Fiat Chrysler surprises by saying no to more taxpayer money

Considering CEO Sergio Marchionne’s surprise decision

Fiat Chrysler CEO Sergio Marchionne’s surprise decision to make a billion-dollar investment in Ontario’s auto sector—but withdraw earlier requests for hundreds of millions in federal and provincial government incentives—should have been a great day for Canada. Here, for once, was an automaker that had figured out how to operate its business here profitably, without ongoing taxpayer help. But alas, it was not meant to be.

Instead, the bizarre announcement from Fiat Chrysler on Tuesday likely signalled some sort of break down in negotiations between the automaker, its unions, Ottawa and the province of Ontario. The carmaker issued what appeared to be a hastily-written statement that confirmed it will build its all-new minivan at a 4,500-employee plant in Windsor, as well as spend hundreds of millions upgrading another plant in Brampton, but only after stressing it was no longer seeking help from the governments of Prime Minister Stephen Harper and Ontario Premier Kathleen Wynne. ”Have you ever seen a situation as strange and confusing as this?” asked Dennis DesRosiers, a Toronto-based auto industry analyst. “You’re making your announcement of a multi-billion-dollar investment in the fifth paragraph of a press release.”

Even odder was Fiat Chrysler’s reasoning behind withdrawing its request for financial assistance. “It is clear to us that our projects are now being used as a political football, a process that, in our view, apart from being unnecessary and ill-advised, will ultimately not be to the benefit of Chrysler,” the company said, apparently oblivious to the fact that asking for hundreds of millions of taxpayer dollars is bound to generate some debate. Plus, this is a company whose predecessor—Chrysler—took a $2.9 billion from Canadian governments back in 2009, about $810 million of which was never repaid, according to calculations by the Fraser Institute.

DesRosiers’ theory of what transpired goes something like this: Fiat Chrysler had already decided it makes sense to build its new minivan in Windsor because that’s where it now manufactures its Chrysler Town and Country and Dodge Grand Caravan minivans. But negotiations with Ottawa and the province got bogged down after Marchionne, in his typically blunt fashion, told reporters at the Detroit and Toronto auto shows that Canada needed to step up and play ball if it wanted to compete with other countries for big automotive manufacturing investments. The remarks, although no doubt a reflection of reality, came off sounding like an ultimatum, which prompted Conservative Opposition leader Tim Hudak to accuse Wynne of forking over hundreds of millions in “ransom money.” Rather than wait around to see how it all played out, DesRosiers figures Marchionne simply decided to go it alone because he has a global auto business to run—one that’s currently on a roll.

However, Fiat Chrysler also went to great pains to point out in its statement that it wasn’t committing to keeping production in Canada over the long term. Instead, the automaker said only that it would only “begin” to allocate development and “industrialization” of the new minivan in Windsor. It also said that future investment decisions would be “unfettered” and subject to a “variety of considerations that determine the competitiveness of Canada,” including labour agreements with its Canadian unions. That, not surprisingly, didn’t sit well union leaders. Unifor national president Jerry Dias called the move “regrettable” even as he praised Fiat Chrysler for staying in Windsor. “We are deeply concerned, however, that in the long-term we are going to lose an incredible opportunity to secure Ontario’s manufacturing industry well into the future,” Dias said in a statement.

Richard Powers, a business professor at the University of Toronto’s Rotman School of Management, says the federal and provincial governments were probably the biggest losers in the way things unfolded. That’s because big investments in the auto industry are economic feel-good stories, but neither Harper nor Wynne, who are both facing elections in their future, got to take credit for Fiat Chrysler’s decision. And there’s a good chance the next big investment by Chrysler will end up going somewhere else. “It’s a poker game,” Powers says. “And in this case Chrysler has a really good hand.”

Perhaps. But it says something about how deeply messed up our relationship with auto industry is in this country when not paying through the nose to secure a few thousand jobs can be legitimately interpreted as political failure. No wonder Australia isn’t bending over backward to convince Toyota, soon to be the last automaker left in the country, to rethink its recent decision to wind-up manufacturing operations there by 2017.