Canada’s second largest auto maker says it will invest in its Windsor and Brampton assembly plants but it’s withdrawing its request for government aid saying it had become “a political football.”

The announcement by Chrysler Group LLC Tuesday took politicians by surprise, raised fears among union leaders about the long-term fate of the plants and stunned industry observers.

“This is unprecedented,” said Sean McAlinden, research director at the Center for Automotive Research, in Ann Arbor, Mich. “In the two most traditional automotive regions in North America – Michigan and Ontario - governments have been subsidizing the auto industry for over 100 years.”

Chrysler chairman and chief executive officer Sergio Marchionne said in a statement: “Our commitment to Canada remains strong.”

However, he also said the auto maker’s investment decisions are under constant review and could change depending on the outcome of contract talks with its unions in 2016 and also on Canada’s relative competitiveness.

Marchionne has repeatedly warned Canada that competition for auto industry jobs is fierce with lower-cost jurisdictions in the U.S. and Mexico offering the company millions to locate its plants there.

Related: Chrysler boss says Canada a “guppy” in shark-infested waters

Chrysler had been reportedly seeking up to $700 million in federal and provincial aid for a $3.6 billion investment in its two Ontario plants. The plants employ 8,000 people.

It would have been the company’s biggest investment in North America since the recession, ensuring both plants’ long-term survival.

But the auto maker said its request had become increasingly controversial.

“It is clear to us that our projects are now being used as a political football, a process that, in our view, apart from being unnecessary and ill-advised, will ultimately not be to the benefit of Chrysler,” the company said in a statement.

Spokespersons for Chrysler declined to elaborate.

But Progressive Conservatives at Queen’s Park said it’s clearly a reference to comments by their leader, Tim Hudak, that Chrysler was holding the province to “ransom.”

Related:Hudak says Chrysler holding taxpayers to “ransom.”

Chrysler’s sudden reversal is proof that what Hudak called “corporate welfare” is not needed, said Burlington MPP Jane McKenna.

“They've had 50 straight months of sales growth. They've done extremely well,” McKenna said. “You don't need to have a handout in good times.”

Chrysler has already received $800 million in Canadian government aid during the auto industry crisis in 2009, McKenna noted.

The auto maker has repaid all the money.

The company offered no details on the size of its go-it-alone investment, but some observers fear it will be smaller and more short-term than originally conceived.

“There’s not a country in the world that has a successful auto industry where the government doesn’t play a major role,” said Jerry Dias, national president of Unifor, formerly the Canadian Auto Workers, which represents Chrysler workers. “When Marchionne says, ‘I don’t want your money,’ boy that makes me nervous.”

Observers had been hoping for a major investment in a global platform at the Windsor plant and a new paint shop in Brampton.

Instead, Chrysler said only that it will take the first steps toward building the next generation “people mover” in Windsor, where it makes the popular Chrysler minivan, and provide some product enhancements in Brampton on the current generation Chrysler 300 and Dodge Challenger and Dodge Charger.

Chrysler’s decision Tuesday took federal and provincial politicians by surprise and comes just weeks after Marchionne told an auto industry convention in Toronto he believed the two sides were close to an agreement.

“It certainly came as a surprise to us,” federal Industry Minister James Moore told reporters in Ottawa.

Moore said Chrysler Canada’s chief executive officer Reid Bigland had expressed concerns about Hudak’s position.

“We’ve been, I think, quite generous and open with our support of Canada’s auto industry,” Moore said. “So they made a decision to push away from the table for now principally because of concerns with the political dynamic of the province of Ontario … you know, concerns about whether or not this is an election year.”

Ontario minister of economic development Eric Hoskins said the province, had been actively engaged in negotiations with Chrysler. He described the talks as positive and “consistent with our past level of support for major auto investments.”

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The two governments jointly provided $140 million in aid to the Ford Motor Company last September to help retool its Oakville assembly plant.

The federal government had also earmarked $500 million in its February budget for additional auto industry aid.

A high-ranking official, speaking on condition of anonymity, said Ottawa and Queen’s Park were looking at grants and loans totaling $700 million, which is what Chrysler has requested.

However, government aid usually comes with strings attached, such as job or production guarantees.

Chrysler is going through a period of rapid transition. It just completed a merger with Fiat. It’s short on cash. And its plants are running at full capacity as North American sales take off.

In Tuesday’s statement, Chrysler said it would “deal in an unfettered fashion with its strategic alternatives regarding product development and allocation.”

Marchionne said Canada has a “restricted view” of its role as an industrial player in a borderless economy.

“It is clear that we, at Chrysler, need to do more to explain ourselves and our choices going forward,” he said.

“On a personal note, as a Canadian, I regret my failure in having been unable to convey the highly competitive nature of markets that offer manufacturing opportunities to carmakers that operate on a global scale,” Marchionne said, who is Italian by birth but grew up in Toronto.

Auto industry analyst Dennis DesRosiers said Chrysler’s announcement could be very positive for Windsor, Ontario and the rest of Canada, depending on how much the company decides to invest.

“If they’re going to put less than $1 billion in Windsor, it could be read as negative. A billion dollars only buys you three to four more years in this industry, maybe five or six,” DesRosiers said.

“If the investment is in a very significant ‘flex plant’ -- upwards to $2 billion or more — it would have stunningly positive implications for Canada,” DesRosiers said.

Chrysler was getting a lot of negative press over its request for financial aid, said Sean McAlinden, executive research director of the Center for Automotive Research in Ann Arbor, Mich.

“He’s got a couple of years to come back to this,” McAlinden noted. “I don’t think they’re going to put the product in the plant until they have the new labour agreement in 2016.”

With Chrysler walking away, the federal government has lost an opportunity to set some of the terms and conditions of the investment, said Windsor MP Brian Masse, a New Democrat.

“If we lose our auto industry footprint, all of Ontario will suffer,” Masse said.

Studies show that every auto assembly plant job creates nine additional spinoff jobs. Auto assembly plant jobs are among the highest paid industrial jobs in the province.

With files from Robert Benzie and Rob Ferguson

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