When Ontario Premier Dalton McGuinty goes a-courtin’ auto makers for new investment, he needs to remember to bring flowers.
The flowers won’t cause executives to swoon in his arms, but it’s the thought that counts – as Tennessee discovered in 2005 when “Rita” was part of the pitch the state made to land the North American headquarters of Nissan Motor Co. Ltd.
“Rita” was a new strain of African violet that Matt Kisber, Tennessee’s Commissioner of Economic and Community Development, convinced a local grower to name after Rita Ghosn, wife of Nissan chief executive officer Carlos Ghosn.
Mrs. Ghosn is a an avid botanist, so as officials pitched their state, then governor Phil Bredesen hosted a dinner party for the Ghosns at which vases of “Ritas” sat on every table. She was presented with the flower in a mahogany box with an engraved brass plate and the state sent three boxes of flowers to one of her homes.
Mr. Bredesen is quick to say that Mr. Ghosn and Nissan chose Tennessee for reasons other than the gift given to his wife.
“I think they say, ‘Look, they’re being creative, they’re thinking about going beyond the usual kinds of things and maybe if they’re that creative in this, they’ll be creative when we’ve got problems and we need some help,’ ” Mr. Bredesen said in an interview.
As the decline in Canada’s competitiveness erodes the country’s status as an auto-making powerhouse, creativity will be essential for Mr. McGuinty and the federal government in fielding new requests for financial support from the Detroit Three car companies.
For these governments, the challenge of attracting auto makers goes beyond contending with a currency that’s near parity with the U.S. dollar. They face the increasing aggressiveness of Tennessee, Alabama and other U.S. states and Mexico, which are throwing 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.
While those jurisdictions chase auto makers, austerity is the order of the day at both the federal and Ontario levels. That leads to a critical question: Does it make sense for cash-strapped governments that are cutting thousands of jobs and freezing the salaries of doctors to provide subsidies to profitable businesses?
That issue is on the table now as Ontario and Ottawa evaluate a request by Ford Motor Co. for financial help to retool its Oakville, Ont., plant to allow it to build vehicles on a global platform or basic vehicle underbody. It would assemble the next generation of the Ford Edge and Lincoln MKX crossovers, with production scheduled to begin in 2014.
Based on what is becoming the industry standard of 30 per cent government support for such a project – with each of the two levels contributing 15 per cent – Ford’s request for the $1.2-billion Oakville project is in the range of $400-million.
Ford will not discuss its negotiations with the governments. But sources familiar with its proposal noted that a global platform would represent a strong underpinning for the future of Oakville and 2,800 jobs, and potentially provide new export opportunities beyond the U.S. market, which is the destination for about 80 per cent of the four models made at the plant now.
Ontario needs to be well positioned to take advantage of new export markets, the sources said.
The federal and Ontario contributions to the bailout of Chrysler Group LLC and General Motors Co. – and whether they should continue to offer subsidies to the industry – are still the subject of debate.
The argument that subsidies to auto makers mean fewer dollars going to tax cuts or health care makes little sense to David Wolfe, a University of Toronto professor of economics and public policy.
“Investment in economic development that is going to generate jobs and tax revenue can’t be looked at in the same way as paying for another MRI or another hip replacement,” Prof. Wolfe said.
For Leslie Shiell, however, a University of Ottawa economics professor and co-author of a recent report on the topic of auto subsidies for the Institute for Research on Public Policy, subsidies should be a last resort and a response if companies hold a gun to governments’ heads and threaten to move elsewhere.
One way to think of subsidies in a different way, Prof. Shiell argued, is that they shield workers at the Detroit Three plants from wage cuts.
“In effect what we’re being asked as taxpayers is to subsidize the automotive sector so that these workers don’t have to adjust down to what’s a more realistic or more competitive level of pay,” he said. “And that’s not the best economics.”
One positive result of the retooling of existing plants is that such investments are all but guaranteed to improve productivity and competitiveness generally because of innovation and other advances in manufacturing. In the Oakville case, for example, the factory was revamped in 2004-06 to make it a flexible plant that is able to produce several different models off more than one platform.
Since then, the robots used in vehicle assembly – to cite one example of how innovation is revolutionizing manufacturing – have become much more capable.
“The robots are stronger, the robots are faster, the robots are more accurate, the robots are also more efficient, not only with respect to energy, but with respect to space,” said Peter Fitzgerald, general manager of Fanuc Robotics Canada Ltd., the Canadian subsidiary of Japan-based Fanuc Corp., which supplies robots to most of the major auto makers.
Tennessee’s experience in winning the Nissan headquarters came into play three years later with an even bigger prize when Volkswagen AG returned to vehicle assembly in the United States and chose Chattanooga as the site for an assembly plant, which is already expanding one year after production began.
Mr. Bredesen calls such investments anchors that attract other development.
“When Volkswagen decided to come here, there was a lot of public who looked up and said: ‘Whoa, that’s a smart company. Something’s going on in Tennessee. Maybe we ought to put them on our radar screen,’ ” he said.
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