Corporate Welfare and Windsor

The 2014 Federal Budget allocated up to $500 million for automotive innovation. Although the federal government states that this budget item is a show of broad support for the automotive sector in Canada, its following the not so subtle hints by Fiat-Chrysler’s CEO Sergio Marchionne that continued operation of Canadian assembly plants hinged on government subsidies. In another interview on the subject the Fiat-Chrysler CEO went on to say that Canada “was a guppy in shark infested waters” further implying that if government didn’t step up, a government somewhere else would.

For Windsor and the broader region, the Conservative government offering up this money could be enough save thousands of jobs in the city. The fact that southwest Ontario has been one of the slowest areas to recover from the recession in Canada and a federal election is less then 20 months away (a provincial election could occur at anytime) it isn’t surprising why governments have stepped up. But what does this handout really buy Windsorite and Canadians as a whole?

Currently the Windsor Chrysler Assembly plant employs 4,663 (4,447 hourly; 216 salaried) on three shifts. Although the loss of these jobs would be devastating for the local economy, Fiat-Chrysler adding a new flex line to the plant doesn’t necessarily guarantee these jobs. First, the assumption that this new assembly line will bring large number of jobs to Windsor, could be flawed. Reports are that the new line that Fiat-Chrysler may put into Windsor Assembly Plant would be largely automated and highly flexible. What this means is that it is unlikely that there will be rounds of new hiring for this line. In fact, if the line is as highly automated and efficient as some say it will be, it is quite possible that employees could largely come from the existing line.

Speaking of the existing assembly line, with the expected launch of the new Grand Caravan in May of 2015 and with that vehicle being built on the proposed new line, the question is what happens to the existing Grand Caravan line? Reports are that it will stay in production for a period of time due to its profitability, but then what? In a year or two after investing hundreds of millions of government dollars and potentially billions of Fiat-Chrysler dollars, allowing for the production of two minivans side by side, they will have a new highly efficient, automated assembly line capable of making minivans (and other vehicles) and a older line that requires much more manpower and tooled to make a vehicle model that no longer is needed. Although some jobs may be saved by shifting workers to the new line, many of these workers could be on borrowed time.

Despite Fiat-Chrysler promising to invest billions of dollars into Windsor and the surrounding area (although there is some debate on the numbers and whether some of it will go to Michigan), the 4600 jobs may not be secure over the long term. There currently appears to be little guarantee that if governments give money to Fiat-Chrysler its production will remain in Windsor forever. For example, Toyota which recently took some $500 million from the Australian government, just announced that it would end all production in the country by 2017. So what the governments could be buying is just a few years of time before Fiat-Chrysler changes its mind about Windsor.

So the question that has to be asked is whether our government giving Fiat-Chrysler a blank cheque is a good thing? Although the obvious answer for Windsor in the short term is an emphatic yes, this bribe could just delaying the inevitable or  just caving to a brazen bluff? The writing has been on the wall for a while, Canada’s manufacturing sector has long been in a decline and it may not come back. With that in mind, wouldn’t the Canadian and Ontario governments be better off spending $500 million on encouraging entrepreneurs, building infrastructure or cutting taxes?

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