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Chrysler halts appeal for Canadian funds, will still invest in plants

By Susan Taylor and Bernie Woodall

TORONTO/DETROIT (Reuters) - Chrysler Group LLC said on Tuesday that it would push ahead with development plans for two key assembly plants in the Canadian province of Ontario, but will keep its "strategic options" open after withdrawing requests for government funding.

Chrysler, a unit of Fiat Chrysler Automobiles , said its appeal for cash from the governments of Canada and Ontario had become a "political football," showing the country's short-sighted view of industrial development.

Pressure began building around the issue in January, after Fiat Chief Executive Officer Sergio Marchionne said that Canadian governments needed to step up with financial incentives in order to secure Chrysler's investment plans. Back in 2009, the two levels of government had contributed about $2.9 billion toward Chrysler's bailout.

"As a Canadian, I regret my failure in having been unable to convey the highly competitive nature of markets that offer manufacturing opportunities to carmakers that operate on a global scale," said Marchionne in a statement. Marchionne has dual citizenship in Canada and Italy.

"Some of the shots across the bow following our initial approaches to the federal and provincial governments reveal, apart from political convenience, a somewhat restricted view of Canada as an industrial player in what has become a borderless economy."

Marchionne also said he hoped all stakeholders would preserve the country's and province's competitiveness, but reserved the right to reassess Chrysler's position if conditions changed. Some analysts and industry experts said that Marchionne was angling for a better position in negotiations by raising questions about the automaker's commitment to Canada.

Chrysler, which had reportedly sought $700 million in support toward a $3.6 billion investment, said it will still go ahead with plans to develop and produce its next-generation minivan at its Windsor, Ontario, plant, which employs more than 4,600 workers.

It will also produce revamped models of its Chrysler 300, Dodge Challenger and Dodge Charger at a Brampton, Ontario, facility, which has nearly 3,250 employees.

The company did not detail the scope or duration of that production work, nor did it discuss spending plans. It was unknown whether Chrysler would now invest less than originally planned.

Now that Chrysler has decided to invest in Canada, it is unlikely to change its mind unless forced by market conditions, said a source familiar with the company's plans, who was not authorized to speak on the record.

EYE ON UNION TALKS

Richard Hilgert, an analyst with Morningstar who covers Fiat, said that Marchionne's latest move was "definitely brinkmanship."

"It means that if the Canadians are not willing to play ball with him, he will go play in another country when it comes time to make new investments beyond what Chrysler already has in motion," he said.

"Canada still has an open door to come back to the table and if there is a political will to reopen negotiations with Chrysler, I'm sure Mr. Marchionne would be more than willing."

Minister of Industry James Moore said that Chrysler's decision was a "surprise" and that the Canadian government has been having good conversations with the company about their future in Canada.

"(Chrysler has) made a decision to push away from the table for now, principally because of concerns with the political dynamic in the province of Ontario," he said.

Canada has been a generous supporter of the sector, he said, pointing to last month's announcement of C$500 million ($450.07 million) in new subsidies for an auto innovation fund.

A spokesman for Ontario Minister of Economic Development, Trade and Employment, Eric Hoskins, said the province would continue working "positively and proactively" with Chrysler in a "fiscally responsible way."

Chrysler said that it would continuously monitor its capital spending plan to measure Canada's competitiveness against countries around the world. It said contract talks in 2016 with workers represented by Canadian union Unifor would be particularly important.

"Knowing what he's got ahead, negotiating with Unifor, (Marchionne) probably determined this is not the right time to pressure the Canadian government in talks for this money," said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Michigan.

"If you lock up renewing these plants ahead of the new labor agreement, you have nothing to pressure the union with."

Historically, the union has lobbied the Canadian and Ontario governments to subsidize plants, which helps to offset Canada's higher labor costs.

Jerry Dias, national president of Unifor, a union representing more than 39,000 workers in the country's auto sector, said that comments by the leader of Ontario's opposition Conservative Party had infuriated Chrysler.

Tim Hudak, leader of the Conservative Party in Ontario, said last month that government should reject the company's request for a "billion-dollar taxpayer handout" and instead lower taxes to create jobs.

Dias said that Chrysler's decision to pull its appeal for funds was regrettable and demonstrates the need for a long-term government auto strategy that includes public investment.

"Countries that don't understand the importance of the industry generally don't have an industry in the long term," Dias said. "That's clearly his (Marchionne's) message."

COMPETITION FOR VAN PLANT

Marchionne, who attended university in Windsor, said earlier on Tuesday that the process of deciding what to do in Canada was slowed by politics, which he called an "ideological albatross."

While Windsor is Chrysler's only minivan assembly operation,

Marchionne recently said that representatives from countries including the United States and Mexico had approached the automaker in hopes of luring away the production.

The Windsor assembly plant, built in 1928, was home to the world's first minivan in 1983.

The Globe and Mail has reported that upgrades to the Windsor plant will cost $2.6 billion with another $1 billion spent at Brampton. The newspaper also reported that Chrysler told governments in Canada it wanted $700 million before proceeding.

($1 = 1.1110 Canadian dollars)

(Additional reporting by Agnieszka Flak in Geneva, Solarina Ho in Toronto and Louise Egan in Ottawa; editing by Toni Reinhold, Jeffrey Hodgson and Matthew Lewis)

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