In the last month, New Flyer Industries announced orders for more than 800 buses over the next five years from its newly acquired Alabama-based bus-maker, North American Bus Industries (NABI).
There is obvious demand for the buses built there and labour costs are about 20 per cent lower in Alabama than in Winnipeg or Minnesota where New Flyer also has production facilities. But that's not necessarily going to convince New Flyer's senior management or board to divert capital investments from Winnipeg to Anniston, Ala.
Labour costs make up only 10 per cent of the cost of making a bus and New Flyer's headquarters and main production facility in Winnipeg has benefited from a revved-up capital-cost allowance program the federal government announced in its last budget would be extended for another two years.
Federal cabinet ministers fanned out across the country on Wednesday reminding manufacturers of the $1.4-billion commitment Ottawa is making to encourage investments by allowing the entire capital cost to be deducted in two years rather than the 12 to 15 years that might otherwise be the case.
Minister of State for Social Development Candice Bergen, the MP for Portage-Lisgar, was at New Flyer's plant on Wednesday with other members of Manitoba's manufacturing sector.
"Investment in equipment and technology makes Canadian businesses more competitive," she said. "When you hear the challenges they have... and where they have manufacturing in the U.S. where lots of the costs are less than in Canada, we have to find ways to encourage them to continue in Canada, to be profitable, create jobs and grow."
David White, New Flyer's executive vice-president of supply management, said the accelerated capital-cost allowance (ACCA) program is helpful and provides an extra incentive to invest in new equipment.
"If you want to be a world-class manufacturer you have to make those investments," White said. "The decision comes down to where you are going to house your centre of excellence. We have invested in Winnipeg as the centre of excellence for this type of manufacturing."
Over the past few years, New Flyer has invested about $10 million in new equipment in Winnipeg and during that time it has bolstered its industry-leading market share in the urban bus market in Canada and the U.S.
"Incentives like the ACCA program become an additional factor to support those investments," he said. "Any time you analyze equipment and decide whether to purchase or not, the financial guys get involved and they want to know what are the cash outlays and what are the benefits. This lets us recover the cash quicker."
The latest manufacturing numbers Statistics Canada released Tuesday underline the significance of an additional two years of incentives to make capital investments.
July manufacturing sales numbers were up slightly from June, but for the year to date, sales are off in Canada and Manitoba this year compared to last year.
Manitoba's shipments were up 1.8 per cent in July -- $1.3 billion versus $1.28 billion in June -- they were still down 3.7 per cent from a year earlier and were running 1.2 per cent behind last year's pace after the first seven months of 2013 -- $9.1 billion versus $9.2 billion. Canada-wide, sales are off by 1.8 per cent this year compared to last.
Ron Koslowsky, vice-president of the Manitoba division of the Canadian Manufacturers and Exporters (CME), agreed first-half sales weren't as strong as hoped.
"There's no question we are still dependent to a large extent on the U.S. market (for export sales)," he said, "although not as much as before."
But most of the companies he's been talking to lately say sales have picked up in the last few months, Koslowsky said, especially for firms focused on producing products that are "meaningfully different" from those being mass-produced in China.
The economic recovery in the U.S. continues to be a work in progress, but Koslowsky said there are signs there will be ongoing improvement there.