Why we need automotive incentives
Competition for investment is fierce.
Ontario Progressive Conservative leader Tim Hudak is urging the Liberal government to “not give ransom money” to Chrysler and end the corporate welfare to the province’s auto industry. He advocates focusing instead on lower taxes to attract investment.
Mark Milke, a senior fellow at the Fraser Institute, a public policy research organization, accuses Chrysler of “being a poster boy for the sort of avarice that some companies inflict on 100% of taxpayers: the ever-constant demand that governments ante up money or a company will shift production to another jurisdiction.”
Sergio Marchionne, CEO of Chrysler Group LLC, defended Chrysler’s request for financial assistance in The Globe and Mail Report On Business. He noted that the automotive business is global and Canada has to be competitive if it’s to attract investment from automakers.
During the past five years there have been $42-billion of automotive investments in North America, but only $2.4-billion in Canada. To put the Chrysler proposal in perspective, he pointed out that it exceeds all investments by the entire automotive industry in the country over the past five years. And it will create and secure tens of thousands of Canadian jobs while generating future tax revenues of hundreds of millions of dollars.
Reports peg $2.6-billion of the proposed investment would go to a new generation of minivans and retooling of the Windsor plant, plus another $1-billion to refresh the large cars assembled in Brampton, Ont.
But there are also other offers from outside Canada.
So let’s be realistic. If Canada and Ontario wish to retain any type of automotive assembly industry, they will have to create more competitive conditions to attract investment, and that must include opening their pocket books. Labour will also have to realign to be more competitive with labour costs in the US.
Attracting assembly and parts investment is getting expensive. Tennessee provided financial incentives of more than $577 million in 2008 to Volkswagen for its $1 billion assembly plant in Chattanooga.
Last summer, Tennessee announced it’s adding more than 7,900 automotive jobs through its top 10 deals which are incentive driven. Incentives are also provided by other southern states looking to attract investment. According to Ontario Investments in Manufacturing, there have only been a total of 16 automotive parts manufacturing investments in the province since 2006.
Let’s not forget Mexico, which now assembles more vehicles than Canada. It offers flexible incentive packages, has wide ranging trade agreements with Latin America, Japan and the EU (44 countries in total) and labour costs are very low.
According to several studies by the Center for Automotive Research, motor vehicle manufacturing has the highest employee multiplier of any industry with a rating of 9 to 12 spin-off jobs created for every assembly line job. For instance, Chrysler’s Windsor Assembly Plant provides 4,500 assembly line jobs. Given the industry’s spin-off factor, there are another 45,000 jobs that depend on that plant
Many parts suppliers would disappear without the Windsor Assembly Plant, while services, such as retail, construction, recreation, medical, restaurants, legal, travel, entertainment, transportation, real estate, wholesale trade, and professional/technical services would be caught in the fallout. Unemployment levels would skyrocket, property values would drop, and tax revenue (and resulting services) would fall.
Chrysler Group has many choices whether or not to make the investment in Windsor and Brampton. There will be other factors included in the final decision, especially the cost of labour, access to markets and ongoing operating costs.
The time has come to stop the loss of automotive and other manufacturing jobs to the southern US and Mexico. Making Canada more competitive is the right thing to do for the economy, taxpayers and young people who will drive Canada’s economic growth and prosperity in the future.
Pete Mateja is co-director of the Office of Automotive and Vehicle Research, Odette School of Business, University of Windsor. E-mail .
Find this article in the March 2014 issue of PLANT.