Chrysler withdraws request for Ontario plant funding

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Chrysler Group LLC said it is moving forward with a major redevelopment of its Canadian operations, despite abruptly withdrawing its request for financial assistance from the federal and Ontario governments.

The auto maker had been asking for at least $700-million of government assistance for planned investments of $3.6-billion at two Ontario plants. But on Tuesday, Chrysler said it would itself make unspecified capital investments to develop a new minivan platform in Windsor, while continuing to produce the Dodge Charger, the Challenger and the Chrysler 300 in Brampton.

Ontario government sources said the province and Ottawa were willing to provide hundreds of millions of dollars to help Chrysler. In exchange, they would have asked the company for guarantees about the number of jobs and amount of investment it would keep in Ontario.

Federal Industry Minister James Moore said he's still ready to provide assistance in the future. "We've been having very good conversations with Chrysler about their future in Canada," he told reporters in Ottawa. "It's a surprise to us, but it's a judgment that they have to make as a company. … Our support for the auto industry is strong."

In a statement, Ontario Economic Development Minister Eric Hoskins applauded Chrysler's decision. "Chrysler's CEO has spoken about his commitment to Canada and Ontario, and this announcement is evidence of that," he said.

Chrysler chief executive officer Sergio Marchionne gave scant explanation for his decision to walk away from talks, but claimed the company's projects "are now being used as a political football."

"I regret my failure in having been unable to convey the highly competitive nature of markets that offer manufacturing opportunities to car makers that operate on a global scale," he said in a statement.

The statement also indicated Chrysler has yet to formally commit to proceeding with its Ontario investment plan. The company said it "confirmed its intention to begin to allocate to our Windsor, Ont., plant the development and industrialization of the next 'people carrier' architecture (the so-called next minivan and derivatives)."

But Mr. Marchionne also said his company will "reserve the right" to reassess its decision to stay in Ontario. The company said its next round of collective bargaining with auto workers' union Unifor, in 2016, would play a role in this decision.

Last month, Ontario Progressive Conservative Leader Tim Hudak attacked Chrysler for demanding a "ransom" from taxpayers and criticized the province's Liberal government for negotiating with the company.

Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc., said he doubted that Mr. Hudak's comments were actually a factor in Chrysler's decision.

"I think the decision for Windsor was 95 per cent done by the time of the Detroit auto show," when the subject of Chrysler spending billions to upgrade the plant first became public, he said. "Nothing related to the 'political football' changed the decision that Windsor was the best choice."

Windsor has an advantage in part because it takes less time to retool a plant than it does to build one from scratch. Incentives of hundreds of millions of dollars from Mexico or southern U.S. states would reduce Chrysler's costs, but it would take two to three years to get a new assembly plant up and running.

The timing is a critical issue for Chrysler – in part because of an aging lineup and its need to get fresh vehicles into the market.

Negotiations over how much of the $3.6-billion Chrysler was proposing for the new vehicles and its two Canadian assembly plants was actually going to be spent to spend in Canada were likely to be protracted, cause a lengthy delay and almost certain to end up with the government seeking commitments from Chrysler on employment and production.

If the investment no longer depends on receiving government money, Chrysler can start the process of retooling the Windsor plant as soon as it wants.

In its statement, Chrysler also warned that Canada needs to pay heed to the big subsidies other jurisdictions are offering.

The Ontario Tories were unbowed in the face of Mr. Marchionne's broadside, arguing the province should create a better business climate with lower taxes rather than hand out subsidies.

"For the last 50 straight months in a row, they've had sales growth. … At what point do we stop handing over money?" PC MPP Jane McKenna said of Chrysler.