Automotive News Canada - May 2018 - 16

CAN CANADA
COMPETE FOR
AUTO PLANTS?

* MAY 2018

Getting back in the game would
mean matching the incentives
of the U.S. South... or a tariff on Mexico

By JOHN IRWIN
TORONTO BUREAU

CANADA'S AUTO INDUSTRY COULD
be on a slippery slope to extinction
unless major changes in government
policy and attitudes about investment
are enacted to save it, experts say.
The significant decline thus far is
due in large part to increased competition from cheaper places to do
business such as the southern United
States and especially Mexico. Lowprice labour and numerous free-trade
agreements have driven automakers
to build new plants in that country.
And Canada appears to be idly standing by and watching.
Industry executives and outside
experts said the likelihood of Ontario
meanwhile, has more than doubled
attracting a new auto plant, like the
its auto production to 3.8 million vehione announced by Toyota and Mazda
cles.
in Alabama earlier this year, is a longJeff Rubin, a senior fellow at the
shot at best.
Centre for International Governance
Numerous factors, ranging from
Innovation in Waterloo and forhigh labour and electricity costs
mer chief economist at CIBC World
to a hesitancy from governMarkets, said that if Ontario
ment to match the massive
wants to attract a new auto
tax incentives offered by some
plant, it should hope the
U.S. states and Mexico, work
United States implements
against Canada when it comes
tariffs on Mexico and other
to attracting massive auto
nations while exempting
investment.
Canada, creating a North
Still, the biggest negative
American trade environment
factor is the regional and globsimilar to the pre-NAFTA one.
al trade environment, which
The industry would sureRubin: One
has favoured free trade over
ly rail against such a decihope for
the past several decades and
sion, Rubin said, and many
Canada is an automakers might balk from
has promoted major investments in lower-wage countries exemption
investing at all in North
from tariffs.
such as Mexico. Since 2004,
America. But for those that
Canadian auto production has
stay, it would be in their
dipped 23 per cent to 2.1 million vehiinterests to invest in American and
cles, according to the Automotive
Canadian auto production, he said.
News Data Center in Detroit. Mexico,
"You have to understand that what

SPECIAL
REPORT

Workers at Ford's Oakville, Ont., plant build the Edge utility vehicle.
PHOTO: FORD

has worked well for industry profitability has been a move of production
to Mexico," he said.
But, Rubin added, if tariffs cut
into the profitability of Mexican
imports, "that same profit-maximizing behaviour would move that production back to the United States and
potentially Canada."
Short of hoping the United States
puts tariffs on nations other than
Canada, Ontario faces an uphill climb
if it ever hopes to have a new assembly plant built in its borders, according to the experts. Several factors,
including labour costs, incentives and

a need for leadership are at play, they
said.

HUGE TAX SUBSIDIES FROM U.S. STATES
For starters, Mexico and many
of the southern U.S. states that have
been chosen for new plant sites have
been aggressive with tax incentives.
The Alabama Toyota-Mazda plant
will receive as much as US $700 million ($902 million) in incentive packages from the state and the city of
Huntsville, where the plant will be
located. Likewise, Volkswagen has
received about US $800 million ($1.03
billion) in incentives from federal,
state and local governments since
VW announced it would open a plant
in Chattanooga, Tenn., in 2008.
Tony Faria, an auto expert at the
University of Windsor, said federal and provincial government officials have been reluctant to commit
to incentive levels that large for any
automotive project.
"When auto companies have been
looking at the sort of incentives they
can get from different geographic
locations, it tends to be looked at in
Canada as corporate welfare," Faria
said. "That's absolutely incorrect. We
need to look at it as investments in the
future because that money is going to
come back."
He used the federal Automotive
Southern U.S. states such as
Tennessee have been aggressive
with tax incentives to entice new
auto investments.
P H O TO : V O L K S WA G E N

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