'Do or die' time as FCA's Brampton plant awaits investment

Editor's note: An earlier version of this report misstated the number of General Motors plants in Oshawa, Ontario. There is one plant with two lines. Also, the number of assembly plants in Canada remaining has been corrected.

BRAMPTON, Ontario -- If Canada is going to turn around its ailing auto industry, it will need to start here -- by convincing Fiat Chrysler Automobiles to reinvest in its 29-year-old Brampton Assembly plant.

The plant, in this sprawling suburb of Toronto, makes some of FCA's most iconic American cars -- the Chrysler 300 and Dodge Charger and Challenger -- and is known for high productivity and quality. But its paint shop is the oldest FCA has in North America, its body shop is populated by aging robots, and the big cars it builds are due for major redesigns.

An overhaul is likely to cost at least $1 billion. FCA is already spending twice that to upgrade its Windsor, Ontario, plant, where it makes minivans. If the Canadian and Ontario governments and Canada's auto union can't convince FCA to take the plunge in the next year or so, Brampton's long-term prospects are dim.

"It's do or die," said Leon Rideout, a Newfoundlander who heads the Brampton local of Unifor, the Canadian auto union. "Without investment, there's not much of a future for us."

FCA hasn't announced any immediate plans for Brampton. An FCA spokeswoman said the company is always evaluating its facilities and "considering possible upgrades to improve quality and productivity."

Brampton's plight reflects the broader troubles roiling the Canadian auto sector. As recently as 1999, Canada was the world's fifth-largest producer of automobiles, behind the U.S., Japan, Germany and France, with an auto manufacturing belt that stretched across southern Ontario, from the Detroit border crossing to the outskirts of Montreal.

But high labor costs, unfavorable exchange rates and government reluctance to offer tax breaks and other financial incentives have prompted carmakers to close five Canadian plants and downsize others. This year General Motors will eliminate 1,000 jobs at one of its two Oshawa, Ontario, lines.

Moreover, Canada has been passed over in the rush by German and Asian manufacturers to build new North American factories. Since 1999, two dozen new assembly plants have sprouted up in the southern U.S. and Mexico; Canada has gotten one in that period and has only eight left.

Canada is trying to reverse the trend. Just last week, the retired head of Toyota Motor Corp.'s Canadian operations, Ray Tanguay, was tapped to lead an automotive investment committee that will seek to help the Canadian and Ontario governments target financial aid to lure new plants and keep those they already have.

"We have to show you can have a better bottom line" in Canada, Tanguay said at a news conference in Toronto.

Anthony Faria, a business professor at the University of Windsor who tracks the declining investment in Canadian auto plants, said convincing FCA to keep Brampton humming is critical. If the plant is downsized or closed, Canada would surely have a harder time convincing other automakers not to do the same.

"If Brampton doesn't get some investment, it's probably the end of Brampton," he said. "It certainly can't go on as a way-behind-the-times plant, as it is now."

The investment case for Brampton isn't easy. At the current exchange rate -- the Canadian dollar is worth 81 U.S. cents -- the cost of unionized labor is about the same on both sides of the border. But nonunion plants in the southern U.S. and Mexico have clear labor-cost advantages, whatever the exchange rate. Southern states and Mexico also typically offer economic assistance worth tens of millions or even hundreds of millions of dollars to spur plant investments.

Brampton's vehicles also compete in a shrinking segment of the market: full-size sedans. The plant operates two shifts per day. Sergio Marchionne, Fiat Chrysler's CEO, has said he prefers to make big investments in plants that can run three.

To do that, Brampton may have to add other vehicles to its mix. "The key question is what [vehicles] come after the 300," Tanguay said in a brief interview.

Then there's Marchionne's intense focus on efficient use of capital. He recently called on automakers to merge to conserve resources and improve returns. And it won't be easy finding money for Brampton at a time when the CEO is spending $5.5 billion to expand FCA's Alfa Romeo brand and billions more on new models, technologies and emerging markets.

The Brampton plant was built by American Motors and opened in 1986 -- just before AMC was acquired by Chrysler. In 1992 it began assembling sedans based on Chrysler's front-wheel-drive LH platform, the Dodge Intrepid and Chrysler 300.

After the Daimler-Chrysler merger, Brampton played a key role in a Chrysler turnaround plan. It was chosen to produce a new range of rear-wheel-drive sedans.

A boldly restyled Chrysler 300 rolled out of Brampton in 2004 and became a cultural sensation that struck the fancy of rappers, business executives, pro athletes and an Illinois state senator named Barack Obama. The brawny Charger rode a muscle-car resurgence.

By the end of 2007, the plant was running three shifts and had built more than 1 million LX-platform cars. A two-door Dodge Challenger was then added to the mix, burnishing Chrysler's street cred.

But behind the upbeat headlines, serious issues went unaddressed. Brampton's retooling for the LX platform had been a low-budget effort as a result of Chrysler's troubles at the time. The body shop got hand-me-down robots from other plants. A paint-shop overhaul was put off, Rideout said.

Today the factory has just 581 robots. Newer body shops in other FCA plants have more than 1,000.

After the financial crisis took hold in 2008, Chrysler was ushered into bankruptcy, Brampton and the company's other plants were idled, and Fiat took over. Marchionne's turnaround plan called for a rapid revamping of almost all of Chrysler's models and its manufacturing system.

But resources were still scarce. As part of the sweeping product overhaul, the 300, Charger and Challenger were given new exterior styling, but their underpinnings were largely unchanged. So was the Brampton production line.

In January 2011, Marchionne presented the new cars at the Brampton plant. The paint shop, he told reporters, needed "a complete overhaul," but he noted that the economics would be difficult. "If we invest in a paint shop, the issue of a third shift becomes more urgent," he said.

By the beginning of 2014, Brampton's future was a question for the newly merged Fiat Chrysler Automobiles. With profits rising, it finally looked to update the Canadian factories.

The company planned to spend $2.6 billion in Windsor and $1 billion in Brampton and asked the Canadian and Ontario governments for a financial incentive package worth about $700 million.

But the request sparked political outcry over "corporate welfare," and FCA withdrew it. It went ahead with the Windsor work even without government assistance. Brampton's refurbishment was postponed indefinitely.