Chrysler Drops Plan to Seek Canada Funds for Minivan Production

Chrysler Group LLC is withdrawing a request for financial backing from federal and provincial governments in Canada and will use its own funds for production of minivans and other vehicles in Windsor and Brampton, Ontario. The development of the next version of its minivan will be located in Windsor, Chrysler said in a statement yesterday. A Brampton, Ontario, facility will also benefit from substantial upgrades on both the Chrysler 300, and the Dodge Charger and Challenger, the U.S. automaker owned byItaly’s Fiat SpA said. Sergio Marchionne, chief executive officer of Chrysler and Fiat, wants to create a company with the scale to challenge larger global rivals such as General Motors Co. (GM) and Volkswagen AG. While Chrysler had been negotiating with Canadian officials for loans to help it prepare the Ontario plants for the production stage, its talks with officials were “not even close,” Marchionne said last month. “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 carmaker said. Chrysler will use its own resources to fund the development, yesterday’s statement said. The company’s capital allocation decisions will be based on where Canada ranks in terms of cost with the rest of North America and elsewhere, Chrysler said. The outcome of Chrysler’s negotiations with UNIFOR, the labor union that represents its hourly workers in Canada, in 2016 are “of particular importance for this evaluation,” the company said.

Unprecedented Move

The investment, which Marchionne previously said may total billions of dollars, would be the largest Fiat has made since Chrysler exited bankruptcy in 2009. Marchionne said last month that he had heard from other jurisdictions including the U.S. and Mexico about moving the production. They’re likely to offer better incentives than Canada, he said at the time. Canada had said last month it was increasing funding for automakers by C$500 million ($450 million) to attract more investment from companies such as Chrysler, Walking away from that kind of incentive is “unprecedented,” said Sean McAlinden, chief economist of the Center for Automotive Research in Ann Arbor, Michigan. “The two most traditional automotive regions in North America are Michigan and Ontario,” he said in an interview. There is very little pushback when companies ask for this kind subsidy support, he said. Fiat said in January its plants in North America are at 100 percent capacity, which made the likelihood of Chrysler moving production elsewhere unlikely, McAlinden said.

Substantial Request

“Deep down, he probably was worried about the image for the company, what it would do to sales and, third, he can’t really walk from those plants,” McAlinden said of Marchionne. “He needs them.” Canadian Finance Minister Jim Flaherty told reporters Feb. 12 that Chrysler’s request for government funding is “substantial” and that he also anticipated additional demands from other carmakers. Canada’s Automotive Innovation Fund has invested C$316 million in six projects since 2008, according to budget documents released last month. The fund, which provides repayable contributions to automakers for large-scale research and development projects, has attracted private-sector investments of as much as C$2.3 billion, according to the documents. The cash adds to Canada’s investment in the car industry, where it holds a 6.9 percent stake in GM., the largest U.S. automaker. The federal and Ontario governments are the second-largest shareholders in Detroit-based GM Canada has maintained its holding even after the U.S. government sold its GM shares.

Mexican Competition

The auto industry represented 10 percent of manufacturing gross domestic product in Canada and 14 percent of total merchandise exports in 2012, while employing more than 115,000, according to Canadian government figures. The industry has been struggling to attract investment after the Canadian dollar rose above par with its U.S. counterpart in the wake of the financial crisis, and auto companies directed investment to cheaper locations in the southern U.S. and Mexico. Canada’s dollar has since declined, dropping to the lowest in four years in January. By 2015, U.S. sales of autos from Mexico may climb to 1.9 million, topping Canada’s 1.87 million, Lexington, Massachusetts-based IHS has estimated. Canada has received less than 5 percent of the $42 billion invested in the North American automotive industry in the last five years, Reid Bigland, Chrysler’s head of U.S. sales, said in a Feb. 12 interview. The company’s two minivans, the Chrysler Town & Country and the Dodge Caravan, were the second- and third best-selling minivans in the U.S. last year, trailing the Honda Odyssey, according to Autodata Corp. They are built at the Windsor factory. “We welcome Chrysler’s decision that it will begin to invest in the next generation of vehicle production at plants in Windsor and Brampton,” Eric Hoskins, Ontario’s minister of economic development, said in an e-mailed statement.