Harper had no choice

When Obama jumped to bail out GM, Canada had to go along for the ride

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by L. IAN MacDONALD
The Gazette, Wednesday, June 3, 2009

Speaking of "great buying opportunities," as Stephen Harper did after the stock market crashed last fall, there's a GM, not a Ford, in Canada's future.

It stood to reason that since Canada has a 20 per cent share of the North American auto industry, we would be in for 20 per cent of whatever Washington bankrolled in a bailout package for Detroit.

As far as General Motors goes, the U.S. is in for 60 per cent of the equity in "the new GM" that will emerge from bankruptcy protection, so Canada is in for 12 per cent - one-fifth of the U.S. position.

While Barack Obama says he doesn't want to run Detroit, he is dictating the rules of the road - no more Hummers. It was no coincidence that GM sold off its gas-guzzling behemoth yesterday. Prius is the car in Detroit's future, but it sure took the Detroit Three a long time to get it.

And here's the thing, Toyota and Honda have been making fuel-efficient cars, at only half the labour costs, and without the pension and health-care obligations that put the Big Three up against a wall. This is a business model that's broken and can't be fixed - making cars nobody wants, at a cost that's not competitive, with legacy obligations that would sink any company.

In the last two years, including the boom before the current bust, GM lost $70 billion on sales of 30 million vehicles. That'll be a case study at the Harvard Business School.

So if Obama's in for a dollar, Harper's in for 20 cents on the dollar, as the only means of protecting the remaining auto-assembly plants in Ontario.

Harper and his new best friend, Ontario Premier Dalton McGuinty, made the announcement of their government's participation in the GM rescue and restructuring.

And what do we get for $10.6 billion taxpayer dollars - $7.1 billion from the feds and $3.5 billion from Ontario?

Well, we get to stay in the game, a game that would have seen GM close its Canadian plants and leave the country if all the government equity was in the U.S. If you think this is bad, McGuinty was saying, consider the alternative.

What Canada gets is five GM plants in Ontario remaining open, while GM is shutting down many plants in the U.S., and a guarantee that at least 16 per cent of its North America assembly will be done in this country, including a new hybrid, as well as a promise of $2.2 billion in new investments over the next seven years.

This comes on top of $3.3 billion Canadian participation in the restructuring of Chrysler. So that's $13 billion and counting. The third member of the Detroit Three, Ford, isn't looking for a handout, and we should be grateful for small blessings.

For Ottawa's participation in the GM bailout, it will get one seat on the new GM's 13-member board. But Washington, with its directors, will be calling the shots, even if they don't want to run the business. If you can imagine a common currency in North America, with the Federal Reserve having five board members to the Bank of Canada's one, that's pretty much the situation over at the new GM. And that one Canadian board member will have to defend not only the investment, which Harper acknowledges we might never see again, but Canadian turf, in keeping plants open and gaining our share of the new generation of fuel-efficient cars.

All this to save less than 5,000 jobs in the new slimmed-down world of GM assembly plants. That works out to an investment of $1.4 million to save each job. But there's a hidden save, of the auto parts industry, Magna and other suppliers, in this country. If there were no North American auto assembly here, the supply chain would move to the United States.

For Harper, the one-time foe of corporate welfare, this is not a happy outcome. And the true believers on the right, most of whom have never taken a decision in the real world of government, will be on his case again. But in that real world, Harper had no choice - it was either stay in the game or get out, with massive layoffs all along the supply chain. His office has done a good job of putting this package together, and on another level, the GM bailout will deepen his relationship with Obama. The co-ordinated announcement makes it clear the president and prime minister worked together on this.

If you asked Canadians whether they supported bailouts to industry, including the auto industry, their answer would be a resounding no. If you asked them if they supported a Canadian role in the North American auto industry, their answer would be yes.

 
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