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How Chrysler won this round of auto-subsidy sparring

Once again, Chrysler Group LLC chief Sergio Marchionne is proving himself a master at playing auto-subsidy hardball. By suddenly withdrawing the car maker's request for some $700-million in aid from the federal and Ontario governments, he has deftly altered the game and shifted the spotlight from Chrysler to the politicians and the workers' Canadian labour union.

Don't be misled by the company's surprising declaration that it will use its own capital to make the necessary investments to revamp its manufacturing operations in Windsor, Ont., where it intends to build its new "people carrier," the next version of its minivan by a supposedly more marketable name.

Mr. Marchionne still wants a chunk of our tax dollars, and he is still prepared to go elsewhere if he doesn't get what he thinks the car maker needs to stay competitive. He just doesn't see the logic of waiting for a political decision that would probably take too long to meet his operational needs and would undoubtedly come with plenty of strings attached, by politicians billing themselves as guardians of the public purse.

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What's worse, a hefty proposed Chrysler subsidy could wind up becoming an unfortunate hot-button issue in the Ontario election, which is likely to be called before any deal can be reached. Conservative leader Tim Hudak is already trying to score political points by rejecting assistance for a corporate welfare case he says is trying to hold the province hostage.

"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 huffed.

And this way, Mr. Marchionne doesn't have to make explicit production or job commitments, giving him more leverage for what are bound to be tough negotiations with Unifor for a new labour contract in 2016. The company is seeking to dramatically lower costs to keep production here. And if government subsidies will make negotiations easier by locking down a longer-term commitment to the plant, you can be certain Unifor will join the chorus demanding that politicians loosen their purse strings.

Instead of playing the eager supplicant and constantly being castigated by critics, he has effectively put Chrysler's longer-term future in Canada up for grabs. He can sit back and wait for Ontario and federal politicians to troop to his door with their best offers, and he can count on a worried union to line up on his side.

With that in mind, Mr. Marchionne urged all "stakeholders" to ensure Ontario is a competitive location to assemble vehicles, while warning that Chrysler reserves the right to "reassess our position as conditions change."

He pointedly added: "On a personal note, as a Canadian, 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."

I doubt that the head of a multi-billion-dollar global company cares whether some local politicians are besmirching Chrysler's name. There isn't a jurisdiction that has managed to retain or win an auto plant for decades without significant incentives of some sort. And Mr. Marchionne knows he will get his public money somewhere.

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In the meantime, Chrysler needs to move quickly to replace its aging minivan models and protect its market-leading share. It's a segment that's in slow decline, but it's still worth the cost of a new plant for the manufacturer that has long owned it. The only question is how long that production stays in Canada. And that ball has plainly been bounced back to the politicians.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More

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