It is – as the saying goes – the cost of doing business.
Ottawa’s recent renewal of a $250-million innovation fund for the auto industry is a pricey reminder that government subsidies are now the norm in the global auto business.
The federal and Ontario governments are already deep into General Motors of Canada Ltd. and Chrysler Canada Inc. to the tune of $14-billion. Ottawa and Ontario may soon pony up another $400-million to help Ford Motor Co. of Canada Ltd. retool its assembly plant in Oakville, Ont.
Canada is a player, but increasingly it is a bit player. Even with a few hundred million dollars here and there, Canada is falling behind. This country is losing the subsidies game to richer and more aggressive rivals, including the United States, China, Japan, Korea and Brazil.
As Canadian auto parts executive Joe Loparco told The Globe and Mail’s Greg Keenan, $250-million is a “good start.”
It gets you in the game in a sport where winning requires billions.
And there is no guarantee that production will stay in Canada.
Canada has been steadily losing share of global auto production since the late 1990s. Canada has slipped to 11th spot among global auto makers, down from fourth in 1999. Russia, Turkey and Thailand could all soon surpass Canada.
Canada averaged roughly four per cent of global auto production in the 1970s and 1980s thanks to the Auto Pact.
The country did even better in the 1990s, growing that share to 5.4 per cent of world production by the century’s end. A little over a decade later, Canada’s market share is now half that at 2.7 per cent. And the future doesn’t look promising.
A massive trade surplus in automotive products has become a chronic deficit.
The surge of the Canadian dollar to parity with the greenback over the past decade didn’t help.
A global subsidies arms race may be hurting even more.
Forget the big U.S. federal government infusions into the auto industry. Local governments are now the big bankers of U.S. manufacturers. A recent New York Times investigation found that local governments – states, counties and cities – dole out $80-billion a year in incentives to attract and retain companies. Of that, more than $25-billion goes to manufacturers.
And the leading recipients? The Detroit Three auto makers. GM alone has received at least $1.7-billion in tax breaks and other incentives over the past five years. Ford and Chrysler are the next leading beneficiaries of local largesse.
All three companies shuttered plants anyway.
The U.S. insists it didn’t start the war. It likes to point the finger at China. Last fall, the Obama administration launched a World Trade Organization case, accusing China of disrupting global markets with $1-billion worth of subsidies between 2009 and 2011. China exports almost no cars to North America, but does sell autos in third markets that are key to the Detroit Three.
Mr. Harper sent a clear signal that the Conservative government is ready to play the game, too. He announced the extension of the auto innovation fund for another five years on the floor of Ford’s Oakville assembly plant, which has already received $200-million from Ottawa and Ontario in recent years to modernize. Ford is now looking for the two governments to pay for a quarter of a planned $1.2-billion retooling of the factory.
More money for Ford and GM means less for others. Ottawa recently rejected a $15-million request from the Centre for the Commercialization of Research, which has a successful track record of getting research out of labs and into the marketplace.
Ottawa is ready to continue lavishing money on auto makers presumably because it can’t imagine life without a Canadian auto industry, even a shrinking one.
There are direct jobs in auto assembly, of course. Major new investments in those plants also spawn valuable linkages through the parts supply chain. Add in the taxes governments collect and the exports, and it can be a virtuous circle.
But it’s ruthless game. And it’s no longer about creating new jobs. It’s about salvaging a shrinking global presence.
Unless governments find a way to get foreign auto makers to commit to staying in Canada for the long haul, it will be money wasted.
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