Canadian Toolmakers Target Defense Sector to Offset Trade-War Losses
Tool-and-die manufacturers in this country are seeking opportunities in Canada’s growing defence industry as business in their major markets stalls amid a worsening trade war with the United States.
The automotive, steel and aluminum sectors have been especially hard hit by U.S. tariffs, and tooling companies rely upon inputs such as steel to make their products and sectors such as automotive or consumer goods to buy them.
The levies range from 15 to 50 per cent and the consequent rising cost of doing business is forcing many to look elsewhere for new lines of work.
In particular, they’re turning to a growing sector that’s seemingly flush with federal funds and already has a well-established presence in areas such as Southern Ontario through major contractors such as defence company General Dynamics Land Systems (GDLS), which builds military vehicles.
“With this big spend and promise from the federal government in military and defence, everybody’s looking at it as an option and saying, ‘Okay, where do I fit in?’” said Louis Jahn, president of the Canadian Tooling and Machining Association.
Some of his members are already selling into defence and others aren’t interested in making the transition, he said. But for those feeling the effects of business uncertainty in the U.S. and Canada since early last year, the idea of tapping into an industry in which Ottawa is committing consistent spending over the next decade is a relatively easy sell.
The federal government recognizes the opportunity and need for industry to transition if Ottawa is going to achieve a domestic defence supply chain. At an event earlier this summer in Oldcastle, Ont., Defence Minister David McGuinty stepped in to help play matchmaker between major defence contractors, often called primes, and the tool, die and mould (TDM) industry.
He delivered a keynote address at a breakfast gathering, which was held by the Windsor Essex Chamber of Commerce and the Canadian Tooling and Machining Association.
With him, Mr. McGuinty said, he brought several primes, including GDLS, Boeing BA-N , Bombardier BBD-B-T, CAE CAE-T and GM Defense.
“I said, ‘Okay, primes, meet TDM executives and employees and labour reps. You folks in the audience, meet the primes. Now, when I finish talking, you’re going to go into a room together, and you’re going to tell each other what it is you can do,’” he told The Globe and Mail in an interview.
These connections are key, said Chris Hergott, vice-president of operations and co-owner of XL Tool Inc. based in Kitchener, Ont., particularly since one of the hardest parts of breaking into the defence sector is relationship building.
XL Tool started working on getting its foot in the defence door about two years ago. It was part of a plan to ensure the business, which is currently about 40 per cent automotive tooling and 60 per cent other tooling for industries such as energy, stays resilient in a changing market. Around 15 years ago, XL began selling into the nuclear sector with the same mindset, Mr. Hergott said. “We’re always in a growth mode.”
But just like it took five to eight years before the company began seeing real benefits out of its nuclear work, breaking into defence will take time, he said.
“It’s a long, tedious road. If you think you’re just going to turn off the automotive switch and hit the defence switch, it doesn’t work like that.”
Two years ago, Mr. Hergott began this effort by registering XL Tool with Ottawa’s Controlled Goods Program (CGP), so it could examine, possess or transfer components and technical data with military or national-security significance that are controlled by the federal government.
Today, he continues this work by attending defence trade shows and speaking to as many people as possible about what XL has to offer. “I’m hopefully optimistic,” he said.
Parsing out a way into the defence market is a big part of Chris Vander Park’s day, too, as international business development manager at Cavalier Tool and Manufacturing Ltd. in Windsor, Ont. His business is only about 15 per cent automotive but almost all of it is heavily intertwined with the U.S.
Mr. Vander Park is also working on getting his business approved with the CGP and he hired a consultant six months ago to help him understand the defence space. He’s even put together a whole presentation on Cavalier’s “defence readiness.”
From a technical standpoint, Mr. Vander Park and Mr. Hergott said they have the machinery and skilled work force to make the transition work. That’s not the hard part. It’s gaining the trust of and being recognized by a whole new customer base that poses the real challenge.
Plus, while defence is a market worthy of these manufacturers’ attention, Mr. Jahn, of the Canadian Tooling and Machining Association, said it won’t be enough to fill the rift left in their order books from a stalled automotive sector.
His member companies are used to making 16-to-18-million units a year for that industry. Defence doesn’t demand the same volume, and its government customers move at a much slower pace when it comes to purchasing.
“The auto industry, it’s big. It’s huge. It’s multibillions every single year,” Mr. Jahn said.
“So, are you able to backfill that amount of sales? The answer in most cases is ‘no.’ But you’ll still try.”
This article was first reported by The Globe and Mail
