Ontario auto subsidies under fire as jobs vanish

By Jonathan Spicer

TORONTO, Nov 14 (Reuters) - The bleeding of automotive jobs in Ontario, Canada's industrial heartland, is casting a dark shadow on provincial government's policy of providing substantial financial support to the auto industry.

The Ontario government says it has no choice but to continue its subsidies, which have amounted to more than C$500 million ($526 million) in the last three years, and which are tied to plant and technology investments.

Over the same period, 2,200 assembly jobs and 9,600 parts jobs disappeared in Ontario as the export-oriented industry was hobbled by the rising Canadian dollar, cheap foreign labor and a drop in North American sales for the three Detroit-based auto producers.

"These companies put it to us very clearly: 'What are you going to do for us to make it very lucrative for us to be here?'" Sandra Pupatello, Ontario's minister of economic development and trade, said in an interview.

"It really is assumed" that governments will pay subsidies to the firms, she said, "and we've got to be in that business."

Ontario, Canada's most populous province, is home to almost all of Canada's key auto industry, and accounts for about 17 percent of overall North American production. Chrysler LLC, General Motors (GM.N), Ford (F.N), Toyota (7203.T) and Honda (7267.T) have plants in the province.

But the industry has been hit hard by the appreciation of the Canadian dollar, which rose to a modern day record against the U.S. dollar last week. That has pinched auto exports, which historically enjoyed an exchange-rate advantage south of the border.

Earlier this month, Chrysler said it would cut about 1,100 jobs at its Brampton, Ontario, assembly plant as part of wider restructuring. Two years ago, the provincial government committed C$76.8 million to Chrysler's operations in Brampton and in Windsor, Ontario, which borders Detroit.

"The problem is that the (Ontario Premier Dalton) McGuinty government has been handing out cash to outfits like Chrysler, General Motors and Ford without any long-term strategy and without any firm job guarantees," Howard Hampton, leader of the province's left-leaning New Democratic Party, told Reuters.

Subsidy contracts between the government and auto companies typically earmark a number of jobs that must be retained, but there is no protection against job cuts.

Despite the steep job losses, no company has breached a contract with the provincial government, Pupatello said, noting that other jurisdictions have suffered far more severe job cuts.

Dennis DesRosiers, a leading automotive consultant, said it's a "damned if you do and damned if you don't" situation for the government.

"We haven't gained any employment over the last three years but without these subsidies we likely would have lost a lot more," he wrote in an e-mail. "So they have been successful from that perspective."

Last week, J.P. Morgan economist Ted Carmichael forecast as many as 150,000 more job cuts in Canadian manufacturing industries over the coming year as a result of the hot Canadian dollar, with Ontario absorbing much of the hit.

($1=$0.95 Canadian)

(Reporting by Jonathan Spicer; Editing by Peter Galloway)