‘I’m worried about what’s going on in Canada’: Magna’s CEO concerned about competitiveness

The chief executive of Canada’s largest auto parts manufacturer is concerned that government decisions are putting Ontario’s ability to remain competitive at risk, at the same time that the United States becomes a more attractive market for investment.

Speaking at an annual shareholder meeting, Magna International Inc.’s chief executive Don Walker said initiatives such as Ontario’s cap and trade program, as well as rising electricity costs and new labour legislation are making it increasingly difficult to remain competitive against other jurisdictions that don’t face “all these burdens.” 

“I’m worried about what’s going on in Canada,” Walker told employees and shareholders gathered in Markham, Ont. on Thursday.

“I get very frustrated when I see the decisions being made that put undue administrative costs and inefficiencies on our plants, specifically here in Ontario, because we have to compete… We’re not going to get business if we’re forced to be uncompetitive.” 

Walker specifically pointed to Ontario’s Bill 148 — the Fair Workplaces, Better Jobs Act — as an example of how the government is affecting business competitiveness. While he said Magna has not shifted investment out of Ontario, he added that if competitive advantages such as the low dollar disappear, “I think we’re going to be in trouble.” Magna has its headquarters and dozens of plants in Ontario.

The company’s chief financial officer Vincent Galifi said the U.S. has become an increasingly attractive jurisdiction for investment because of its more competitive tax system. 

“If I look at after-tax returns, the U.S. now has an advantage,” he said. 

“So if we have two equal projects — ‘jurisdiction a’ and ‘jurisdiction b’ — and in ‘jurisdiction b’ I get more after-tax dollars, that’s where we’re going start to allocate more dollars… we have to think about what the tax burden is on companies operating in Canada.” 

Walker also warned that significant changes to automotive provisions in NAFTA, including raising Mexican wages, could lead to a loss of jobs and shifting production outside of North America. 

Canada’s Foreign Affairs Minister Chrystia Freeland echoed Walker’s sentiments a day earlier, voicing concerns that some of the rules being considered in the NAFTA negotiations could potentially damage the auto industry.

The latest U.S. proposal demands that 75 per cent of every car use North American parts, that 70 per cent of all steel be North American, and that 40 per cent of every car be built by workers making $16 per hour. 

Walker said significantly raising wages in Mexico could end up pushing investment outside of NAFTA and into China. 

“If we drove labour for everything in Mexico up, even doubled it, that means you’re not competitive anymore and a lot of products, it all goes back to China,” he said. 

“It would be very disruptive to everybody that’s doing operations down there, and we would lose the jobs out of (the NAFTA region) and drive the price of cars up a lot, which means consumers pay more.” 

Freeland said Thursday that progress has been made on NAFTA negotiations this week, although discussions have been largely preoccupied with the issue of autos, one of the most contentious since talks began. 

Magna also released its first-quarter results on Thursday, raising its year-end guidance as it reported record sales of $10.8 billion, up 21 per cent from a year earlier. The company’s net income hit $660 million, or $1.83 per share, up from $577 million, or $1.51, at the same time last year. 

With files from the Canadian Press