Governments agree on $2.8 billion bailout for Canadian auto industry: Clement
The Canadian Press
Published Friday, December 12, 2008 9:37PM EST
TORONTO - The federal and Ontario governments have agreed to provide up to $3.3 billion for the Canadian auto industry, but the bailout comes with the potential for thousands of job cuts.
Federal Industry Minister Tony Clement said late Friday the two Canadian governments have agreed to provide the equivalent of 20 per cent of the US$14 billion that the Bush administration is considering in emergency aid for General Motors, Ford and Chrysler.
Clement said the main restructuring will be done in the United States, but Canada is also prepared to provide help to save the troubled industry, which employs hundreds of thousands of people in direct and spinoff jobs in Ontario.
"What we are signalling here tonight, both the governments of Ontario and Canada, is that we want to be part of the solution as well and it will be commensurate with the production that takes place here in Canada . . . about 20 per cent." Clement told reporters.
That works out to about US$2.8 billion or C$3.3 billion at current exchange rates, of the proposed US$14 billion American bailout package.
The Detroit Three currently employ more than 30,000 people at car assembly and parts plants in Ontario. If the U.S. carmakers cut that number of jobs in North America as they restructure their huge operations, a 20 per cent proportional cut in Canada could mean the loss of 6,000 direct jobs and more in spinoff employment at suppliers and other businesses.
GM, Ford and Chrysler have already cut thousands of jobs from their Ontario operations under earlier streamlinings, including GM plans to close a pickup truck plant in Oshawa in May and a transmission plant in Windsor in 2010.
Clement emphasized that the aid package is not a "blank cheque" for the industry.
"This is about conditional support based on their long-term plans, based on them working with the parts suppliers, based on the unions being at the table, based on the United States continuing to be part of the solution, so there are some conditions," he said.
The minister added that Canadian support is contingent on the U.S. passing its own aid package, but added he expects the Bush administration to announce its own bailout plan "very soon" after the U.S. Senate rejected an earlier proposal.
"The federal and the Ontario governments are prepared to move quickly if and when the Americans approve a support package," Clement said.
Clement wouldn't give any details Friday of how the funding would be divided between the federal and Ontario governments.
The Canadian Auto Workers union welcomed the commitment.
"This is a very positive announcement by the two governments," said Jim Stanford, a CAW economist. "I think this will help to get the log jam rolling in the U.S."
There will be more auto jobs lost in Canada, but Stanford wouldn't speculate on specific numbers.
"Hopefully with the governments moving as quickly as they are, this will prevent the worse case scenario, which would be a total meltdown of the auto industry," he said.
Ford's Canadian arm also praised Clement's announcement.
"The Canadian and Ontario governments have demonstrated strong leadership in the decision to support the country's auto sector," Ford said in a news release issued Friday.
The move by Canadian politicians comes after the U.S. Senate late Thursday rejected a US$14 billion plan, endorsed by President George Bush and congressional Democrats, that would have provided quick loans to the Detroit automakers.
On Friday, GM, Ford and Chrysler were talking with the administration and the U.S. Federal Reserve about how they could still get the billions of dollars they say they need to survive. The talks included conditions that automakers would have to meet, said GM spokesman Greg Martin.
The administration said no decisions had been made on the size or duration of the new bailout plan, or what type of concessions might be demanded from the struggling automakers, their workers, stockholders or others.
Both the federal and Ontario governments had been reluctant to hand out any aid without first seeing the details of a comparable U.S. package so they can match any conditions and provide a proportional amount of funding.
The need for some form of aid seemed to increase in urgency Friday as domestic and Japanese automakers in Canada announced they will cut production and extend temporary layoffs.
General Motors (NYSE:GM) said it will shut down virtually all of its North American plants for January, cutting another 250,000 vehicles from its first-quarter production schedule by temporarily closing 21 factories.
Some production, however, will continue at GM's plants in Ontario, said Stew Low, spokesman for General Motors of Canada.
The Oshawa, Ont., truck plant will be down during the first week of January but has no more scheduled down time until the middle of March, Low said.
Gary Coad, a father of two with twins on the way, said Friday was his last day of work after he was laid off from GM's Oshawa plant. He said he'd be willing to do whatever he could to keep his job, including taking a pay cut.
"Jobs are so hard to come by I would do whatever they want," he said.
But he remained optimistic.
"I think it'll eventually come around," he said. "Not like it used to be, but I think I'll be back here in a couple of years. I'm very optimistic that way."
Meanwhile, Japanese automaker Honda Motor Co. said it is cutting more production in North America as it adjusts to lower demand, but does not plan any layoffs in Canada.
Lewenza said the CAW has not yet been asked to make any specific concessions, unlike the United Auto Workers, who were widely blamed Friday for the U.S. Senate's defeat of the aid package when they rejected upfront pay and benefit concessions.
He added that wage cuts for autoworkers won't solve the financial problems of the Detroit Three, but said he's willing to work with the automakers to develop a solution to their woes.
The Detroit Three automakers had been seeking a total of $6.8 billion in loans and credit lines from Ottawa and Ontario, saying they need some of that money before the end of the year as they struggle with a worsening economy.
The automakers have said that without a bailout, they will soon run out of cash and could collapse.
Chrysler could declare bankruptcy within "a few days" if the White House fails to intervene and provide automakers with emergency funds, and GM will likely follow suit, according to one industry analyst.
This would set off a chain reaction that would put thousands of Canadians out of work, Joe D'Cruz, a professor at the University of Toronto's Rotman School of Management, said in an interview.
"It's going to be a very turbulent environment," D'Cruz said.
"It is going to trigger a really wide-scale set of changes in the Canadian automotive industry."