Winning new automotive investment requires financial incentives from taxpayers, strong marketing by governments and enthusiastic local champions who can sell an auto maker's head office on Canada as a good place to build vehicles, says a new study that examines why Toyota Motor Corp. chose Canada for a new assembly plant.
The study, which was done by the Automotive Policy Research Centre at McMaster University in Hamilton, looks at Toyota's decision to build a $1.2-billion plant in Woodstock, Ont., and comes as the Ontario and federal governments determine what they need to do to land a similar investment by other auto makers.
"Economic variables, including government incentives, tell only part of the investment story," concludes Charlotte Yates, the Centre's principal investigator, and Wayne Lewchuk, a labour and economics professor at McMaster.
"The experience of Toyota's investment in Woodstock highlights this: that investment decisions are both an economic and a social process," the study said. "Personalities and relationships matter. The Toyota case study demonstrates that they may be as important as raw economic data when decisions are made."
Although the decision was made by Toyota more than a decade ago and the Woodstock plant has been cranking out vehicles since December, 2008, the study has relevance as Canadian policy makers seek ways to get on the radar of auto makers that have focused almost entirely on Mexico in recent years.
That focus is likely to shift elsewhere given the criticism of car companies that are opening factories in Mexico by U.S. President Donald Trump and the "Buy American, Hire American" mantra he outlined Friday in his inaugural address.
Mr. Trump signalled Friday that he wants to renegotiate the North American free-trade agreement to the benefit of the United States.
That is likely to make the job of Canadian politicians seeking new automotive investment more difficult.
In Toyota's case, Canada's position was bolstered by Ray Tanguay, then-president of Toyota Motor Manufacturing Canada Inc., who sold the head office in Japan on a new plant that could be managed out of the company's existing facility in Cambridge, Ont., that would take advantage of workers who had won several awards for quality.
"Tanguay's reputation and relationship with Toyota corporate management proved critical to the decision to invest in Woodstock," the study said.
"Our research pointed to the importance of having a local Canadian champion secure investment," the researchers added. "Having an unenthusiastic champion can be fatal."
Mr. Tanguay has since retired from Toyota and is now the automotive adviser to the Ontario and federal governments.
Those governments backstopped the Toyota investment with $125-million in incentives, although the paper noted that the strings attached to federal incentives – loans to companies instead of grants – make them less attractive than financial packages offered by other jurisdictions. The federal government quietly changed the terms of its financial offerings under the Automotive Innovation Fund last fall so that it now offers grants instead of loans.
"Although our research shows that incentives were valued differently by different corporations, it also demonstrates that it is now the exception for an automotive investment to happen in North America without government support," the study said.