In the automotive world, Sergio Marchionne, chief executive of Fiat Chrysler, is a superstar.
He played the part to the hilt at the Canadian International Auto Show, holding court as eager car buffs gathered around. Canada is a “guppy in shark-infested waters,” he told them, outlining the fierce competition to land vehicle assembly plants. “This is not a game for the faint-hearted. It takes resolve and it takes cash.”
Marchionne wants roughly $700 million from Ottawa and Queen’s Park to upgrade Chrysler’s minivan plant in Windsor
and retool its car plant in Brampton. “It is taxpayer money,” he allowed. “But I make cars. You may not like the sin, but there’s nothing I can do about it. I can’t change my profession.”
To drive home his message, Marchionne pointed out that Canada has secured just 5 per cent of North American auto investment over the past five years. “There’s got to be something structural that is making this jurisdiction less appealing than others.”
This kind of corporate bravado may go down well at a car show. But to many taxpayers it sounds a lot like bullying. And to cost-cutting politicians, it puts the awkward issue of corporate handouts front and centre.
Over the last decade, Ottawa and the provinces have poured more than $15 billion of taxpayers’ money into the North American automobile industry. Policy-makers know each bailout, subsidy, loan guarantee and incentive emboldens carmakers to ask for more. But they dare not say no. Thousands of jobs are at stake.
Finance Minister Jim Flaherty took the well-worn path in his Feb. 11 budget, topping up Ottawa’s Automotive Innovation Fund by a hefty $500 million. That gets Chrysler more than halfway to its goal. But Marchionne is still looking for a substantial handout from Ontario.
There are 10 good reasons to say no:
1. Auto assembly plants are a backward-looking investment. What Ontario needs — and Chrysler is not offering — is a foothold in the design and engineering of new vehicles.
2. All subsidies will do is buy a few more years for Canadian autoworkers. Carmakers are shifting their assembly operations to lower-wage countries.
3. There are more urgent demands on the public purse. The province’s courts are overcrowded. Its home care system is underfunded. Its urban infrastructure is grossly inadequate. Its welfare rates fall 30 per cent to 60 per cent below the poverty line (depending on the type of family).
4. Ontario is battling an $11.7-billion deficit and an accumulated debt approaching $275 billion. That means 8 cents out of every tax dollar is used for interest payments.
5. Auto subsidies are a regressive income transfer. According to the Institute for Research on Public Policy, the average auto assembler earns $66,000 a year. The average annual wage in Ontario is $48,880. By subsidizing car plants, Ontario would be transferring money from those of modest means to those with bigger paycheques and better benefits.
6. Chrysler does not need public money. Its profits are soaring.
7. Urban car culture is on the wane. Young consumers don’t want to pay for expensive vehicles, worry about parking or drive everywhere. They prefer to live downtown, walk or take public transit and rent cars for out-of-town trips.
8. Automobile tastes change rapidly. Minivans and large cars such as the Charger, Challenger and Chrysler 300 (assembled in Brampton) may no longer be in demand when the company finishes its upgrades.
9. Chrysler still hasn’t repaid $810 million of the bailout provided by Ottawa and Queen’s Park in 2009. Marchionne says he has a “clear conscience” on that score. The subsidy occurred before he took charge and restructured the company.
10. The bidding war will go on as long as governments lack the courage to pull the plug.
Nonetheless, Finance Minister Charles Sousa is widely expected to say yes. The Liberals are heading into an election. They are under threat in Windsor and Brampton and they’ve demonstrated a willingness to use taxpayers’ money to bolster their fortunes. (Premier Kathleen Wynne announced a wine industry strategy, a reprieve for the Fort Erie racetrack and a new hospital in the run-up to this month’s byelection in Niagara Falls.) Flaherty has paved the way.
Judged on its economic merit, Marchionne’s demand would get a curt no from Queen’s Park. But that’s not how the game is played.