Project Transform Alberta: Building a Homegrown Auto Sector
Auto manufacturing in Alberta? It might sound far-fetched, but so did the oil sands, once upon a time
by Michael Ganley
In the years following the First World War, Western Canada was a place of infinite possibilities. War-driven improvements to airplanes and radios were shrinking distances and opening opportunities. An unprecedented decade of increases in the standard of living saw electric lights and indoor plumbing become commonplace. And then there was the rise of the automobile. By 1919, there were 34,000 motor vehicles in Alberta, the Edmonton Exhibition Association replaced horse racing with auto racing at the annual fair, and businessman W.J. Magrath proposed building McLaughlin Buicks under franchise at an Edmonton plant.
Magrath’s plan was simple, audacious and beautiful. He hoped that saving on freight costs would make his Buicks competitive with cars manufactured in the east. He enlisted the help of his brother-in-law, who had experience in a Buick plant, and built two cars in a makeshift workshop. Magrath then organized a high-speed test drive from Edmonton to Leduc to prove the soundness of the vehicles. With provincial police blocking side roads, one of Magrath’s vehicles made the trip in 56 minutes.
It was a triumphant moment for Magrath and for Albertan gumption. It showed a vision and a willingness to take risks. Unfortunately, in this case, it didn’t work out as hoped. Magrath was never able to prove the financial soundness of his plan, and it never got beyond the two vehicles.
What does remain from that time is the average Albertan’s tolerance for risk, their capacity for innovation and their love of getting things done. So how about this for an audacious suggestion? Alberta should pick up where Magrath left off (actually, there have been plenty of relevant developments in the interim) and build its auto sector. But the province is too far from markets, you say. And it would be building from virtually nothing, for we have no advanced manufacturing. And where would the workers come from, anyway?
All good questions, so let’s be clear off the top: if an auto industry is going to develop in Alberta, it would not be on the traditional automotive business model. The province wouldn’t be building another Chrysler minivan in a giant factory. It would be looking to the future of automobiles, not the past. It would plan to use modern materials, new technologies and new manufacturing techniques. It would, in short, be developing a made-in-Alberta solution.
Before envisioning Alberta’s auto industry in detail, it’s helpful to consider what the future might look like in general. How will automobiles be used, where will they go and who will be driving them? One person who has spent much of his professional career thinking about those questions is Axel Meisen, the resident futurist at Alberta Innovates, Technology Futures, a collaborative agency that helps researchers and businesses bring their ideas to market. Meisen spends much of his time contemplating the nature of communities and commerce in the coming decades. He says there is good reason to think that people will continue to want to have automobiles in 40 years. What will be different is how big they are, what they are made of and how they are powered. “It’s quite reasonable, for instance, to believe that the energy source in a vehicle will start to change away from gasoline and diesel and towards electricity,” he says.
There will also be new players. “I would be very surprised if we would not see the emergence of a major Chinese automobile manufacturer on a global scale,” Meisen says. “And I wouldn’t be surprised if we were to see a major manufacturer coming out of Brazil.”
The world’s population is expected to grow apace, reaching upwards of nine billion (from the current seven billion) by 2050. That population will continue to be increasingly concentrated in urban areas, with cities growing not only larger but denser as well. That will mean interest in more and varied forms of public transportation. So-called personal rapid transit, or podcars, will grow in prominence, with perhaps 100 pods for every airport and 1,000 for an average downtown area.
There is also no shortage of predictions that the demand for hydrocarbons – particularly oil – will shrink. Concerns about climate change, the likely move to a price on carbon and the natural evolution of technology all conspire against oil maintaining its place at the top of the energy pyramid. All of these changes could see Alberta’s dominant industry gradually shrink in importance. There will always be demand for hydrocarbons, and new uses for petrochemicals and plastics will develop, but enough to support a growing province? We’d better not count on it.
Finally, Meisen says, the global integration of the economy will continue. Products will be conceived in one place, designed in another and prototyped in a third. Components will be sourced globally and assembled in locations with low labour costs. Emerging markets – Brazil, Russia, India, China and Indonesia – already buy more cars than established markets and their heft will continue to grow.
There might still be giant factories in 2050 employing round-the-clock shifts to turn out two or three different models, but that wouldn’t be Alberta’s part of the market. In fact, it is unlikely to be Canada’s role for long. General Motors, for instance, has confirmed plans to shift production of vehicles for the U.S. market to low-cost producers like China, Mexico and South Korea, and away from high-cost Canada, Australia and Europe.
Instead, the province would be developing and using biomaterials. It would be forging partnerships beyond the American big-three automakers and even beyond the Hondas and Toyotas of the world. “Why don’t we consider making components that have a high energy content,” says Meisen, “like the composite materials that will increasingly see a presence in automobiles? We could also make the glass or whatever the substitute is. Those are materials that use hydrocarbons and are quite energy intensive, and both of these things we have some expertise in.”
Alberta would be after a small part of a giant market. Almost 60 million cars were sold around the world in 2011. In Canada alone, the auto sector accounts for 12 per cent of the country’s manufacturing and employs more than 109,000 people in 1,300 businesses. In 2010, it brought in $68.5 billion in revenues. It’s concentrated in Ontario, which has had the historic advantage of being thrust into the states of the U.S. northeast. Alberta’s entire manufacturing sector pales in comparison. Revenues from 2005 to 2009 averaged $15 billion per year, and the sector employs 49,000 people. More than 80 per cent of firms in the industry employ fewer than 50 people, and most of the business is done in-province.
Alberta’s way into the industry would involve developing a smaller, more nimble and more focused manufacturing sector than current global models. Perhaps the province wouldn’t be doing the final assembly of any vehicles. It would be designing, engineering, prototyping and testing vehicles. “We can have an automotive industry, but we should be looking at 15,000 vehicle units per year as being a high-volume run,” says Nathan Armstrong, whose company, Motive Industries, has designed and prototyped a car from its offices in Calgary. >
“We can make money as a car industry selling 5,000 vehicles per year. You can turn a profit on that.”
This is the second in Alberta Venture’s series of six stories addressing big, bold ideas for this province. The first, “Alberta at 10 Million,” appeared in the November issue. Next up will be a look at Alberta’s role in feeding the world, to appear in April.
Illustration Raymond Biesinger
Armstrong is a veteran of the concept car industry in California. He started Motive Industries there in 2004 to try and move some of the high-tech stuff he’d been working on into production. But his two children developed asthma as a result of the smog (one more reason to go electric) so he moved his family and the business to Calgary, his wife’s hometown, in 2006.
One vision he has is to leave the final assembly in Ontario, which already has the big factories, the supply chains and the labour force. Alberta, or perhaps Western Canada, would focus on design, engineering, prototyping and testing. Armstrong sees a future where engineering and tooling costs have been brought down through processes like computer-assisted design. The industry will be producing a greater variety of designs and getting finished products to market more quickly than has been the case.
Armstrong says a large automaker will spend between $500 million and $700 million on developing the machine tools to make manufactured parts for a vehicle, known in the industry as tooling. Motive spent $200,000 on tooling for its car, the Kestrel (www.kestrelcar.com). “We can produce a car per day indefinitely from that tooling,” he says. “If you want to ramp out 15,000 cars per year, you’re talking about a maximum of $2 million in tooling.”
Armstrong says his company has received a warm reception in Alberta and that a lot of senior government people “tell us they love us and are always talking about us and using our pictures in their presentations.” But so far, there has been little tangible support. “We’ve been trying to get this Kestrel program kicked off, but we haven’t had any support at all from anybody from government,” he says. “It’s been a disappointment, but we still have the opportunity to do this in a way that is future-proof.”
Alberta can build on existing assets. It has strong engineering and design people, stemming from the pioneering research and development work done in the oil patch. Engineering schools at the University of Alberta and the University of Calgary are pumping out thousands of well-trained graduates every decade. NAIT and SAIT also contribute to a well-trained workforce.
The province has loads of energy, of course, and some coking coal, the type that is used in steelmaking. It has the country’s only private vehicle test facility (the Hanna Test Centre). It also has a number of manufacturers that are making vehicles now. Calgary’s Foremost Industries makes a variety of all-terrain wheeled and tracked vehicles. McCoy Corporation manufactures custom trailers. Lehman Trikes in Westlock customizes motorcycles to turn them into three-wheeled vehicles. All small, yes, but all leaders in their fields.
Then again, the coking coal might not be of much use. Cars of the future will likely use far less steel than they do now, and it is in this area that Alberta holds something of a wild card. The Alberta Biomaterials Development Centre (ABDC) in Vegreville has been quietly creating new products from wood, agricultural fibre and other bio-based feedstocks for years. It’s one of the best such programs in the world. And there’s a pretty good chance that a big chunk of the cars of the future – the doors, hood and other panels – will be made from biomaterials. (It’s not a new idea: in 1941, Henry Ford unveiled a car body made primarily from organic fibres). With 25 million acres of cropland and 100 million acres of forests, Alberta has an abundance of feedstocks for biomaterials. Most of that is now exported as commodities, but with new technology, more of it could be processed here, adding value to our raw materials.
The ABDC teamed up with Armstrong to develop the Kestrel, and the car’s body is made primarily of organic fibres. The panels for the Kestrel, which is looking for a partner to take it into production, would be processed and manufactured in Alberta from hemp and/or flax. Among the advantages of these panels are that they’re less manufacturing-intensive, can be sourced locally and are lighter than steel or aluminium. The similarly sized Ford Fusion weighs 3,720 pounds; the Kestrel weighs around 2,500 pounds, increasing fuel efficiency by 25 or 30 per cent. In keeping with the future of cars, the engine would be electric, although the Kestrel is also designed to take on hybrid, fuel cell or compressed natural gas engines.
Perhaps most importantly, in terms of Alberta’s assets, the province has experience with bringing together the three sectors that would be needed to get this off the ground: industry, academia and government. After all, it was not so long ago that getting oil from the oil sands was the stuff of dreamers. But with co-operation and innovation from businesspeople, professors and civil servants, Alberta developed the multibillion-dollar industry that now powers much of the Canadian economy.
The provincial government has a number of roles that it can play. Through public education it ensures Albertans have the necessary skills to be active in these areas. Tax incentives can be used to encourage the development of the high-tech sector. And university labs, supported by government money, can do a lot of the grunt work. The province needs to use what Neil Kaarsemaker, operations director at Canadian Manufacturers & Exporters in Edmonton, calls the market-pull model. “If a company approaches the University of Alberta Faculty of Engineering or Alberta Innovates Tech Futures and says, ‘We see a market in this kind of product but don’t have the money to sink into prototyping and tinkering, but here are some basic designs,’ then the scientists at Alberta Innovates or the university say, ‘Let us work on that,’” says Kaarsemaker. “You take an industry application and make a better mousetrap.”
In the past, research labs have been reluctant to do that because they don’t want to be seen as working for industry. They don’t want to pick winners. But David Lynch, dean of engineering at the University of Alberta, says he and his colleagues are open to the idea. “We are incredible at research, but the innovation occurs in the economy,” he says. “Those that need the innovation and can benefit from it need to be connected to the research, and the researchers need to be connected to those that will translate the research into innovation.”
Alberta does, it must be conceded, have some obstacles in its way. It has a small provincial market. It is landlocked and a long way from the ports that are needed to participate in a global supply chain. And the province’s history of manufacturing tends to be what Jim Rakievich, the CEO of McCoy Corporation, calls high mix, low volume. That is, Albertan companies custom build short-runs, whereas the history of the automobile since the time of Henry Ford has been high volume, low mix. “Maybe we haven’t thought big-picture enough,” Rakievich says. “It just doesn’t seem to be in our DNA at this point in time to build things 10,000 at a time.”
But perhaps that liability can also be viewed as a boon. There isn’t a legacy here that has to be fought against. There isn’t an existing industry set in its ways. Indeed, North America’s electric vehicle manufacturing industry is in its infancy, meaning there’s plenty of opportunity for somebody to fill the void.
As for the lack of labour, it seems it will be with us always. But a continued focus on immigration will help balance the labour market, and Alberta can work smarter. “We can’t beat others on labour costs,” says Lynch. “Productivity will come not through working harder and longer, but through working smarter.” The ever-increasing automation in the high-tech manufacturing sector will also help alleviate the problem.
So perhaps it’s time for Alberta to think big about its future, to make a concerted effort towards economic diversification by breathing new life into the vision of W.J. Magrath. As Armstrong says, there is a future-friendly vision of the automotive industry that Alberta can take advantage of with its endless natural and human assets.