Cars pass along the assembly line at the Stellantis plant in Brampton, Ont., July, 2023. The automaker's plans to move production of the Jeep Compass to Illinois from Brampton violates funding-for-footprint agreements, Industry Minister Mélanie Joly said in a letter to the company's CEO.Chris Young/The Canadian Press
The Canadian government’s threat to sue automaker Stellantis NV over plans to shift production to Illinois from Brampton, Ont., sets the stage for a possible legal battle that will hinge on the fine print of the funding agreements between the two parties, legal and industry experts say.
Industry Minister Mélanie Joly issued the warning on Wednesday in a letter to Stellantis chief executive officer Antonio Filosa, whose company announced a plan to expand U.S. production over four years. Part of that plan includes moving output of the Jeep Compass to Belvidere, Ill., from the factory northwest of Toronto. The Brampton plant has been closed for almost two years awaiting a retooling to assemble the Compass.
Ms. Joly said in the letter Stellantis’s shift violates two funding-for-footprint agreements related to its auto assembly businesses, and its NextStar Energy EV battery joint venture in Windsor, Ont.
Prime Minister Mark Carney told reporters on Thursday he spoke with Mr. Filosa before the Stellantis announcement and received assurances the automaker will look at producing a different car in Brampton, in connection with the renegotiation of the North American free-trade agreement. He said he “expressed disappointment on their decision to shift where the Jeep production was” and reminded Mr. Filosa of the company’s undertakings related to the financing for the battery plant.
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In May, 2023, Stellantis and its NextStar partner LG Energy Solution halted worked on the battery plant and demanded more aid from Ottawa and the Ontario government, threatening to move the venture to the U.S. The governments agreed to raise their support to as much as $15-billion in capital cost subsidies and tax breaks linked to production.
Experts contacted by The Globe and Mail for this story said it is impossible to judge the merits of any case against Stellantis without seeing the wording of the agreements. Stellantis declined to provide details; Ms. Joly’s office did not respond to e-mailed requests.
Hassan Ahmad, a professor at Osgoode Hall Law School in Toronto, said the government must show in court the car company breached the wording and/or intent of the contract they signed. If the government succeeds in doing so, it can seek damages that could include past money transfers or any future losses that might include taxes or profit sharing.
However, if Stellantis is able to show it is not obligated to maintain certain employment or production levels in Canada, there is nothing stopping it from moving the Brampton operations to the U.S.
“Companies are free to set up wherever they please. We see this all over the world – you go to the low cost, most effective and efficient jurisdiction in order to produce your products,” Prof. Ahmad said.
Even if it loses in court, Stellantis might figure the economic benefit of moving south outweighs any legal penalty it faces in Canada, Prof. Ahmad said.
The Trump trade war has upset global supply chains, heaped costs on importers and prompted manufacturers to re-examine where they produce. As a result, companies are increasingly faced with moving plants out of countries where they have received government support.
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At the same time, companies risk a backlash and tariff costs if they are unable to invest in the U.S., said Saibal Ray, a professor at McGill University in Montreal.
Prof. Ray noted taxpayers saved the Canadian division of Chrysler, as Stellantis was known at the time, from a collapse in the financial crisis of 2008-09 with billions of dollars in loans. The government would later write off $2.6-billion of the amount. This contributes to the idea that Canada and its people have a stake in the company, he said.
“There is a huge amount of taxpayers’ money that has gone to this company. So the government absolutely expects something in return,” Prof. Ray said.
However the matter is resolved, Peter Frise, a professor at the University of Windsor, said the dispute marks an “unfortunate” twist in Canada’s relations with the automaker.
“The Canadian government and the car companies … have a long history of working together in a pretty collaborative, harmonious way,” Prof. Frise said. “And I would also point out that the car companies have a long track record of meeting their commitments, paying their loans back.”
With reports from Laura Stone