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This week Prime Minister Justin Trudeau was in Windsor, Ontario, my hometown, to announce that his government was giving more money to Stellantis, the automaker that owns the former Chrysler minivan plant in Windsor. Joined by Doug Ford, the Ontario premier, Mr. Trudeau said the two levels of government would give the company about 1 billion Canadian dollars to help retool that factory as well as one in Brampton, Ontario, as they shift to making electric vehicles.
It was just one of a string of recent announcements by the federal government and Ontario that disclosed funding for car companies. At the end of March, Stellantis and LG, the South Korean electronics giant, received 5 billion dollars to build an electric vehicle battery factory in Windsor, in what the government called “the largest investment in Canada’s auto industry.”
But that wasn’t all. About a month ago, General Motors was given 518 million dollars for two Ontario factories, one of which is being converted to make all-electric delivery vans. And in March, the two governments gave 263 million dollars for Honda’s two Ontario assembly lines.
“With the deals, we’ve made with auto manufacturers over the past few months, we’re supporting autoworkers across the country,” Mr. Trudeau said on Twitter on Thursday. “We’re securing more than 16,000 good, middle-class jobs.”
It’s not uncommon for governments around the world to heavily subsidize automaking jobs, as Ontario and the federal government have done, given that auto factories can boost the economy, generate tax revenue, and generally pay employees well.
This week I spoke with Greig Mordue, the chair in advanced manufacturing policy and an associate professor of engineering at McMaster University, who offered some caveats about the help that the government, both federally and provincially, has provided to the industry and the implications of the latest announcements.
He has experienced the process of grants both as an adviser to governments and as the general manager of Toyota Motor Manufacturing Canada, which runs two factories in southern Ontario.
“All of the actors are spending a lot of time talking about the rebirth of the automotive in Canada and I understand why they do it,” he told me. “But no matter how you cut it, the industry has moved backward over the past 20 years and all of these recent announcements, while they are welcome, they are not adding to anything.”
For an upcoming contribution to an academic book about the North American car industry, Mr. Mordue has calculated that Ontario and the federal government have given automakers 9.1 billion Canadian dollars since 2000. The resulting level of employment and production that he calculated is not encouraging, he said. In 2000, auto factories in Ontario employed 54,000 people, who made three million vehicles. In 2020, despite the government’s investments, the factories employed only 37,000 people, making about 1.1 million vehicles.
The future of Canada’s auto industry dimmed, Mr. Mordue told me, about 22 years ago, when car companies realized that they could produce their most expensive luxury models in Mexico at the same quality levels as factories anywhere else in the world, including Canada. Since then, he said, “Canada has been grasping for its source of competitive advantage.”
Mexico, by contrast, has an overwhelming advantage when it comes to labor costs. The money was given to Honda, he estimates, will cover six months’ worth of wages and benefits for the 4,000 workers in Alliston, Ontario. By contrast, it would take six to 10 years for a plant in Mexico to run up a similar labor bill.
He said that Canada’s approach to how it subsidizes auto jobs differed greatly from the approach of American states. In the United States, he said, state governments usually offer only a one-time incentive to get plants built. Canada, by contrast, generally subsidizes the retooling of factories as new products come along every five or six years.
“The U.S. approach is: one and done,” Mr. Mordue said. “But we are one and then every five years. I’m not convinced that Canada needs to do that.”
It’s also not necessarily a given that Canadian plants would close without the regular infusions of government money. It’s much easier and less expensive to reuse an existing factory than to open a new one, a process that involves hiring and training large numbers of workers and setting up a base of suppliers near the factory, Mr. Mordue said.
Mr. Mordue said that it was also impossible to determine if investments by auto companies in Canada would have gone ahead without government money or even whether investment decisions had already been made before automakers asked for the government’s help.
“You don’t know what the truth is, no one is ever going to tell you,” he said, adding that neither the Ontario government nor the federal government has been willing to gamble that automakers’ investments would come without subsidies.
“That’s the gamble that government has to play,” he said. “And so far, they haven’t taken any risks in Canada.”