Major studies of the structure of the Canadian economy over the last several decades have highlighted the importance of the automotive industry to this country. The motor vehicle and parts industry employed 219,000 across the country in 2006. The Detroit Three automakers directly employed about 34,100 hourly and salaried workers in 2007 while foreign auto manufacturers employed just under half that number. The size of the auto industry’s economic multiplier is often mentioned in media stories about the industry. The multiplier is sufficiently large that growth or contractions in the industry can be readily observed in statistics on the Canadian economy. While the industry is now largely concentrated in Ontario,
its impact can, nevertheless, be felt throughout the country.
This report estimates the economic impact – in terms of jobs and GDP – of a major contraction involving one or more of the Detroit Three automakers. Two scenarios are presented: first, what would be the impact of the Detroit Three automakers ceasing operations globally and second, what would be the impact from a 50% reduction in overall Detroit Three employment and production. These scenarios, while extreme, are clearly possible and their ramifications need to be understood.
Table 1
The economic consequences of either a partial or total shutdown of the Detroit Three are stark. Either scenario is sufficient to push Ontario into a deep recession while the nation may barely escape one in the 50% Reduction scenario. The initial job losses of between 157,000 and 323,000 (depending on the scenario) quickly rise to between 296,000 and 582,000. The job losses continue to mount after the first year because the weaker economy depresses investment, discourages immigration and puts the breaks on new housing leading to a negative economic spiral that is eventually halted by lower interest rates, a falling Canadian dollar and lower production costs.
As large as these impacts are, it is quite likely that the job losses presented in this analysis are conservative because they ignore any negative impact on exports (outside the auto parts industry) from weaker US and overseas demand arising from the Detroit Three’s failure on their economies and depressed commodity prices. The study also ignored possible negative impacts from: retired auto worker pensions, foreign vehicle producers’ shut-down due to lack of parts, or an even deeper impact on the auto parts industry.
