By on June 7, 2012

The Globe and Mail’s Greg Keenan explored an interesting conundrum that Canadian governmental officials are facing; is it worth subsidizing auto industry manufacturing facilities, even with austerity programs in place?

The closure of the Oshawa consolidated line last week brought into focus the issues facing Ontario’s once bouyant auto manufacturing sector. On the one hand, there’s the instinct to preserve the auto plants, and the stable, well-paying jobs that come with them, even if it means “investment” from both the provincial and federal government (at a rate of 15 percent of the total cost from each level of government). But with governments imposing wage freezes and layoffs on public employees, subsidizing profitable private businesses goes beyond just poor optics.

Keenan cites upgrades to Ford’s Oakville plant, which builds vehicles like the Edge and Flex, as having the potential to require a total of $400 million in government money. While the sum is steep, the upgrades would preserve the 2,800 jobs currently at the plant, and allow for a global platform vehicle to be built, increasing the potential for exports beyond the U.S. market.

States like Tennessee and Alabama are courting car companies with what Keenen describes as “… incentives worth hundreds of millions of dollars at auto makers to finance training, infrastructure and real estate purchases and provide tax holidays to land the thousands of jobs created by assembly plants.” Of course, those states tend to have plants that aren’t unionized. Foreign automakers tend to build in the South more than the Big Three, but GM recently moved some production of the Chevrolet Equinox from Oshawa to Tennessee in part because they could pay new hires $14 an hour rather than the $32 an hour paid to Oshawa employees.

High CAW wages and a strong Canadian dollar give the automakers the potential for an easy way out when it comes to packing up and moving their plants elsewhere. Bringing production back to America, at $14 an hour would not only cut costs but provide good optics for American manufacturers. Moving production to Mexico, already a trend among a number of automakers, would provide further costs savings, and if the last generation Ford Fusion is anything to go by, no major drop in quality.

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23 Comments on “Ford Reportedly Looking For $400 Million From Canadian Government As Belts Tighten Across Canada...”


  • avatar
    psarhjinian

    “is it worth subsidizing auto industry manufacturing facilities, even with austerity programs in place?”

    When you have historically low borrowing costs and the risk of recession, austerity is stupid. It’s doubly stupid in a resource-based economy. It’s triply stupid to cut revenues just when it was painfully obvious to everyone and their dog that we were heading into a global recession.

    So, putting aside “worth”, we can safely assume that the stupid choice will be pretty much what the Federal (and to a lesser degree, Ontario provincial) government will do.

    • 0 avatar

      Word.

    • 0 avatar
      don1967

      re: austerity is stupid

      Corporate welfare is stupid. Austerity is the absence of corporate welfare. Therefore, austerity is the absence of stupidity.

      We can do this all day.

    • 0 avatar
      dash riprock

      austerity is stupid

      But spending more than you take in year after year is the opposite of stupid? The Ontario provincial gov’t has a budgeted deficit of $15 billion, add that to the accumulated debt and what are the interest costs alone psar? What positive social programs could be enacted if there wasn’t this huge interest payment each year? Do tell us when you were advocating for austerity in gov’t spending.

  • avatar
    psarhjinian

    “Moving production to Mexico, already a trend among a number of automakers, would provide further costs savings, and if the last generation Ford Fusion is anything to go by, no major drop in quality”

    That’s a bit backhanded. The Fusion is actually up on quality versus it’s predecessors as well as, say, the Mazda6 (same platform, built at Flat Rock).

    I’d say Mexican assembly is a complete non-issue. Even VWs made in Mexico suck just as much as VWs assembled elsewhere.

  • avatar

    It’s going to be ugly.

  • avatar
    Chicago Dude

    It’s the classic Canadian east vs west conundrum. The east needs a weak currency so they can have competitive manufacturing. The west wants a strong currency so they can buy all their oil and gas production materials cheaply and not get hosed when they export a commodity that people will pay any cost to get.

  • avatar
    Gardiner Westbound

    Canada could have the best of both worlds, strong resource and manufacturing sectors, if Ontario were cost-competitive with the southern U.S. states where many of the new auto plants are locating. High taxes, high energy costs and union-friendly labor laws rule it out.

    • 0 avatar
      Sinistermisterman

      Ontario can never be cost-competitive, no matter how hard they try, as long as the strength of the Canadian dollar is dictated by oil prices. Oil goes up, so does the dollar, oil goes down, so does the dollar. Considering that there is going to be more demand and less oil in the future, I don’t ever see the dollar losing strength.

  • avatar
    jimboy

    It has to work both ways. Governments need to stop subsidizing profitable manufacturers, and the unions need a reality check. If Ford can’t open a plant without gov’t help, then obviously it’s a bad business decision, and conversely, “semi-skilled” labour must compete internationally for quality jobs, which means you must compete for them. Seems like a no brainer to me.
    Canadian unionized workers have a history of expecting everyone else to take the pain, but them. Bring those plants west, we’ll take those jobs!

    • 0 avatar
      musiccitymafia

      ‘If Ford can’t open a plant without gov’t help, then obviously it’s a bad business decision”

      Ehhh, what are you talking about? It’s a FACT that governments are ponying up with financial incentives. Only a fool would dismiss this in making business decisions.

  • avatar
    bball40dtw

    Re-open Wixom! Then they can build both a D3/4 CUV and a panther with a 5.0.

  • avatar
    redmondjp

    This is nothing new – PACCAR (parent company of Kenworth, Peterbilt, and other truck companies) pulled this same stunt back in the late 1990s, closing their Canadian assembly plant (during a strike of course), and then getting a boatload of gov’t money to reopen it several years later.

    Maybe they learned this trick from the professional sports leagues, or was it the other way around?

  • avatar
    Darkhorse

    Here we go again! Poorly managed car companies asking for bailouts. Once they’ve had a hit of that they’re addicted.

    • 0 avatar
      musiccitymafia

      It’s a FACT that governments are ponying up with financial incentives. That has become part of the decision game. Don’t blame the OEM’s for playing it … they’ve finally begun thinking straight and acknowledging their worth to society.

  • avatar
    jkross22

    So much for Ford trumpeting the ‘we didn’t take bailout’ line. They are tramps just like the tools at RenCen.

    • 0 avatar
      NulloModo

      This is in no way similar to the ’08 bailouts. Mercedes, BMW, Toyota, Nissan, etc, all have received major financial incentives to build plants in the US south, and likely get similar concessions from local governments in their home markets. Ford surely doesn’t need the $400 million, but since it’s accepted business practice to lobby for incentives to bring thousands of jobs and many times over the initial incentive amount in cashflow to the local economy, it would be stupid not to do it.

      Ford’s Chicago assembly is already set up to make D4 platform vehicles – the Explorer already runs off of the line there. Given the relatively low volume of the Flex and MKT production could probably be shifted to Chicago without much of a problem. Since Mazda is pulling out of the Flat Rock Auto Alliance plant, there would be room to set up a line to produce the Edge and MKX if needed.

      2,800 jobs at an average of $40,000 per year (figured pulled out of my arse, but it doesn’t seem out of place) is $112 million in wages being poured into the local economy every year. If Ford decided to bring a global platform vehicle to Oakville the number of employees, and positive effect on the local economy, would only grow.

      Government revenue is dependent on taxes, whether they be income, property, or sales. The smart decision is to do what needs to be done to entice as many workers as possible into the area so that they can pay those taxes and keep money flowing into the coffers. Any investment now would more than pay for itself in tax revenue over time, and would easily be preferable to suddenly facing declining revenues from reduced property taxes due to declining home values from a mass exodus and unemployment payouts to thousands of people who suddenly no longer have work.

      • 0 avatar
        carbiz

        Recent studies show that since 2001, Ontario has lost 100,000 auto-related jobs. That figure gets lost in the shuffle as Toyota opens a shiny new plant in Woodstock, hiring 900 people, as Ford laid off 2,400.
        The CAW has dug its own grave in terms of credibility, but that does not make ALL their alarmist rants untrue.
        Kia/Hyundai are poised to overtake Honda and Toyota in terms of sales in Canada, yet they don’t build a single thing in Canada. We’ve already seen our net trade surplus evaporate since 2008. Kia/Hyundai’s sales have pretty much doubled since then. Coincidence?

  • avatar
    carbiz

    There are real costs to running a business in the Great White North that go far beyond arguments about socialism or corporate welfare.
    For starters, we have the population of California in a land mass larger than the entire United States. Transportation costs are higher here. Look at the cost of twinning highway 69 north from Toronto: the blasting of rock and filling in of bogs, as compared to an interstate through Pennsylvania or Arizona. Secondly, although southern Ontario may be farther south than the Dakotas or Washington state, we have abysmal weather: 90 degree summer days and 10 degree winters. Cities like Toronto and Montreal can shell out $100M in a bad winter just to move snow around. Atlanta and Nashville don’t face those challenges. Then there’s the lifespan of bridges, roads, etc. I’d wager a sidewalk in Houston lasts forever. In Toronto, the freeze-thaw cycle destroys them in 40 years or so. Or the cost of heating/cooling a factory or warehouse in Toronto or Montreal, as compared to St. Louis or Raleigh.
    I am no fan of unions, but I am not a big fan of free trade or globalization, either. With perhaps the exception of fresh tomatoes in January, Canada is self-sufficient in everything it produces and if not for the petty east-west bickering, we could have closed our borders decades ago and gone our own way.
    We have done well by trading with our Southern neighbors, but Japan Inc threw a monkey wrench into that relationship, and Korea Inc is about to finish it off. Our trade surplus with the U.S. is overshadowed by our trade losses everywhere else. Amongst other financial challenges, Canada carries a huge current account deficit, in no small part thanks to swelling trade deficits in Asia for autos and auto parts.
    Everyone is quick to slay other people’s jobs at the altar of choice, but other than 40 types of patio lanterns to choose from at Wal-Mart at prices my father would have paid 40 years ago, I see no advantages to offshoring everyone else’s jobs.
    Sooner or later, everyone will be working for Chinese wages.

    • 0 avatar
      Roland

      I always wonder whether Canada would have been better off by simply opting out of the whole stupid globalization business, since our only “maximum relative advantage” is in the export of raw materials. In effect, when Canadians chose globalization they chose to abandon over a century of our country’s economic development.

      Yeah, sure, global wage levels will eventually correct themselves once China and India are fairly well developed. I reckon that will be at least 40-50 years from now–and even that’s assuming that no significant world geopolitical conflicts happen in the meantime. Unfortunately, by the time that wage competition has levelled off, the current developed nations will have developed festering class gaps and social unrest. Joy.

      On the other hand, Canada is one of the very few countries in the world that could go for Autarky and do reasonably well. We don’t lack anything important, so there was never any need to base our economy upon foreign trade.

      • 0 avatar
        carbiz

        You really think that Europe/North America (minus Mexico) with a measly billion people and 0 population growth (we even have to import that) can compete with the 3.5 billion in Asia/South Asia that have a birth rate of 3-4%? Do you think their labor market will EVER be saturated?
        Even Brazil, doing as spectacularly as it has been, will never get out of the R%/hr rut until their poor stop popping them out. My spouse is one of 8!
        And the alternative is worse: if the 3.5 billion souls in Asia/South Asia achieve even 50% parity with the West’s standard of living, the planet just cannot sustain that.
        War, disease, famine: pick one, because unless the Rest of the World gets its act together, or we circle the wagons, its gonna get very, very ugly.
        BTW, weren’t those pictures of Putin and the Chinese Premier the other day a cute photo op? That sends more of a chill up my spine than any Freddy movie.


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