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The great auto industry salvage

February 12th, 2014 Leave a comment Go to comments

Canadian Exports: NAICS 33611 – Automobile and Light-Duty Motor Vehicle Manufacturing ($Millions)

Source: Industry Canada

It’s kind of fun to watch the Ontario and federal governments continuing to salvage the auto manufacturing industry will hundreds of millions of dollars in corporate welfare.  It’s distributed under the euphemism of ‘innovation’ but it is old fashioned cash transfers to an important industry that is threatening to move more jobs out of southern Ontario.  As the chart above shows, the entire auto manufacturing industry is located in Ontario.

The latest is Chrysler’s demand for $700 million or it will downsize or close its operations in Brampton and/or Windsor.  I guess the billions in loans provided a few years ago wasn’t enough.

But this is what governments have done for decades.  The federal government has been a huge supporter of the oil sands development in Alberta both in terms of incentives and its international lobbying efforts.  Let’s not get started on the aerospace sector in Quebec.

The Premier of Ontario is demanding to be made whole about her belief she is getting shafted by hundreds of millions of dollars in lower equalization payments (who would have thought this would be the argument 10 years ago).  Maybe the $500 million auto ‘innovation’ fund announced yesterday will assuage her concerns.  Think of it as a back door equalization payment.

Anyway, the truth is quite sobering.  Ontario’s economy has been hammered and is still quite fragile (although compared to New Brunswick it looks like a bastion of economic growth).

Those Chrysler jobs probably boost the taxes paid to provincial and federal governments by $300-$400 million per year (based on my back of the napkin calculation).    So a one time $700 million to secure a stream of $350 million for the next 20 years might sound like a good payback.

But they keep coming back to the trough.  Not every 20 years.  Chrysler got $2.9 billion in loans and grants after the great recession of 2008.

But the feds and province will say there is even more at stake than just the $350 million in taxes from Chrysler.  They worry that a pull out of Chrysler could presage a broader pull back of the auto industry in Ontario and threaten the $48 billion worth of automobile exports (chart above).   That puts an annual $10 billion tax generator at risk.

All I can say is that it would be nice if the feds were as concerned with poor old NB as they are with Ontario but 13.5 million residents (read voters) provide a far more compelling case than 750k.

 

 

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  1. anonymoose
    February 12th, 2014 at 13:25 | #1

    Can’t disagree with anything in this article, nice to see someone shining a light on it.

    Completely off-topic David, how much does the falling Loonie help NB’s forestry industry?

  2. February 12th, 2014 at 17:10 | #2

    The firms are getting pretty good at currency hedging – which would have likely hurt them recently. In the longer term, a 90 cent dollar is certainly more conducive to profitability and investment in the sector. I think the concern is that no one really knows where the long term currency rate will end up.

  3. Anon
    February 13th, 2014 at 10:35 | #3

    Thank you for highlighting this issue. In addition to the massive financial support, the Ontario automotive industry has received other support in the form of tax, trade and transportation policy; from the Auto Pact to building an international bridge to ensure the free flow of automotive parts.

    The aerospace sector would be another example of a sector with similar Federal support.

    To receive proportional support for industrial development in our region, would you agree we need to make it easier for the government to invest here? At the moment, our divisiveness and lack of focus seem to result in hockey rink renovations rather than industrial development.

  4. mikel
    February 14th, 2014 at 20:46 | #4

    Yes, it would be nice if the feds were involved, but they haven’t coughed up the dough yet. And in NB news, Alward is giving 5 million to Bell Aliant for much the same reasons.

  5. mikel
    February 15th, 2014 at 11:11 | #5

    Anon hits on an important point, the problem is lack of control of the provincial and municipal governments. Years ago when the feds were handing out cheques for infrastructure projects, Summerside built an industrial park, while New Brunswick applied for more money to twin a section of the trans canada highway. And I seem to recall a story from Saint John where there was federal money available for water infrastructure, yet the city hadn’t even applied for it.

    We’ve talked about research, but we don’t really know whether there is actually the research facilities to GET the funding thats available. For example, the Perimeter Institute here in Waterloo gets more money a year (I think) than all research in the entire province of New Brunswick. But first you need to BUILD a Perimeter Instituted, as the RIM guys did with their billions. Irvings billions certainly don’t go to research, and I think all they did was give some money to journalism schools, which is pretty wasted research, if it goes on at all.

    I know the cancer guys in Moncton seem to have no problem getting funding, so the issue seems to be one of a lack of infrastructure for places where government would put money. Keep in mind that the gypsum factory in Saint John was built with federal money. The forestry example is a good one though, the feds didn’t exactly panic when the forestry industry was tanking like they have with the auto industry. So it really does seem to come down to votes. If the maritimes would at least VOTE strategically then something may happen, but the ‘divisiveness’ mentioned above seems a pretty apt term. And getting back to politics, when the west wanted changes, they built the reform party. When Quebec wanted changes, they built the bloc. Perhaps thats an example of the ‘culture of defeat’, but when the maritimes wants changes, there seems to be no will whatsoever. Heck, there is even an Atlantica Party in Nova Scotia, but they can’t get enough support to fill a room, and in New Brunswick they can’t even find a single person to build the party.

  6. mikel
    February 16th, 2014 at 09:40 | #6

    PS, in addition to this you might want to add the recent announcements of the new sale of armoured vehicles to Saudi Arabia. These are all to be manafactured in London, Ontario, a city that almost quite literally would not even exist without military contracts. Who cares that the Saudi’s have some of the worst human rights abuses in the world and will no doubt use these vehicles to repress their own population, the politicians are all aglow that they ‘made a sale’. And that is mostly all due to federal government lobbying.

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