Auto sector bailout

[August1991]

Despite union arguments to the contrary, this represents a substantial cost to the Big Three automakers, which are struggling to stay afloat amid slumping U.S. vehicle sales and turmoil in financial markets, Faria said.

Before the last contracts were negotiated, the total cost of compensating a CAW employee for an hour of work - which includes wages, benefits and the so-called legacy pension costs of supporting retired employees - was approximately $77 an hour, according to both GM and the CAW.

UAW costs were slightly less, averaging approximately $73 an hour.

At that time, the U.S. and Canadian dollars were around parity.

At 2000 hours per year, this puts labour costs at about $140,000/employee.

I find it hard to justify imposing income tax on people who earn, say, $50,000/year to subsidize others who earn/cost $140,000.

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A simple fact bothers me in all these discussions of an auto sector bailout (or indeed in any discussion of a government industrial strategy, or tax preferences for a particular economic sector).

The government has no money to give. The government can only shift money around.

If the federal government hands over $7 billion to GM and Chrysler to support jobs, how many jobs will be killed because the government taxes other, successful sectors to get the money for the auto bailout?

There may be peculiar circumstances where the government can help one sector without harming another but I'm not certain that we are in those circumstances.

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Canada and the US no longer produce television sets or radios. For many years, our federal government subsidized a domestic TV/radio industry, all for naught. We can throw $7 billion at these auto people now but I think we should do it mainly to help them to shift to another line of work. Maybe they should be designing cars, not making them.

Edited December 10, 2008 by August1991

[Jerry J. Fortin]

Well now, what to do. Bailout the auto companies or watch thousands lose their jobs. Tough call, isn't it?

Well lets look at some facts here. There has been numerous bailouts over the years, each one costs the tax payer big time. If a company cannot compete in their designated markets, why is that the tax paying citizens problem? Now is this the right thing to do, transfer corporate debt into citizens hands? If a product isn't being purchased, why would a company continue to build it? If you ran your business that way, would you expect the nanny government of the day to subsidize your bad business practices?

[cybercoma]

I'm broke... I wonder if the government will bail me out for the poor financial decision I have made. After all, it is more their fault that I'm broke than it is their fault the auto industry is broke. Education is regulated and funded by the government and they never taught me how to manage my money in school. That I'm broke is a direct effect of the government's insufficient education programs.

I demand the gvoernment bail me out and I'll even make it easy for them. I'll take the bail-out in yearly installments. What they can do is waive my income tax for the rest of my life and we can call it even.

[Jerry J. Fortin]

Nice touch!

[M.Dancer]

I'm broke... I wonder if the government will bail me out for the poor financial decision I have made.

Actually, you can declare bankruptcy or or if you are in Quebec you can fall under laccombe law....

Knew someone in the 80s who had his fortune (a few million) wiped out in a theft (took over 20 years for the insurance to pay). He was able to keep his Summit Circle house, his cottage, cars..etc etc.....and all the while the creditors (the BANK) simply had to wait.

http://www.syndics.ca/english/solutions_depot.htm

[Topaz]

First of all the 6.8 Bil would be divided between Ontario and the Feds I would think, so it would be 3.4 Bil for each. and it would be Ontarians being hit the most but after all the auto sector is in Ontario. This isn't a bailout its a loan and all taxespayers would be repaid and this isn't the first time either that governments have had loans to companies before. Chrysler is paying help out or we'll leave and that the way the US companies work in Canada. It's the former treasurer of the US that owes the company, so he own how to play the game. If Windsor didn't have Chrysler they and Ontario would be in BIG economic trouble. It always the workers that get the blame for the auto sector and if you look a the situation the management and some times the laws of the land bring these to a head. They need to keep the heads of the companies but they also need to cut the benefits more from the CEO's than the guys making the autos. The govt NEEDS to bring back the Auto Pact so that the jobs that would go to Mexico, would stay in Canada.

[Jerry J. Fortin]

I must disagree. The bailout, is not a loan. Giving money to these companies is very high risk, so high that the banks who have announced billions in profits for this year are not willing to make such a "loan" to a business with as many problems as the auto sector.

The thing to keep in mind is that the big ticket purchase of a vehicle requires for the most part financing. In a bad economy the banks are not really willing to lend money to folks to buy cars let alone to car companies to make them. So it comes to the tax paying citizen to do the financing for the auto companies, but not to the citizen to buy the product?

Okay lets look at the problem from a different angle shall we....

Let us assume that the industry requires support from the government. Should the government not provide the assistance, then it will payout money in employment insurance, lose money in their revenue stream from taxation and eventually the UI runs out and the provinces pay welfare instead. How much does that cost the citizen?

Now if the government does supply assistance, then it takes a stake in the companies in exchange for venture capital. The government must also provide some assistance to potential customers in the form of tax breaks to purchase the products. Without this incentive, then I don't see the sense in providing assistance, who the hell is going to buy the production if not the citizens subsidizing the productive effort. At the same time these companies must first focus on the internal Canadian market for their products before seeking export markets. The reason for this is that the tax paying citizen must be allowed to realize some benefit for their assistance.

So we come to the root of the problem. Do citizens want to give away their tax dollars to support companies that have literally no value or benefit to citizens?

[Michael Hardner]

Thanks to all for this discussion.

I wanted to add this - directed at no one in particular:

The jobs will not disappear if the Big 3 go away. There will be an increase in labour demand from other producers, (evidently other producers who are better at making cars profitably) hence creating an 'adjustment'.

Factory work is fixed in the North American mind as "the" blue colour occupation, but this is mostly a function of our lack of imagination. These changes have been in the works for awhile now, and rather than fight it we should be smoothing the transition for displaced workers.

Otherwise, why did we adopt free trade in 1988 ?

[Murray B.]

IT'S REALITY TIME!

As an Albertan, born and raised I care very much about what happens to the auto workers. It is best for Alberta if they keep their jobs and even the high salaries. Whatever they make, a big chunk will go for taxes and they will spend most of the rest. Some of that money will come to Alberta for gas and oil, beef, grain and so on.

The people I do not care much about are the money hoarders that buy little and pay no income tax [only 4% in the Barbados]. The wealthy do not need welfare.

There is another important reason to give some sort of relief to the autoworkers. As someone over fifty I do not have to read corrupted history to know what really happened in the sixties and seventies. I was there, and for those who are too young to remember or older people that have become deluded by the repeated lies here is what really happened:

Most North American cars of the sixties were not "hot" cars by any means. [by "hot" I mean taking less than 8 seconds to go from 0-60 mph and covering a standing ¼ mile in under 14 seconds.] Maybe one out of every ten cars was "hot" or a "muscle car" as young people call them today. [To me a muscle car is a compact car with a big-block engine] If I remember correctly big-block production for Chevrolet division for the entire decade of the '60s was something like 0.7%. The vast majority of cars back then were actually quite boring, but also affordable, reliable, and fuel-efficient.

It was misguided emissions laws that seriously wounded the auto industry and the whole North American economy. The effect of the law was to double fuel consumption. It was not just that they were measuring things differently, complying with the law meant that engine efficiency became about half of what it had been. A 300 H.P. 350 could be ordered in a '70 Caprice but it was only 145 H.P. for a '75 because of the lowered efficiency. [They changed horsepower measurement methods around this time but even if you add 10 or 15% to 145 it is still nowhere near 300.]

Because of the legislation, the power was halved and fuel consumption doubled across the board (for the '73 model year starting in late '72). If you check your history you will also find that this is when the gasoline shortages began. Shortages had to occur because refiners could not make gas fast enough to feed millions of the new gutless gas-guzzlers. The '73 cars sold quite well because everyone wanted cleaner air and few people realized "environmentally friendly" also meant doubled fuel consumption.

Gasoline prices rose exponentially due to the increase in demand and most people could not afford to run the new cars. Automobile sales soon collapsed and recession began. At first the newspapers blamed the "seven sisters" (7 biggest oil companies) for the problems and then, a few months later, they changed to blaming O.P.E.C. Strangely, I don't remember anyone ever blaming the government and environmentalists that had created the problem in the first place.

It is important that our current government takes steps to correct the damage that their predecessors have done.

[Topaz]

Ok, let say we don't help out the auto sector..what happens is a city like Windsor, will have a very high unemployment rate, people will lose their homes, the stress will split families, the parts sector will affect Toyota and Honda because they use the same companies. Ontario's unemployed will probably break the fund and all the other working people will see an increase on EI and you may never draw from it. If there's only Toyota and Honda to buy from then you could see the price of cars go up even more. There's alot to be given up over up and if has to come from the top ceo's first because no matter what some people think I know the members of the CAW have given up alot to keep their jobs and now it time for the ceo's to do the same and its time for the govts to bring in laws to keep the jobs here but they won't do it because someone thought going "global" would be good. I don't. See what happen with the banks, one goes they all go.

[Wilber]

Will be interesting times in the industry regardless. Soon you won't know who is who even if they do survive. Chrysler and Nissan have signed a deal for Chrysler to build Nissan Trucks in Mexico. Chrysler builds the new VW minivan in Canada and some are saying they will be building Nissan's minivan, while Nissan is to build a subcompact for Chrysler based on the Versa in Japan of all places. Expect more integration between companies as sales are hitting the skids for all of them.

[ToadBrother]

Will be interesting times in the industry regardless. Soon you won't know who is who even if they do survive. Chrysler and Nissan have signed a deal for Chrysler to build Nissan Trucks in Mexico. Chrysler builds the new VW minivan in Canada and some are saying they will be building Nissan's minivan, while Nissan is to build a subcompact for Chrysler based on the Versa in Japan of all places. Expect more integration between companies as sales are hitting the skids for all of them.

Great! In ten years I'll be heading out in my brand new GeneralToyChryFordNissan.

[Goat Boy©]

[Topaz]

Now that it seems that the US Treasury is going to help out the auto sector in the US, are Ontario and Ottawa going to do the same? I know that 6.8 Bil is alot of money but its not 700 bil or even 14 Bil. and if they don't the govts will have created more problems for themselves with more unemployment and consumers not spending any money.

Edited December 13, 2008 by Charles Anthony
merged thread; old OP title: "auto sector, Is helping coming to Canada"

[Vancouver King]

Now that it seems that the US Treasury is going to help out the auto sector in the US, are Ontario and Ottawa going to do the same? I know that 6.8 Bil is alot of money but its not 700 bil or even 14 Bil. and if they don't the govts will have created more problems for themselves with more unemployment and consumers not spending any money.

Why is our bailout target of 6.8 billion proportionately so much higher than the 14 billion about to be approved by Washington? We are asked to pony up 33% of immediate relief yet have a much lower proportion of N. American big 3 plants.

[Goat Boy©]

[Mr.Canada]

The Canadian auto sector needs to streamline its operations and cut its workforce. Additionally it needs to make strides to get with the times and produce more cars that people want to buy. If they can do that, let's help them. If they renege then pull the funding and sue them in court for repayment.

[Oleg Bach]

The Canadian auto sector needs to streamline its operations and cut its workforce. Additionally it needs to make strides to get with the times and produce more cars that people want to buy. If they can do that, let's help them. If they renege then pull the funding and sue them in court for repayment.

Going to court will not help anyone. IF Canada is to maintain some sort of mostly white middle class - then they must assist the industry. People do not realize that as the car culture disolves the transition would bankrupt the nation and it would take 20 years to recover..by then we would be speaking Madarin.

[Mr.Canada]

Going to court will not help anyone. IF Canada is to maintain some sort of mostly white middle class - then they must assist the industry. People do not realize that as the car culture disolves the transition would bankrupt the nation and it would take 20 years to recover..by then we would be speaking Madarin.

Complete alarmist, knee jerk bunk. Giving a blank cheque to them is not the answer and there needs to be strings attached or for get it I say.

[Moonbox]

For once the US republicans have got it right.

As far as I see it there are two options available:

Either:

1) The CAW/UAW agrees to massive pay and benefit decreases to be more competitive with what Honda/Toyota workers earn,

or

2) Let the Big Three sink like the dead weight they are.

I cannot fathom why we would want to toss money at these slugs if the unions are expecting to maintain the status quo that makes the Big Three uncompetitive.

How can they POSSIBLY expect to not be in the EXACT SAME situation a few months or years from now if their competitors have a 33+% cost advantage for labor? The math doesn't add up and if the auto unions aren't willing to play ball than I'm perfectly content to see the Big 3 crash and burn. I'm willing to deal with the short term consequences as well. I'd rather that than see my taxes gradually increase to support a completely failed business model.

Don't prolong the inevitable.

Edited December 12, 2008 by Moonbox

[blueblood]

Now that it seems that the US Treasury is going to help out the auto sector in the US, are Ontario and Ottawa going to do the same? I know that 6.8 Bil is alot of money but its not 700 bil or even 14 Bil. and if they don't the govts will have created more problems for themselves with more unemployment and consumers not spending any money.

The agriculture and forestry industries of Western Canada have been in turmoil for the past few years. Primarily the Beef industry from BSE and the Lumber industry first from the Softwood Tarriffs from the States and then the Mountain Pine Beetle infestation.

The Agricultre and Forestry industries contributed $26.9 billion dollars to the GDP of Canada in 2007.

Now, the Automobile industry contributes only $14.1 billion dollars to the GDP of the country, yet there is huge pressure on the Government for a bailout or stimulus for the auto industry???

Yet we want to throw a massive amount of money on an auto sector???

[jdobbin]

by then we would be speaking Madarin.

And what's wrong with that? Just because you don't speak Mandarin, doesn't mean the rest of us can't. Get with the times!

[Oleg Bach]

Complete alarmist, knee jerk bunk. Giving a blank cheque to them is not the answer and there needs to be strings attached or for get it I say.

The Amercan higher archy wants to whittle the wage of the auto worker down to about 14 dollars an hour - I was making that when I was 16 years old - they say it is to get it on par with workers in Japan - this is bull - WHO are the men that cut the trade deals with Japan - deals that a few became fabulously rich with - at the expense of their fellow countrymen. Who are these guys that betrayed their own nation..no one talks about the people who destroyed the North American auto-industry - and don't tell me that our cars are inferiour - The only new machine I ever bought was American - I intentionally drove the hell out of it in all conditions - they do not break!

[Mr.Canada]

The Amercan higher archy wants to whittle the wage of the auto worker down to about 14 dollars an hour - I was making that when I was 16 years old - they say it is to get it on par with workers in Japan - this is bull - WHO are the men that cut the trade deals with Japan - deals that a few became fabulously rich with - at the expense of their fellow countrymen. Who are these guys that betrayed their own nation..no one talks about the people who destroyed the North American auto-industry - and don't tell me that our cars are inferiour - The only new machine I ever bought was American - I intentionally drove the hell out of it in all conditions - they do not break!

$20-25/hr is enough. If not work someplace else.

[jdobbin]

Why is our bailout target of 6.8 billion proportionately so much higher than the 14 billion about to be approved by Washington? We are asked to pony up 33% of immediate relief yet have a much lower proportion of N. American big 3 plants.

It is a lot of money. I think a bridge loan might be appropriate with good terms for us, the lender. However, I'd like to see how this applies to Canada and what is in it for Canada. I don't want to hear later that we get thrown under the bus even after helping out as part of a deal the automakers have in the States.