Multibillion-dollar Stellantis, VW deals described as new ‘auto pact’

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The joint funding partnership between the federal and provincial governments to secure the NextStar electric vehicle battery plant in Windsor is being hailed as a new “auto pact.”

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Wednesday’s announcement of a revised agreement with Stellantis/LG Energy Solutions sees Ottawa and Ontario significantly boost their performance incentives for the private partnership’s massive NextStar EV battery plant to $15 billion.

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That comes on the heels of a similar deal with Volkswagen that could see the German auto company receive up to $13 billion in publicly subsidized production incentives for its St. Petersburg. Thomas battery plant.

In both instances, Ottawa has committed to two-thirds of that funding, while Ontario picks up a third of the tab. For the Ford government, that means a 10-fold hike in the province’s NextStar stake — from an original $500 million pledge a year ago to $5 billion now.

“The governments of Canada and Ontario are partnering to attract once-in-a-generation projects that will anchor our auto manufacturing sector and keep good jobs in Canada,” leaders of both governments said in a joint statement headlined: ‘Canada and Ontario Establish an Auto Pact to Secure Stellantis-LGES and Volkswagen Deals.’

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“It’s a funny choice of words,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association.

The Canada-US Auto Pact signed in 1965 resulted in a big expansion of Canada’s automotive manufacturing sector. It was canceled in 2001 after Japan and Europe won arguments before the World Trade Organization that the bi-national agreement was inconsistent with global trade rules.

The result of the auto pact’s demise was two decades of plant closures and a net decline in new investments and jobs in Canada’s auto sector, Ontario’s biggest industry and one of the national economy’s top three.

Unifor and other labor voices, as well as opposition politicians like local MP Brian Masse (NDP — Windsor West) have been calling for years for a new national auto policy.

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The impact of disappearing auto jobs was felt most acutely in Canada’s manufacturing heartland of southwestern Ontario and communities like Windsor. Mexico “ate our lunch — Mexico ran away with it for a decade,” said Volpe, who is also a member of the Canadian Automotive Partnership Council, consisting of CEOs and leaders in the auto sector, government, labor and academia.

Volpe said the effort to draw up a new NAFTA agreement, as well as the joint governmental response to the COVID pandemic that followed, changed everything, leading to “the seeds of this Team Canada approach.” He said it was personality-driven, with Deputy Prime Minister and Finance Minister Chrystia Freeland and Ontario Premier Doug Ford among those leading the way.

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A Liberal prime minister and a Conservative premier putting partisan politics aside and partnering for the overall good of their economies was the difference, said Volpe. Over the last two years, he said Ontario has seen an “unprecedented” $25 billion-plus in new investments in its auto sector alone.

But Volpe said the Trudeau federal and Ford provincial governments must do a much better job explaining to the public the economic benefits of pouring billions of taxpayer dollars into Canada’s automotive sector.

“People are always asking — how are we going to pay for this?” said Flavio. “It’s difficult to explain this simply … (but) these investments create a new tax base.”

Windsor’s $5-billion NextStar plant, with its estimated 2,500 or more direct jobs, should generate up to $2 billion a year “in new taxes that didn’t exist before,” he said. Also tied to that investment, however, are hundreds of new Stellantis R&D engineering jobs coming to Windsor and thousands of additional spinoff jobs across the region.

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“That’s Biden’s Inflation Reduction Act, that’s the new reality,” MP Irek Kusmierczyk (L — Windsor-Tecumseh) said of the “historic commitment” by governments of billions in public money. “This is the new reality of a fiercely competitive landscape,” he said, adding it requires “putting political differences aside.”

Kusmierczyk, Volpe and provincial MPP Andrew Dowie (PC — Windsor-Tecumseh) said there are plenty more companies currently negotiating new large-scale investments in Canada, but there’s “fierce competition” from American states also keen on landing the first such investments in the electric auto sector of the future.

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“This is effectively the model going forward,” said Dowie. “We need to land these facilities. Once they’re built (elsewhere), it’s hard to move them,” he said.

Of his government’s massive jump in financial incentives to keep NextStar from moving out of Windsor, Dowie said: “The feds expressed to us they clearly needed help, and Ontario did what was required — we’re going to do whatever it takes to these lands jobs.”

A third level of government, the City of Windsor, also came to the table as a partner, committing millions of municipal dollars to see NextStar become a reality.

This could be a short-lived auto pact, however. Volpe and others suggest a different government at either the federal or provincial level might not similarly embrace the current Team Canada approach.

“We should enjoy this while it lasts,” said Volpe.

While the current figures involved are large, the government incentives are stretched out over multiple years and are subject to such performance markers as production and sales volumes.

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