Ontario government opening R&D Challenge Fund to automotive sector with $500 million in new funding

The Ontario R&D Challenge Fund (CF) is being deployed as the latest weapon in a fierce North American battle to attract new automotive investment. As part of its new auto sector strategy, the provincial government will invest $500 million in the CF over five years while $125 million will be directed towards skills training. But it’s unclear how much will be devoted to auto R&D, and the strategy’s third plank — improving public infrastructure — remains unfunded.

The announcement included a challenge to the federal government to match the funding commitment, which would bring the total R&D and skills package to $1.25 billion. Industry Canada officials were unavailable for comment. However Industry minister Allan Rock questioned the focus of Ontario’s investment in a statement outside the House of Commons last week.

“I understand the money ... is for all industry not just auto,” said Rock. “The Government of Canada (is) working with the Auto Sector Council which I created last year. We’re going to continue doing that and we’ll be announcing our own national strategy when we’re ready to do that.”

Ontario’s cash infusion boosts its investment in the CF to $1.25 billion. A news release said the new money will be directed towards large-scale investments to “create jobs and support innovation, research and development”. In addition, the CF will be enhanced to make it “more accessible to the automotive sector”.

“Criteria will be established based on size of the investment, the creation of new capacity, leap-frogging current technology, addressing and establishing strategic activities within the province and building capacity in research and commercialization,” stated the release.

Provincial and CF officials were meeting late last week to hammer out details of the new investment, with an announcement expected later this month.

While coverage of the announcement has largely focused on recent demands for assistance by foreign auto makers, the investment decision stems from last year’s National Forum on Automotive Innovation and Investment. That process led to the creation of the Canadian Automotive Partnership Council (CAPC) which is recommending a host of R&D measures and training initiatives to protect and enhance Canada’s competitive position in the industry (see box).

CAPC says implementation of its recommendations is required to counter the effects of rapid changes in all areas of the automotive industry, the elimination of the US-Canada auto pact, rapid deployment of capital, aggressive incentives being offered in the US and significant over-capacity in assembly plants.

“The investment is based on phase one recommendations from CAPC, in particular the need for enhanced access to R&D,” says a provincial official. “This is what the government has decided to do to encourage this sector to innovate. But we haven’t drilled down to the criteria and how the Challenge Fund will be altered to accommodate this.”

The level of automotive R&D currently conducted in Canada is low compared to other nations. Proximity to the US rather than Canada’s branch plant status in the auto industry is most often cited as the main factor. The Big Three all maintain their R&D headquarters in Michigan at Dearborn (Ford), Warren (General Motors) and Auburn Hills (Daimler-Chrysler).

The research communities active in automotive-related R&D are encouraged by the Ontario announcement and its potential for new investment and collaboration. The provincial research organization most likely to benefit is Materials and Manufacturing Ontario (MMO), one of the Ontario Centres of Excellence (OCE). Nearly 30% of MMO’s research portfolio is already devoted to the automotive sector and its researchers are linked into many other organizations that conduct automotive research. MMO is also the first OCE to tap into CF funding with its Emerging Materials Know-ledge Network. The five-year, $20.6-million consortium of nine companies and nine universities received one third of its funding from the CF and has just announced a second round of projects.

“This announcement provides an opportunity for industry in the medium-to-longer term and offers a lot more reasons to invest in Ontario and conduct R&D,” says MMO president Geoff Clarke. “We’re working within industry sectors to build consortia that could facilitate and tie into other sources of funding like the Challenge Fund. We’re also looking at skills, development and trade. More money in the Challenge Fund and skills training is very positive for us.”

The majority of CF-funded projects are in the medical and biomedical sectors, but it has made at least one automotive investment in the past. The Centre for Automotive Materials and Manufacturing (CAMM) at Queen’s Univ received nearly $7 million in CF funding in 1998 as part of a $24.5-million investment. It is proving to be an important source of advanced technology, with research from member universities flowing to more than 20 participating firms.

Federal researchers also see potential for enhancing their automotive R&D capacity, particularly if Ottawa decides to commit funds. Bill Woodward, managing director of Auto21, a Network of Centres of Excellence, says the new CF funding offers the research community more opportunities to work with the auto industry.

“It’s generally felt that auto R&D in Canada is low. The Challenge Fund and federal matching funding would be a good start,” he says.

General Motors Canada spokesperson Richard James agrees that new R&D funding will help improve the competitiveness of the Canadian market, but other issues also need to be addressed. “What exactly is R&D. You have the government versus the industry perspective,” he says. “We are looking to see more details.”

Those details could be included in the auto strategy’s public infrastructure commitment which will “create new capacity to support the needs created by new large-scale investments”.

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