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The Globe and Mail

Indiana makes play for Canadian auto parts makers

Greg Wathen, president and CEO at the Economic Development Coalition of Southwest Indiana.

JENNIFER ROBERTS/jennifer roberts The Globe and Mail

As the leaders of the auto industry in Canada meet Friday to assess the sector's competitiveness, Greg Wathen will wrap up a three-day effort to lure Canadian auto parts makers to Indiana.

Mr. Wathen, chief executive officer of the Economic Development Coalition of Southwest Indiana, is quick to point out that his jurisdiction is nowhere near Muncie, Ind., That's where Caterpillar Inc. is expected to move diesel locomotive assembly work it is shifting out of London, Ont., after a bitter lockout of its workers there in the southwestern corner of the province.

Muncie, he noted, is northeast of Indianapolis and not near the four counties of Indiana and two in Kentucky that make up the southwest Indiana coalition. And he's not here to steal jobs.

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"I don't look at it as [if]we're going up there to try to get Canadian companies not to continue to invest in Ontario," he said.

The jobs are vanishing on their own as Ontario, long renowned as a manufacturing powerhouse, confronts the unrelenting forces of globalization and the rise of the Canadian dollar, which has helped turn the province into the world's highest-cost auto making jurisdiction.

Ontario is also in a woeful fiscal position, as former TD chief economist Don Drummond outlined in his report Wednesday on how to slash spending to reduce a $17-billion deficit.

One of Mr. Drummond's recommendations was that Ontario rethink and gradually eliminate a "hodge-podge" of direct and indirect programs that support business.

That suggestion presents a problem for the Canadian Automotive Partnership Council (CAPC), which will hold its annual meeting on Friday. The joint industry-government-union group was set up in 2002 in part to examine how Canada could compete with Alabama, Mississippi and other southern U.S. states that were landing billions of dollars worth of new automotive investment.

The answer came down to the kinds of subsidies Mr. Drummond's report criticized, but which helped land several key automotive projects in Ontario. CAPC still advocates incentives to auto makers as a way to compete with the southern U.S. states.

The Ontario government will soon face a choice between maintaining those incentives and Mr. Drummond's recommendation to end them.

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Each of the Detroit Three is seeking financial assistance to retool key assembly plants in the province, the closing of which would eliminate as many as 10,000 jobs. Ford Motor Co. for example, has publicly stated that a redevelopment of its Oakville, Ont., assembly plant is contingent on government support.

"Canada has a challenge to hang on to what we've got," one industry source said Wednesday. "Drummond is ushering in an era of fiscal austerity. So at the same time as the need for active government policy is growing, given what's happening in America – including this Indiana connection – the resources of government are constrained."

The big winner in recent auto investments has been Mexico, although Indiana scored a victory last week when Toyota Motor Corp. announced a $400-million expansion at its Princeton factory, which is in Mr. Wathen's corner of the state and is something he plans to emphasize to Canadian auto parts makers. In addition to those jobs, Caterpillar's Progress Rail is expected to hire several hundred people in Muncie to replace 700 jobs it's eliminating in London.

While it's impossible for auto parts companies and other manufacturers in Ontario to compete with Mexico, where hourly wages are about $5, losing jobs to Indiana was once unthinkable.

"I think we can compete with Indiana," said University of Toronto professor David Wolfe, who focuses on manufacturing. "We can compete on quality, on technology intensive production and on a highly skilled labour force. What we need is management with the knowledge and skills to put those factors together into a competitive package."

But the shift of the Caterpillar jobs to Muncie from London reflects the forces now battering Ontario, particularly when it comes to wages and benefits.

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Progress Rail is expected to pay workers about $15 (U.S.) an hour at the non-union plant, compared with an average of about $30 (Canadian) an hour at its unionized London plant, which closed after workers refused to accept wage cuts of 50 per cent or more and reductions in benefits and vacations.

Mr. Wathen said Indiana, which is a big auto-making state – similar to Ontario – with two Toyota plants, a Honda Motor Co. Ltd. factory, a big General Motors Co. plant and hundreds of suppliers, is battling similar forces and also faces demands for incentives.

"Companies are asking communities to bring more to the table with regard to financial assistance and that's been difficult for many communities," he said.

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