Ford Reportedly Looking For $400 Million From Canadian Government As Belts Tighten Across Canada

by Derek Kreindler

June 6th, 2012 10:18 PM

ford reportedly looking for 400 million from canadian government as belts tighten

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.

#Alabama #Capacity #Chrysler #Ford #GeneralMotors #Mexico #Ontario #Production #Tennessee

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6 of 23 comments

Jkross22 on Jun 07, 2012

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

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- NulloModo on Jun 08, 2012
  
  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.
  
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- Carbiz on Jun 08, 2012
  
  @NulloModo 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?
  
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Carbiz on Jun 08, 2012

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.

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- Roland on Jun 08, 2012
  
  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.
  
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- Carbiz on Jun 08, 2012
  
  @Roland 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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