WINDSOR, Canada — At a May 21 dinner meeting, Chrysler Group (www.chrysler.com) officials, led by Senior Vice President of Employee Relations John Franciose, delivered the news to Canadian Auto Workers (CAW) President Buzz Hargrove: The automaker's planned US$1.2-billion investment in a new plant in Windsor would not be going forward. The meeting ended with little food eaten and with no customary handshake.
        "At the end of the day" was an oft-repeated phrase by Chrysler Group President Dieter Zetsche in his press conference the next morning, where he explained the cold hard facts behind the difficult decision by the DaimlerChrysler division.
        "We could not find a business case that would justify an investment into incremental capacity in the industry where there was very little chance this could provide for reasonable return in the future to our bottom line," he said. "We basically had no choice. It would not have been responsible to make any other decision. We were definitely not pleased by that . . . the opposite. But we had to face reality and make that decision."

Union Blasts Officials for Incentives Impasse

Hargrove was even less pleased, seeking to lay blame squarely at the feet of provincial and federal officials in Canada, whose hemming and hawing over incentives, he says, has cast a negative pall over the whole process.

If Chrysler had proceeded with its planned plant, Windsor (pictured) would've garnered a $1.2-billion investment and 2,500 jobs.

        "We were absolutely devastated when they informed us that they were not going to do the project," he said. "It is just a horrible decision for Windsor, our union, the province of Ontario and Canada. One more time we have blown an incredible opportunity to stop the decline of Canada's most important industry."
        Up to 2,500 direct and indirect jobs would have been created by the project. DaimlerChrysler had sought around $250 million in subsidies, and Zetsche reiterated that there was significant progress being made on that front.
        Hargrove, however, said that calling the project "not viable" was just a diplomatic way of saying an impasse was reached on incentives. He also said he'd been told by DaimlerChrysler officials that last year's choice of Georgia for the company's commercial van plant was driven in large part by the maneuvering of Canadian and provincial officials over the incentives issue, with no dollars on the table. (For an update on the Peachtree State project, see the May 26, 2003 Blockbuster Deal: "Mercedes' Georgia Plant: Sprinting to the Finish".)
        But the objects of Hargrove's wrath - Ontario Minister of Enterprise Jim Flaherty and Canadian Industry Minister Allan Rock - took a differing viewpoint.
        "The government cannot artificially create demand for a product where none exists," said Flaherty. "DaimlerChrysler's decision is based on soft market conditions, well outside the influence of government."

Substantial Progress Not Enough

In fact, the discussions were yielding fruit, and indications were that certain parties were yielding ground as well.
        "Those discussions, at least to some extent, initiated a re-evaluation of the auto policy of the Canadian government," said Zetsche in a polite reference to the country's previous intransigence. "They are prepared for the future to include changes in the world of the last few years into their approach to investment in Canada."
        Perhaps most disappointing to all concerned was the innovative and promising nature of the planned greenfield automotive campus.
        The flexible manufacturing model had been hammered into shape by a unique depth of partnership between the Chrysler Group, the CAW, suppliers and the city, provincial and federal governments. Union concessions had already chopped around $51 million from the projected cost of the project. And new arrangements with Tier 1 suppliers to do work that Chrysler would have done in past operations meant covering a whole range of technical, logistical, pricing and volume issues. The risk of these challenges was balanced by the concept's promise, not least because it involved a significant amount of R&D activity as well as assembly.

Cancellation Comes Soon After CAW
Agreement for International Truck Plant

In a still unfolding parallel that has Hargrove and others nervous, the union voted just 10 days before Chrysler's cancellation to support a new agreement that would keep open the 1,000-employee International Truck plant in Chatham. Ford's promised expansion of its Oakville plant, Hargrove admitted, was also a matter of renewed concern, given the company's well-known struggles in the marketplace.
        Zetsche, on the other hand, insisted that neither the incentives issue, the dramatic appreciation of the Canadian dollar nor pending negotiations with the United Auto Workers in the U.S. had any effect on the decision. DaimlerChrysler, he also pointed out, is still investing some $1.9 billion in other Canadian plants, primarily in Brampton and Windsor, where the company recently launched the Pacifica model.
        There was some rueful auto-industry irony in the timing of Chrysler's announcement. The cancellation came only a week after Ford opened its new $13-million Powertrain Engineering Research & Development Center at the automaker's Essex Engine Plant in Windsor.

Hargrove: 'You Can't Eat the Seed Corn'

Hargrove, who started out in the industry as a worker in Windsor before joining the CAW staff in 1975, proudly shook Zetsche's hand the day that first Pacifica rolled off the line a few months ago.
        He had nothing left but accumulated angst, however, in the face of the second disappointment in the past four years from the company, and what he sees as continuing negative public comments from government officials that are detrimental to the industry.
        "In this industry, you can't eat the seed corn," said Hargrove. "You have to keep going with investment and new products."
        Zetsche countered that claim when asked about the present viability of the business model in another location. Given market conditions, "there is no indication that this business model would work easier in the States than in Canada," he said. And he reminded all interested parties that, indeed, the company was in business to make money.
        "We are not building plants [in order] to execute business models," he said. "We are doing a lot in Canada, not because we owe something, but because we think it's a great place to work," with high quality and productivity ratings.
        Zetsche said he understood the strong emotions involved. He added, however, "at the same time, I have to make it very clear that during the late fall, we did not give a promise we would build that plant. What we said, very clear and loud, was we would try to do everything possible to make it a viable business case, but we would only proceed if there would be an economic basis."
        At the end of a very long day, there still wasn't.