Ottawa considers bailout of auto industry

TORONTO — The knife wounds hitting America’s auto companies are bleeding over the border, prompting Chrysler Canada Inc. to ask Ottawa for an $800 million rescue package, General Motors Corp. to seek $2.8 billion for an industry bailout, and Canadian Prime Minister Stephen Harper to consider helping by leading Canada into deficit spending for the first time since 1998.

“But it makes no sense for Ottawa to act until we see what the new U.S. Congress does and what President[-elect Barack] Obama will do,” said Jeffrey Rubin, chief economist with CIBC World Markets Inc. in Toronto.

The auto industry is Canada’s largest employer, with more than 700,000 jobs - 400,000 in Ontario - and one in seven Canadian jobs at least partly tied to it, said Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc.

About 85 percent of the more than 5 million cars produced in Canada each year are sold in the United States, or 14 percent of total North American production, Mr. DesRosiers explained. When American auto sales drop from 17.5 million in 2005 to an expected 10 million this year, “it´s ouch time and we’re caught like everyone else by the downturn in the U.S. market.”

Despite similarities on the factory floor, the situation on the showroom floor looks quite different. Canadian auto sales are up by 1.4 percent year over year; Toyota Motor Corp. hit record sales this year; and GM Canada is continuing to show a profit “as it has for the 25 years since I’ve been a union member,” said Ken Lewenza, president of the 30,000-member Canadian Auto Workers union.

Mr. Harper has said he wants to discuss any spending plans with Canada’s provincial leaders before he acts to help the nation’s auto industry, and so far, the leaders of British Columbia and Ontario are behaving like bumper cars.

British Columbia Premier Gordon Campbell, snapped at Mr. Harper for offering help to the auto and aerospace industries but not to the forestry industry; the biggest industry in his province has been hard-hit by the slump in the U.S. housing market.

Forestry, he said, has lost nearly 40,000 jobs - 10,000 in his province alone - and seen 200 mills close in the past five years, while the Big Three automakers in Canada have only had to cut about 20,000 jobs so far.

However, Ontario Premier Dalton McGuinty, facing a $400 million deficit this year and 22 mayors whose towns depend on the auto industry, said overcapacity in North America means the future holds “fewer jobs” for Ontario’s auto workers even if taxpayer help is offered.

Like many members of the U.S. Congress, Mr. McGuinty wants the Canadian auto industry to produce more fuel-efficient and smaller cars, while acknowledging that five of Canada’s top-selling vehicles are trucks and minivans.

“If we want them [the Big Three] to produce more fuel-efficient vehicles, I think we have to buy more fuel-efficient vehicles,” he said.

To help the companies move into the future, Canada’s unionized auto workers have taken “pre-emptive action,” Mr. Lewenza said.

Earlier this year, Mr. Lewenza saw “storm clouds approaching” and pushed Canada’s Big Three “reluctantly” into an early three-year agreement.

Story Continues →