Prentice rejects auto subsidies

Globe and Mail Update
February 29, 2008 at 10:33 AM EST

TORONTO — Federal Industry Minister Jim Prentice rejected the concept of direct subsidies to auto industry players Friday, insisting that setting up a strong economic foundation is a better route to strengthen the business.

In a morning speech to the Toronto Board of Trade, Mr. Prentice said the broad provisions in this week’s budget will help auto and auto part makers, as well as all other industries.

“When your tax rates are competitive, for example, you do not need to rely on an undervalued Canadian dollar,” he said. “When you have a highly integrated North American marketplace, with world class infrastructure and harmonized standards, you have economies of scale. When you have a solid R and D base, you drive innovation, rather than try to play catch up. These are strong pillars for a strong Canadian industry.”

Speaking to reporters after his speech, Mr. Prentice acknowledged that the auto industry in Canada faces a number of “challenging circumstances,” including global competition, the high dollar, shifting product preferences in the United States, and the fact that the North American market is mature.

But it is innovation that will keep the industry alive in Canada, not government subsidies, he insisted. “[The auto industry] is going to have to stay innovative and competitive … It’s not the responsibility of government to produce automobiles or produce automotive parts, it is [our job] to create the sound financial framework …”

He said the most powerful lever that the government has to help industry is the accelerated capital cost allowance, which allows companies to write off investments in new equipment. The government sweetened that policy in the new budget, by extending quicker write-offs for the next three years.

The budget also included a $250-million fund to help the automotive industry with research and development of new green technologies.

Many auto manufacturers and auto parts makers were unhappy with the budget, which didn’t do enough to support the industry, they said.

Parts makers, hard hit by plant closures and job losses, have been particularly vocal in asking for help. Late last year they approached Ottawa and Ontario looking for a $200-million each in emergency financial assistance.

Auto industry analyst Dennis DesRosiers, who attended Mr. Prentice’s speech, said he supports the federal government’s approach.

“This industry that we had in the 1970s has to go. The industry we need is an industry that focuses on innovation and investments,” he said.

“The companies that don’t invest and innovate, the quicker they go the better. The worst thing to do is to bail out guys [and] try to hand out money in subsidies. ”

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