coffers.

“So it could be a good Christmas here,” Wiggins said.

The MTDM industry produces the tools, dies and moulds that make nearly every one of the 3,000 parts on a modern vehicle. Fifteen hundred of those parts are things “that nobody ever sees, feels, touches or cares about,” says Laurie Harbour, president and founder of Michigan-based automotive consultants Harbour Results Inc.

Each tool costs from $5,000 for a simple small metal part die to $1 million or more for a front fascia mould for a plastic bumper cover. And some vehicles have as many as three or four different fascia for different trim levels.

Currently there are 42 vehicle launches working their way through the industry “like an elephant through a python,” Harbour says, employing about 75,000 people in eastern North America. She estimates the MTDM’s total sector employment at 187,500 when spinoff jobs are counted.

Tooling losses to China have mostly stopped because of rising wages there and shipping and service delays.

And the German Big Three have finally decided that North American toolers are good enough for them and have started sourcing work here. Hyundai/Kia remain the only OEM that doesn’t buy a single tool in North America. Yet.

The industry is an anomaly, Wiggins says: it’s the only continental industry completely dominated by Canada. Four of the top five top companies are in Ontario, and three of which are Windsor-based: Integrity, Concours, and Active Burgess. Counting Omega Tool and Husky of Bolton, Ont., five of the top 10 are Canadian.

Among the predictions the EDC conference heard this year:

  • The agency’s economists believe the Canadian dollar, “which is basically a  petro-currency now,” says EDC economist Hendrik Brakel, will remain relatively high at 96 cents in 2014, dropping to the US 94 cent range in following years. That’s if the Iran situation remains stable and the price of oil continues to drop;
  • Nissan will shortly pass either Ford or Chrysler/Fiat for having more nameplates on the road. It currently has 18 and is heading for 20;
  • Automakers used to redesign their vehicles every 6.3 years. Since the bankruptcy that’s dropped to every five years;
  • Honda will soon be bringing more tooling to North America from Japan, and will be looking for local partners to make it;
  • GM, which has 37 nameplates, now redesigns, refreshes or otherwise “touches” every one of them every three years, Wiggins says. Each touch means new tooling. There will be 42 “tooling events” worth tens of millions each in 2014;
  • Despite having fewer brands and fewer nameplates since the bankruptcy, OEM spending on new tooling has risen 35 per cent due to the re-design speed-up;
  • There are only 125 tooling companies of consequence in Canada, 625 in the U.S., and 100 in China. These are the ones large enough “to grow with the industry,” Harbour says.
  • Sending tooling work to China now saves an OEM only 10 per cent, Harbour says, which is why outsourcing to there is drying up.
  • “All the Germans and the Japanese know there is a capacity problem coming,” Harbour told the group.
  • Wiggins said most Canadian tool makers will not expand their floor space to grab more work during the continuing boom because they got burned during previous bust cycles. None want to over-extend to buy market share.

 

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