Canadian Manufacturers Told They Must Adapt

The head of Canadian Manufacturers and Exporters says if manufacturers don't adapt to new strong dollar, they will die.

CANADA (CP) — The country's embattled manufacturers must adapt to the new reality of a strong Canadian dollar by focusing on high-value, specialized products and services or they risk perishing, says the head of the industry's largest association.
The blunt assessment comes as the Canadian dollar hitting at a new 30-year high close of 97.28 cents US, further undercutting the ability of manufacturers to competitively price their products in the United States.
The steep rise in the loonie, coupled with the slowdown in the U.S. economy, is forcing the kind of adjustment in the Canadian manufacturing sector that hasn't been seen since the signing of the Free Trade Agreement with the U.S. in the late 1980s, said Jayson Myers, president of the Canadian Manufacturers and Exporters group.
By most estimates, the sector has shed 250,000 jobs — almost all in Ontario and Quebec — over the past three years.
''Quite frankly, what's happening is companies are closing their production in Canada and shifting production down into the U.S. because there is too much capacity due to the slow-down in the American market,'' he said.
''I think they have to be prepared to compete at parity or higher, and the only way they can do that is to have world-class operations, investing in high-valued products and services and by using the best technology.''
Myers reiterated Finance Minister Jim Flaherty's call on Sunday for businesses to improve productivity and their ability to compete by investing more in high technology.
But the industry spokesman said manufacturers need help to do so because the strong dollar has eaten into profits and cash flow that might have gone to purchases of new technology and equipment.
And he disagreed with Flaherty's claim that the strong dollar has made technology imports cheaper, saying most originate from Japan and Europe and their cost has been largely unaffected.
In a paper it will present to the House finance committee later this fall, the manufacturers' association will ask Flaherty to extend the 21-month window on tax breaks for firms that buy new machinery to at least five years, something the minister said he is willing to consider.
''A lot of companies, especially if they are bringing in customized equipment and technology — especially large, heavy equipment — simply can't get it in place in that time,'' said Myers. ''This would certainly be a big benefit because it goes right to the difficulties manufacturers face.''
The group also is asking the government to reduce the corporate tax rate to 15 percent by 2012, from the current projected reduction to 18.5 percent.
Myers said manufacturers already have begun adapting to the new high dollar reality, as they did in the 1990s when the trade agreement caused a major shake-up in the sector. He noted that manufacturers came out of the difficult adjustment period stronger than they had gone in.
Currency analysts expect the loonie to retreat slightly if the U.S. Federal Reserve Board cuts its key U.S. interest rates Tuesday by only one-quarter of a percentage point, as is widely expected.
A half-point cut by the Fed, however, would make investments in Canada even more attractive and push the loonie closer toward parity with the U.S. currency.
Over the longer term, the loonie will not only reach parity with the American dollar but shoot a few cents beyond, predicted Jonathan Clark of FX Concepts Inc. of New York.
''Canada more and more has traded like the European currencies because Canada has become a bigger player in the international scene and it has very positive fundamentals,'' he said.
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