Ottawa, South Korea in talks to bring auto manufacturing to Canada: sources

Canada has signed an MOU with South Korea that includes discussions on bringing their auto manufacturing to Canada.

The federal government has signed a memorandum of understanding (MOU) with the Republic of Korea that includes discussions to bring auto manufacturing to Canada, two sources told CTV News.

The MOU, which is not binding, calls for closer industrial cooperation on the “future of mobility” –including talks on the auto sector – and was signed by Industry Minister Melanie Joly and her South Korean counterpart, Minister Jung-Kwan Kim, after they met in Ottawa on Tuesday.

CTV News is not identifying the sources because they were not authorized to speak publicly on the matter.

Hyundai representatives, along with Hanwha Ocean – a competitor to supply Canada’s next generation of submarines – were part of South Korean delegation.

• Canada subs: South Korea maker signs deal with Algoma Steel

The talks, which are in early stages, involve the possibility of manufacturing vehicles or auto parts and batteries. Discussions stemmed from South Korea’s push to win the contract to replace Canada’s aging fleet of submarines.

On Monday, both Hyundai and Hanwha officials were part of a Canada-Korea auto forum in Toronto hosted by South Korea’s chief trade envoy. At that time, several Canadian auto executives pitched Hyundai about moving some manufacturing to Canada.

Flavio Volpe, the president of the Automotive Parts Manufacturer’s Association (APMA), says he made a pitch to the Korean delegation to make electric vehicles in Ontario.

“Today the business case is there to build a plant here in Canada, perhaps making electric vehicles… and to build where they sell.”

Volpe said Korean automakers now own about 12 per cent of the Canadian market, with steady annual growth.

The APMA president says this is an opportune time for the federal government to use defence investments as a tool to strengthen the auto industry.

“Canada is interested in buying submarines and there are two healthy bidders. And both of those healthy bidders have automakers that sell a lot of cars here and sell batteries here,” Volpe said.

He notes the two countries – South Korea and Germany – vying for the lucrative submarine contract, may see a future in making additional investments on Canadian soil.

Hyundai and Hanwha have joined forces to win defence contracts worldwide, including the bid to build and maintain 12 conventional submarines for the Royal Canadian Navy. Multiple sources have told CTV News that the contract could be valued at about $100 billion over 30 to 40 years.

German warship builder, TKMS, is the other company shortlisted by the federal government to replace Canada’s aging fleet.

As part of its criteria, the federal government has asked the two submarine competitors to boost industrial benefits in hard hit sectors such as the auto, steel and aluminum industries.

“The prime minister and the government have asked potential suppliers to invest in the country, to leave something behind that is substantial,” said Glenn Copeland, the CEO of Hanwha Canada in an interview with CTV News.

On Monday, on the periphery of the South Korean-led auto forum, Hanwha announced that it had signed five more MOUs with Canadian partners with the intention of using their technology or products in the building of submarines, should they win the federal contract.

One of the pledges included an agreement with Algoma to contribute $275 million towards the construction of a new structural steel beam mill in Sault Ste. Marie, Ont. The mill currently does not have the capacity to manufacture large steel beams essential to use as frameworks in large projects such as warehouses, skyscrapers and bridges.

Hanwha said it would commit another $70 million to buying steel from Algoma for use in its submarine construction and the development maintenance facilities planned in Nova Scotia and British Columbia.

As part of the MOU, Algoma Steel would agree to make annual payments to Hanwha for ten years, equivalent to 3 per cent of its net sales.

In December, Algoma issued layoff notices to 1,000 employees, one third of its workforce. Officials say the building of a steel beam mill could bring back some of jobs.

In it push to replace Canada’s submarine fleet, Hanwha says it has signed MOUs with 21 Canadian companies so far and says it has several more deals in the works. The company says an analysis by accounting firm KPMG shows that Hanwha’s submarine partnerships could generate an estimated 15,000 jobs in Canada.

“I think we’re very well positioned to get the (sub) contract,” says Copeland, who was just announced as Hanwha’s new Canadian CEO two weeks ago.

The former Royal Canadian Navy officer says Hanwha is committed to becoming a bigger player in the Canadian defence sector over the long term.

In February, the South Korean company will open an office in Ottawa.

“Hanwha sees opportunity here in Canada, whether its land, air or sea… they’re well matched for what Canada is looking for to increase their operational capability for the Canadian Armed Forces,” Copeland said.

Canada has committed to spending 5 per cent of its GDP on defence by 2035 as part of its membership in NATO. Prime Minister Mark Carney has said the increase in military spending will cost the government an estimated $150 billion annually.