- The Washington Times - Sunday, May 3, 2009

TORONTO | Like battlefield medics, the Canadian and Ontario governments have plunged into the wreckage of Chrysler LLCs northern subsidiary with $3.2 billion in first aid and vague promises of a full recovery.

Chrysler Canada began to shut down all its plants Friday in accordance with the historic bankruptcy filing by its U.S. parent the day before.

To avoid a catastrophic collapse of Canada’s auto industry if Chrysler suddenly failed and pulled down the supply chain with it, Canadian Prime Minister Stephen Harper swallowed his free-market philosophy and joined Ontario’s Liberal Party Premier Dalton McGuinty to keep Chrysler alive with public money and Chryslers promise to maintain 20 percent of its surviving production in Canada.

“I’m a Conservative because I’m a realist,” Mr. Harper said, noting the auto sector is Canada’s largest manufacturing industry and essential to the Ontario and Canadian economy. “A free-market solution was not on the table in this case. The Americans had determined that.”

Indeed, Washington’s bailout money gives the U.S. government an 8 percent stake in Chrysler, while the Canadian government gets a 2 percent share of the company and a seat on the board of directors. In exchange, Chrysler will keep two assembly plants and one parts factory in Canada.

Despite this unprecedented government intervention, Canadian auto analyst Dennis DesRosiers expressed serious doubts about Chrysler’s survival.

“Chrysler needs an orderly wrap-up. This just buys them two to three years’ time,” he said.

Mr. DesRosiers scoffed at plans for the company’s revival, noting that Chrysler more than tripled its $7 billion debt load by taking on $15 billion in government loans at higher interest rates - this after Chrysler has been losing North American market share for 15 years and while car sales are in free fall around the world.

Its ironic, he said, that when Chrysler was founded in 1925, its original concept was a small, entry-level vehicle - the same niche it plans to target again in partnership with Italy’s Fiat Group SpA. Chrysler’s first offering, the Chrysler Six, got 24 mpg.

“The problem is, Americans don’t buy small cars, don’t buy Italian small cars, and even the Japanese have never found a way to make small cars profitable in North America,” Mr. DesRosiers said. “Even when gas was $4 a gallon, that niche was less than 3 percent of the North American market - and most of that was in Canada.”

Canadian auto production has collapsed by as much as 90 percent in some sectors since its mid-1980s peak. Canadian Auto Workers President Ken Lewenza said he made “torturous” concessions to ensure Chrysler operations in Canada “live to see another day.”

These union concessions, however, were mostly achieved by cutting legacy costs for retired workers and eliminating extra benefits such as Christmas bonuses, tuition rebates and semi-private hospital rooms. Base wages and pensions were not touched.

To save Canada’s share of North American auto production, Canadian officials had to make their case first to then-President George W. Bush, and then to President Obama and a newly elected Congress, that cutting Canada out of their plans would be fatal for both countries.

“We had to persuade the Americans that this was an integrated industry, and that a collapse in Canada would not only hurt Canada but the North American industry,” Canadian Industry Minister Tony Clement said.

While Chrysler Canada has not filed for bankruptcy, its fate now rests with a parent company overseen by three governments in the United States and Canada, and a partner company from Italy.



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