Both levels of government suggested that they would not provide public money for the project because the automaker wouldn't make certain job and economic commitments.
"Our government is committed to partnering with business in a fiscally responsible way, but we will not invest taxpayer dollars in any partnership that doesn't provide a strong return for Ontarians," Economic Development and Infrastructure Minister Brad Duguid said in a statement.
"This includes creating good jobs, anchoring key facilities, building an industry supply chain, fostering research and development, and leveraging a larger investment from the private sector."
He pointed to instances in which the province has partnered with Ford Canada in the past "where it makes sense," such as providing $71 million for the Oakville, Ont., assembly facility in 2013 and $98 million for the Essex, Ont., engine plant in 2010.
"Ontario is prepared to work with our business partners to encourage and recruit investment into the province," Duguid wrote. "However, any financial incentives that the province would participate in would need to meet our standards."
The federal government said Ford recently approached Ottawa and Ontario with an "unprecedented funding request."
"After weeks of discussions it was determined that the terms laid out in Ford's proposal were not in the best interests of Canadian taxpayers," said Jake Enwright, press secretary for Industry Minister James Moore.
"Our government supports projects that secure high-value jobs and deliver long-term economic benefits to Canada. The terms laid out in Ford's proposal did not meet those objectives."
Ford would not confirm whether it would be building its new engine in Mexico, saying for "competitive reasons" it does not discuss future product plans.
"We meet with government on a regular basis to discuss a variety of issues," said Michelle Lee-Gracey, Ford Canada's manager of communications. "We consider these discussions to be confidential."
Unifor's national president Jerry Dias said he is "disappointed" that months of discussions between Ford and the two levels of government did not result in the production of a global engine at the Windsor facility.
"The auto industries that are flourishing around the world are ones where there is a deep commitment from government and an understanding of the importance and wisdom of investment — which always pays dividends," Dias said in a statement.
"While we are disappointed that this work will be lost to Mexico, we remain optimistic that the tide is changing. Government, industry and labour are increasingly committed to finding ways of securing the strategic investments we need to rebuild our manufacturing base."
Unifor Local 200, which represents Ford workers in Windsor, is expected to hold a meeting Sunday to explain the decision to its members.
Earlier this month, Ford said it would add 1,000 jobs at its plant in Oakville, Ont. by the end of this year to build the 2015 Ford Edge crossover SUV.
The provincial New Democrats' three Windsor-area MPPs said in a statement they were "deeply disappointed" the city would not be the home of Ford's new engine line.
"The plant could have created 1,000 new auto jobs in Windsor, but we are watching as they go to Mexico," wrote Lisa Gretzky, Percy Hatfield and Taras Natyshak.
"It's clear that this won't be the last time we're faced with these challenges. We need a strategy and policies in place so that we're not caught flatfooted the next time Ontario has an opportunity like this. We need to protect existing jobs and to lay the groundwork to attract more auto jobs in the future."
Ontario Progressive Conservative critic Ted Arnott said in a statement that while he is not privy to the details of the Ford discussions, the Liberal government has made Ontario uncompetitive when it comes to attracting job-creating investment.
"Ontario businesses are hampered by excessive red tape, exorbitant hydro rates, and high taxes," he wrote.