Business

It seems that Ford does have a better idea

RODERICK MCQUEEN August 7 1978
Business

It seems that Ford does have a better idea

RODERICK MCQUEEN August 7 1978

It seems that Ford does have a better idea

Business

It was, perhaps, precisely the right setting to conclude months of negotiations. Those two long-standing Canadian institutions, federal-provincial feuding and government-business wariness, meeting on a uniquely Canadian stage: the rip-roaring Calgary Stampede. It was a sunny+ Friday, shortly after high noon following the three-hour Stampede opening parade last month, when the four poker players gathered for the final hand. Standing at a reception in front of rustic Fort Calgary were: Prime Minister Pierre Trudeau; his Industry, Trade and Commerce Minister Jack Horner; Ontario Premier William Davis; Ford Motor Co. of Canada President Roy Bennett.

Settled during those 15 minutes, as 100 men milled about with drinks in hand, was the $68-million combined pot anted-up by both governments to entice the giant U.S.based Ford Motor Co. to build a V6 engine plant in Windsor, Ontario. Money needed, according to Ford, to offset a variety of higher Canadian costs compared with expanding an existing engine plant in Lima, Ohio, only 100 miles across the border from Windsor.

At stake in the decision expected from Ford this month is much more than the 2,600 jobs the $500-million plant would create. Overall, the North American automotive companies will spend $60 billion before 1985 as they make smaller, lighter vehicles to conserve energy and meet stringent environmental standards. And there is an uneasy feeling in Canada that if Ohio is selected for this plant, the whole momentum of auto industry investment could drift irreversibly toward the United States. In Ontario, where the auto industry accounts for one job in six, such drift matters. If the fat package failed to convince powerful Henry Ford II sitting in Dearborn, Michigan, Canada may face endless autotrade deficits, becoming only an assembler in its aging factories.

The Stampede negotiations ended a testy debate which sprang up between Ottawa and Ontario in the months following Roy Bennett’s approach for aid. While each side traded potshots, both share some resentment and resignation over incentives to companies such as Ford, with 1977 profits of $36.7 million on $5.7 billion in sales.

For Canada, the auto pact* has meant jobs, wage parity, greater productivity and tenfold trade growth reaching about $20 billion last year. It does not control where companies invest, build plants or create jobs. Nor does it guarantee balanced trade, a sore point for Canada, in a

deficit position for all but three years.

For his part, Bennett was not pushing for government help, but he cited construction costs and provincial sales taxes as reasons why Ford could save $30 million by building in the U.S. In addition, southern U.S. sunbelt states have been using lower labor rates and other incentives to attract plants from the industrial north causing northern states to fight back. A $250-million 1976 Pennsylvania package for Volkswagen set today’s competitive pace.

So it was a high-stakes poker game that opened in February when Horner telephoned Ontario Minister of Industry and Tourism John Rhodes to ask for 25 per cent of the $30 million Ford said it needed then. Ontario said no, according to Ottawa, so Ottawa offered $30 million itself. Seeing no urgency for policy, Ontario kept studying the issue, assuming Ottawa was looking for announcements prior to a possible spring election.

At the same time, provincial interdepartmental differences appeared. Rhodes’ department leaned toward grants. Premier Davis seemed to be tipping away, and provincial Treasurer Darcy McKeough was against.

In an April 8 speech in Chatham, Ont., he said: “It would be incredible to offer massive subsidies to the largest manufacturing corporations in the world.” But layoffs at Chrysler and American Motors triggered meetings in April between the industry and Ontario where the industry message was: Companies may not like incentives, but they certainly listen to offers.

On May 26, federal officials told Ontario of a program under discussion for the auto industry in such non-DREE areas as Southern Ontario. The three-for-one proposition included bank loans and grants. At Ontario’s request, McKeough and Rhodes met with federal Finance Minister Jean Chrétien, Horner and deputy ministers on June 6 in the IT&C boardroom. Discussion wandered in circles for an hour before limping to a close. Ontario had hoped to hear g more about the three-for-one general auto 5 industry proposal; Ottawa thought On° tario wasjust trying to show the public that g it was interested. g

* Formally called the “Agreement Concerning Autox motive Products between the Government of the United x States and the Government of Canada, “the free-l rade ar3 rangement has been in effect since January ¡6, 1965. o

The situation changed dramatically the following week, when Ford’s Bennett told Ottawa June 14 the grant needed was $75 million, not $30 million. It was now a new Canadian plant versus expansion of an existing U.S. plant, not the new U.S. plant previously planned. Ottawa told Bennett its reply would depend on Ontario.

Ed Stewart, Premier Davis’ deputy minister and top aide, recalls the dilemma: “We had to decide whether we really wanted the Ford V6 engine plant to come to Ontario or whether we wanted to develop arguments as to why it didn’t happen. If we really wanted it, we had to play the game and we had to play it by rules we hadn’t written.”

On June 21, the Ontario cabinet dealt itself into the game on a 75-25 basis, offering $18.75 million if Ottawa would put up $56.25 million as part of a package. The federal cabinet countered on June 22 with a one-for-one offer, each side to chip in $37.5 million, arguing that any more from Ottawa would jeopardize the DREE program for disadvantaged areas.

Ontario was stunned, charging that Ot-

tawa reneged on its three-for-one offer. “I am very much afraid,” Rhodes told the Ontario legislature the following day, “that the Ford plant will now be lost.” “We recognized,” says a Horner aide, “they (Ontario) were going through a public change in position that was rather dramatic. Politicians do extreme things to detract from extreme changes in position.” On June 28, with time for a decision running out, the Ontario cabinet suggested a one-for-two proposition, putting Ontario in for $25 million, Ottawa $50 million. A visibly angry Trudeau lobbed shots during an Ottawa news conference June 30 saying: “We are the guys who put the $30 million on the table and have been trying to get Ford here for many months, at a time when the Ontario government was dragging its feet.” Pausing for emphasis, he added his own punctuation, “Full stop,” and left. Talks, however, continued between officials from both governments led by federal IT&C Deputy Minister G. F. Osbaldeston and Ontario Industry and Tourism Deputy Minister James Fleck. At a meeting that evening in the Constellation Hotel’s Room 855 near Toronto International Airport, Ottawa suggested Ford’s figures were high and work began that hoi-

iday weekend to trim the request.

By Thursday, the day before the Calgary Stampede opened, Bennett was getting nervous. He still had no offer to take to his U.S. parent firm Monday. Finally, alerting officials in Ottawa and Toronto, he boarded a plane for Calgary Friday morning simply because Horner, Davis and Trudeau were there.

Meanwhile, Fleck showed Ed Stewart new figures produced by officials at 8 a.m. confirming suspicions that Ford’s $75 million was high. Fleck urged Stewart to call his counterpart, Jim Coutts, Trudeau’s principal secretary, in Ottawa. During that seven-minute conversation, Stewart asked Coutts: “Do we really want this plant for Ontario and Canada or don’t we?” Coutts agreed that a last hand should be played and figures were discussed. He then closed the conversation by saying: “Fleck will be getting a call from Osbaldeston.” More numbers were exchanged by the deputy ministers while Trudeau, as grand marshal, and Horner, as Horner, rode horses in the Stampede parade. They joined Davis in the reviewing stand at 11 a.m. to watch the parade’s last hour. Amidst hockey players, mayors, high commissioners, wives and others, the three politicians were unaware the final poker hand had been dealt.

Trudeau left before the parade ended and was briefed in his nearby Four Seasons Hotel. Davis was briefed before climbing into a limousine with Alberta Premier Peter Lougheed. Officials had come up with two sets of figures, two different ways of sharing the incentive grant, and left it to the politicians to negotiate agreement.

Davis and Bennett talked in front of the reconstructed log fort and were joined by Horner. Trudeau, fresh from shaking hands with many of the guests gathered on the grass, made the fourth. Both governments moved during those pre-lunch talks with Trudeau agreeing to put up $40 million, Davis bringing Ontario in for $28 million, about a 60-40 split. At 1 p.m., Horner, Trudeau and Davis headed into the fort for steak and off-the-record speeches, leaving a smiling Roy Bennett, who had not been invited to the exclusive lunch.

Ohio’s precise offer was not known, but William Bourke, executive vice-president for Ford’s North American automotive operations, said later the Canadian grant made the two “about a wash.” While the final decision rested with Henry Ford II and his executive committee, and the auto pact’s future remained clouded, debate on government policy on grants to industry is certainly not yet over. Asoné official put it: “If you hold out and the deficit continues and the investment goes somewhere else, you’re accused of not doing anything; if you go along, you’re accused of complying with blackmail; if you make an offer and miss, you’re accused of being cheap; if you get into it and you’re successful, you’re accused of giving away the taxpayer’s money.” RODERICK MCQUEEN