GM Canada’s near-billion dollar R&D investment has appeal, lacks action
Analysts say $850-million won’t make impact in the near future
Research & Development
General Motors of Canada
recovery in auto sector
GM Canada’s $850-million research and development (R&D) investment looks good on paper but lacks the punch that will have an immediate impact on the industry, according to analysts.
The reworked Oshawa, Ont.-based manufacturer announced the investment in R&D in light-weighting materials, mechatronics, software and communications, which it says will provide long-term benefits not only to GM, but the Canadian auto sector at large.
Coming on the heels of Toyota’s announcement that it plans to invest $100-million in expanding Lexus production at the company’s Cambridge, Ont., assembly plant—creating approximately 400 jobs—GM’s investment announcement delivers on bailout promises but lacks the tangible content of its Japanese rival’s, according to one industry expert.
“They said that they were spending $100-million at their facility to create an additional 400 jobs and so it’s much more tangible in that sense,” said Carlos Gomes, senior economist with Scotiabank. “The funds are obviously much greater that are being invested by General Motors (but) it’s all in terms of future research.”
The investment—set to roll out through at least 2016—comes after the Canadian and Ontario governments offered up more than $10-billion in bailout money to the automaker in 2009 as it struggled to keep its head above water during the recession.
But while the one-time powerhouse auto sector clamors for cash and jobs, another analyst said she doesn’t anticipate an immediate impact on the working man in the short term.
“It’s good for GM in Canada from a white collar perspective because at this point (the) announcement doesn’t have anything to do with the manufacturing processes that are going on in Canada right now,” said Tracy Handler, senior analyst specializing in North American auto production with IHS.
According to Handler, the investment can be viewed as an act of kindliness, in a sense, as GM looks to continue its restructuring and figure out how much of a role Canada will play in the company’s future.
“Right now I think that this announcement of at least putting some money into Canada in R&D is partially for goodwill,” she said. “GM definitely needs Canada long-term but probably in a smaller footprint than they’ve had over the past few years.”
Looking to the future, the investment does boast benefits, but Gomes said it lacks the palpable results to make a big splash.
“I think longer-term it does bring some advantages because they’re continuing to develop their expertise in technology on light-weight materials, etc.,” said Gomes. “There will be benefits (but) the only issue is that there isn’t anything that’s concrete in terms of possible implications for the industry.”
The biggest problem facing the automaker, according to Handler, is its storied history of building big vehicles for a market looking to get smaller.
“The cars sold here are getting smaller and it’s always been hard for GM to build small cars in North America,” she said. “As that footprint in their car size gets smaller they really have to look at where they can build the small car profitably.”
But with government mandates on fuel efficiency coming into play, Gomes said the investment is a step in the right direction for GM and the Canadian industry.
“I think it’s a step in the right direction,” he said. “The reality is that with the new mandates that are being put on the industry by government in order to improve fuel efficiency that the additional use of light-weight products is going to become increasingly important as we go forward.”