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Sharpen your pencil, Mr. McGuinty

00:00 EDT Saturday, May 17, 2008

Some days, it feels like Canada's auto industry is as preoccupied with making speeches as making pickup trucks.

The unions say Canadian car factories are getting killed by the rising dollar and by unfair trade, and ask the government for financial aid. The auto manufacturers say they're getting killed by the rising dollar and high costs; they ask the unions for lower wages and the government for financial aid.

The government obliges, kicking in millions to help lure a plant here or to keep one from closing there. The auto makers lay off more workers anyway. Eventually, the unions and the companies shake hands on a contract that fails to reduce wages.

But both sides still want public money.

No government is a more willing participant in this merry-go-round than Ontario's Liberal regime. Far from being sheepish about it, Premier Dalton McGuinty does everything but hire a skywriter urging Ford and General Motors to come take a piece of the provincial treasury. For the past three years, he has traipsed from auto plant to auto plant, smiling and bearing pledges from the province's vaunted $500-million auto investment fund. It's good politics for the Premier, but as auto employment drops, what are the rest of us getting?

That fund is tapped out now. Actually, it's more than tapped out: Government data say the province has promised $614-million for a dozen different projects. That's about $190 for a household of four.

Each new subsidy or loan has brought the promise of new jobs. Automotive employment in Ontario has fallen by at least 10,000 since the government fund was created in 2004, however. (A cynic, scrambling for his calculator, would point out that that's $61,400 for every pink slip.)

By far the largest recipient has been GM, which is also the source of the greatest mystery. The province pledged a $235-million loan to GM's Beacon project in 2005, an expansion plan that includes a fancy new research centre. (The feds put in $200-million as well). Mr. McGuinty stood at a podium in Oshawa and proclaimed the importance of it all. What, exactly, did he receive in return? The total number of new jobs to be created was small - 500, or one for every $870,000 in public money, which seems rather exorbitant .

Don't think of it as 500 new jobs, the government said; think of it as protecting thousands more. The economic development minister at the time, Joe Cordiano, assured the public that the money came with strings attached. GM was required to maintain an average of 16,000 workers in Ontario, on average, over nine years. That was the story, and the number continues to be repeated - even now, as GM blows more bodies out the door (1,400 at a transmission plant in Windsor this week) and downsizes its Canadian work force (now roughly 15,000).

The problem: It isn't true. "I don't know where the [16,000] number came from," Stew Low, a spokesman for GM Canada, says. "It's been floating around out there." Well, we know where it came from: the Ontario Ministry of Economic Development. But a spokesman for that department now says it's not as simple as it was portrayed. There are strings attached, but it's all based a complicated formula, and affected by things like the business and product cycle. Suffice to say that (a) 16,000 is not really 16,000, (b) GM appears to have room to cut further without losing its government support and, most importantly (c) taxpayers have no clue what the payoff will be. This is good policy?

"There's no company in their right mind that's going to agree to maintaining a hard and fast [jobs] figure over an extended period of time," responds a senior government official. "If you keep the investment, the jobs will come eventually." Perhaps. Markets change and so does the business environment. When GM, the feds and the province struck their deal in 2005, the dollar was 81 cents (U.S.) and Canadian auto plants had a huge cost advantage over U.S. factories. That's why, in the first half of this decade, Michigan's auto sector declined at a much faster rate than Ontario's did. Now the C-buck is at par and American auto workers have agreed to reduce their pay, so the advantage is gone.

Maybe the dollar will reverse itself and maybe it won't. Maybe the jobs will come back, or maybe the Detroit Three face a grim future in North America, as Canadian Auto Workers head Buzz Hargrove said the other day.

Mr. McGuinty can't influence the currency or Ford's market share. But it is his job not merely to cut ribbons and give speeches, but to prove that he's getting value for the money. And he can't. The Premier loves to claim that his $500-million "leveraged" $7-billion worth of investment, as though he can take the credit, but this is highly questionable. (Do you believe a company like Toyota decides to build a $1.1-billion factory in Woodstock, Ont., because of $70-million from Queen's Park? It helps, sure. But with the dollar at 82 cents at the time, the plant might have come here anyway.) The job "guarantees" that come with public money are soft, where they exist at all. The government can provide no third-party cost-benefit analysis on auto subsidies. Hell, it can't even tell you how much of the $614-million is in grants, as opposed to loans or other spending (we asked).

All the taxpayers have are press releases, promises, and rising unemployment in the auto sector. They deserve more than that, or they deserve their $190 back.

© The Globe and Mail

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