Uncertainty lingers over Chrysler's fate in Canada

Canadian taxpayers may be off the hook for the moment, after Chrysler withdrew its multimillion-dollar requests for financial help from Ottawa and Queen's Park, but CEO Sergio Marchionne has served notice he thinks politicians still need to do what they can to ensure Canada remains competitive in a "borderless" economy.

Marchionne had made a very public play for fiscal assistance as the automotive giant considers a $3.6-billion investment at plants in Brampton and Windsor, Ont., but the auto giant pulledthe requests this week, suggesting that the projects were being used as a "political football" that was unnecessary, ill-advised and ultimately of no benefit to the company.

Chrysler announced Tuesday that it will continue to build its popular minivan in Windsor, but says it will use its own resources to fund whatever capital requirements it needs at its Ontario operations.

And that plan in ways leaves more questions than answers about Chrysler's fate in Canada.

"First of all, will they at some point come back to the table and work something out with the province, and secondly, if they don't, what does the future of these plants hold once the next contract negotiation comes up with Unifor[in 2016]?" asksMike Moffatt, an assistant professor of business, economics and public policy at the Ivey Business School at Western University in London, Ont.

"I wouldn't take [the] announcement to say Chrysler's going away from Canada or dead in Canada. They very well may have a strong future here, but it's not clear what that future looks like, in particular what that future looks like after the next round of contract negotiations."

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In withdrawing the request, Chrysler also seems to be firing another economic shot across the bow for politicians, suggesting its investment decisions will be driven by how competitive Canada is in both a North American economyand a "borderless" global economy.

"It is my sincere hope that all stakeholders involved commit to do what they can to preserve the competitiveness of the country, and in particular the province of Ontario,"Marchionnesaid in a release Tuesday.

"We will do what we can to preserve and nurture the competitiveness of our operations, but we reserve the right, as it true for all global manufacturers, to reassess our position as conditions change."

Going elsewhere

That means the possibility of ultimately deciding to put investment elsewhere, an understanding or fear that had also lurked under the company's request for federal and provincial support.

"Others are looking for Chrysler to bring that investmentto their jurisdictions and they are willing to come up with a goodly amount of incentives, so Canada does have to be competitive if Canada wants to attract that Chrysler investment," says TonyFaria, director of the office of automotive and vehicle research at theOdetteSchool of Business at the University of Windsor.

"Chrysler does have the option of moving their operations someplace else."

Chrysler's request and the subsequent withdrawal comeat a sensitive time for the Canadian automotive industry.

While vehicle manufacturing has been on a bit of an upswing since the dark days of the 2008-09 economic slump, there's no denying that Canadian production has generally been in decline compared with elsewhere in North America over the past 15 years.

The southern U.S. and Mexico, flush with incentives, generally lower labour costs and aggressive drives to lure investment, have proven particularly attractive for automakers.

"If it comes down to who has the lowest labour costs, it's simply a fight that we're never going to win," says Moffatt.

"What Canadaoffers is a combination of high-skilled [workers], high knowledge, experience dealing with the supply chains. We have a lot of the existing infrastructure here."

'Not the favoured jurisdiction'

For whatever advantages Canada can tout, much of the recent auto investment has gone elsewhere

In dollar terms, Faria says, Canada has received just four per cent of the investment automakers have made in North America since 2007.

In 2013, 2.4 million vehicles were manufactured in Canada, representing 14.5 per cent of total North American auto production, says Alex Koustas, an economist at BMO Capital Markets.

Overall production was "one of the lowest shares we've seen since the mid-'90s," says Koustas. In 1999, the all-time high, Canada registered a 17 per cent share of North American production.

Mexico has been a big beneficiary of increased production: around 2003, Canada was producing about one million more vehicles annually than Mexico. Now that country has the advantage, Koustas says, making about 700,000 more vehicles than Canada.

Of the 2.4 million vehicles made in Canada last year, about 570,000 rolled off a Chrysler line.

While Chrysler has seen "a bit of a decline" in production in recent years, Koustas says "it does hold a much larger share compared to some of the other manufacturers relative to the amount of units it sells in Canada, so its presence is quite strong."

What happens in 2016?

But uncertainty remains, he suggests, in what happens in a couple of years, with the expiration of a condition of the 2009 auto bailout agreement for GM and Chrysler that they maintain 16 per cent of their North American production in Canada.

"The big question is once we hit 2016, what's going to happen once that commitment is no longer in place."

At the heart of the issue for those who were weighing whether to support Chrysler was the long held tenet that automotive assembly investments are vital job creators, something of much significance to constituent-sensitive politicians.But some observers question whether such investments are really worth it for governments.

Andrew Coyne, a member of the At Issue panel for CBC-TV's The National, wrote a column recently in the National Post under the headline: "Time for Canadian politicians to junk their car fetish."

Coyne pointed to Australia, where the auto industry will be gone by 2017, and argued that even with the "periodic ransom payments" Canadian politicians have made to the auto sector, plants have still closed and jobs have still been lost.

"I'm not saying we would be better off without an auto industry," Coyne wrote.

But, he concluded, if there aren't enough economic reasons for the industry to run without subsidy, then "let it go, and don't look back."

Faria says he sees where Coyne's coming from.

Do we want an auto industry?

"However, in the auto industry we are dealing with a situation where providing incentives to attract automotive investment is the norm and has been for many years. We've got to decide whether we want an auto industry in Canada or not."

If the auto industry left Canada, Moffatt says, "It really wouldn't affect the country a great deal."

But it would have a significant impact in an area that has already been suffering economically for the past 10 years.

"Southwestern Ontario has gone through a very, very difficult decade with a great deal of job loss," he says.

"Unless the province and the federal government can quickly figure out a way to turn around the region and find something else for the region to do, I don't see how politically they can just simply let an area of three million people spiral downhill like that."

Moffatt hesitates to read too much into Tuesday's announcement or say it is the final word and there won't be a deal of some sort, particularly with the Ontario government.

"This reminds me more of a union negotiation where one side just decides to storm out of the room and leave the table for while. Eventually they come back and the two sides start negotiating," he says.

"I dontthink the negotiations are over."