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Report On Business Chrysler eyes $700-million in aid from Canadian governments

Chrysler employees assemble cars at the assembly plant in Brampton, Ont.

Kevin Van Paassen/The Globe and Mail

Chrysler Group LLC is seeking a contribution of at least $700-million from the federal and Ontario governments in high-stakes negotiations about the future of its Canadian operations.

The talks centre on the auto maker's plant in Windsor, Ont., and a new generation of the company's minivans, but also include discussions about a factory in Brampton, Ont., that makes full-sized sedans, sources familiar with the negotiations said.

The federal government signalled Tuesday that it is prepared to offer some money by announcing it will pour another $500-million over the next two years into its Automotive Innovation Fund. Chrysler should be able to tap the fund for investments at the two factories, where it employs about 8,000 people.

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Nonetheless, coming up with $700-million represents a difficult political and economic calculation for the deep-in-deficit Ontario government and a federal government pledging to eliminate its deficit next year. The two governments worked together in 2009 to provide Chrysler with $2.9-billion in loans and grants that ensured the two assembly plants would remain in Canada until at least 2016.

The prospect of more than 10,000 direct and indirect jobs disappearing in Windsor would be a body blow to either party's election hopes in southwestern Ontario and likely in other auto industry ridings in the province.

The assistance would help Chrysler – and other companies in the auto sector – retain jobs in vote-rich Ontario, which over the past few federal elections has become a major source of seats for the government of Prime Minister Stephen Harper.

The new contribution to the federal auto fund may also help assuage fears in Ontario, and among some auto makers operating in Canada, that a potential new trade deal with South Korea, a major auto exporter, will hurt sales of vehicles made in this country or those imported from the United States or Japan.

Federal Finance Minister Jim Flaherty's budget announced the Automotive Innovation Fund, first created in 2008, will be expanded to "create and sustain jobs" in Canada.

"The automotive industry is among Canada's leading employers and exporters and is a key contributor to our economy," the budget document says.

"The sector also directly employs more than 115,000 Canadians in Southern Ontario and across Canada from automotive assembly to parts production."

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The Chrysler minivan plant is one of the key components of the sector.

When Chrysler chief executive officer Sergio Marchionne first revealed last month that he was meeting government officials to discuss the project to redevelop the company's minivan plant, he referred to it as a partnership. He added that the investment would be the largest Chrysler has made since it emerged from Chapter 11 bankruptcy protection in 2009 under control of Fiat SpA.

Governments need to decide if the investment "is a desirable thing for Canada to have," he said at the time.

Sources said in January that Chrysler is proposing an investment of $2.3-billion to rebuild the Windsor plant to install a flexible assembly line that will allow the company to produce more than one type of vehicle.

One question for the two governments to ponder is what advantages Canada has beyond the productivity and quality laurels won by Canadian workers and the fact that Chrysler's two assembly plants are already located here.

The Canada-European Union free-trade agreement opens up the potential for Chrysler to export some vehicles to Europe duty-free. There is no U.S.-EU agreement, so that would be one advantage to producing vehicles in Windsor, instead of a U.S. plant.

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"I can't believe they'd move minivan out of Windsor – they could threaten it," said one U.S. industry source. The source noted that production of the Fiat 500 now assembled by Chrysler at a plant in Toluca, Mexico, is scheduled to be shifted to Poland at the end of 2015, and production of the Dodge Journey also made in Mexico is scheduled to end. That would open a plant for assembly of minivans if negotiations between Chrysler and the governments fail.

Chrysler Canada Inc. spokeswoman LouAnn Gosselin declined to comment when asked about the $700-million figure.

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