01/14/2013 09:56 EST | Updated 03/16/2013 05:12 EDT

Canadian governments must pay to 'play' in auto industry

Canada will have to pay to play if it wants to maintain its manufacturing sector — the auto industry in particular, say analysts and government officials.

“That’s the game. We may not like the game, but every single state, every single country in the world is supporting the auto industry with some sort of financial assistance,” said Dennis DesRosiers, president of DesRosiers Automotive Consultants. "We have to play the game if we expect to get investment, plain and simple.”

For example, a report in the Wall Street Journal said politicians in Indiana came up with $28 million in tax breaks, training grants and other incentives to help lure Caterpillar’s Electro-Motive engine plant from London, Ont., to Muncie, Ind., a year ago.

In December, General Motors moved production of its Camaro from Oshawa, Ont., to Lansing, Mich.

In 2011, the United Autoworkers agreed to a two-tiered wage system, something the Canadian Autoworkers rejected last year. The union did agree to keep new hires at a lower wage for 10 years rather than six, which was part of the previous contract.

Also last year, Michigan became the 24th right-to-work state in America. Around the same time, Ford and Chrysler announced a combined $1-billion worth of investments in Michigan.

This year's car and truck of the year, revealed Monday at the North American International Auto Show in Detroit, are both made in Michigan. The Cadillac ATS is assembled in Lansing. The Dodge Ram 1500 is built in Warren.

'Fierce competition' from south

“It’s competitive out there. We recognize that. Ontario is there to fight for those future mandates down the road,“ said Brad Duguid, Ontario’s minister of economic development and innovation. “It’s a global economy. Ontario is not an isolated island.”

The minister also called Mexico, with its low wages, “fierce competition.”

Honda is expected to open its first Mexican assembly plant in 2014.

“We’ll have to work hard to compete with Mexico and the southern U.S.,” Duguid said.

Two weeks ago, Ottawa announced it would renew the Automotive Innovation Fund at a cost of $250 million over the next five years. Automakers and parts producers can tap into the fund to assist in large-scale research and development projects to build innovative, greener, more fuel-efficient vehicles.

“I hope the Ontario government follows suit with something. We’re expecting Ontario to do something, as well,” DesRosiers said.

Jobs depend on auto sector

Duguid said the auto industry accounts for 450,000 jobs and 20 per cent of Ontario’s manufacturing base.

DesRosiers said “one in six, maybe one in five” Ontario jobs is tied to or benefits from a healthy auto industry.

“Autoworkers have to eat, they have to be entertained. They keep an awful lot of businesses going,” he said.

Nearly four years ago, Ottawa and Ontario combined to invest almost $14 billion in Chrysler and General Motors when the two were near collapse.

“We wouldn’t have an auto sector in Ontario ... if we hadn’t have made those investments,” Duguid said.

Duguid said the province is focused on research and innovation, and not necessarily manufacturing.

Ontario previously helped with AUTO21, an auto research consortium based at the University of Windsor. It brings together nearly 200 Canadian researchers at 46 universities, and partners them with 120 industry and government partners.

Duguid claimed that “Ontario is in the midst of an innovation agenda.

“We’ve always been good at the innovation and research side,” he said. “You need to be strong on innovation if you’re going to compete.”

Ontario is the only province or state to have five automakers in it. Along with the Detroit Three, Honda and Toyota produce cars in Ontario.

Duguid said Ontario has the education, innovation, corporate tax rates and infrastructure to compete, but it won’t be easy.

He claimed Ontario and automakers are discussing "a number of proposals" but would not say what “interesting and innovative projects" are planned.

“This is a good place for auto manufacturers to be,” he said. “Future mandates will be challenging for us.”