TORONTO – It’s regrettable that Canadian taxpayers are funding a $10.5-billion bailout of General Motors but the move is a necessary one to keep the auto industry in Canada amid a global recession, Prime Minister Stephen Harper said Monday.
Canada risked losing its entire auto industry if it didn’t take a role in Washington’s decision to use public money to restructure the troubled sector, Harper said.
“The Bush administration’s decision to support the restructuring of Chrysler and General Motors left two options for Canada; either participate in the restructuring of these companies, or stand idly by as they are completely restructured out of Canada,” Harper said.
“I wish there were an alternative but the alternative to what we’re doing today would be vastly more costly and more risky.”
Under the deal with Ottawa and Ontario, GM will not file for bankruptcy protection in Canada – protection it sought from its creditors in the U.S. on Monday.
Canadian taxpayers will own 12 per cent of a restructured General Motors in return for providing the troubled automaker with $10.5 billion. Ontario will be responsible for $3.5 billion of that amount.
“Hundreds of other companies, from auto parts suppliers to neighbourhood cafes and dry-cleaners, would face a grim future if GM and Chrysler were to disappear from Canada,” said CAW president Ken Lewenza.
“This is not just about saving direct auto jobs. It’s about reinforcing the foundation of our whole provincial economy.”
The federal and provincial governments had to provide more funds than anticipated in a $3.8-billion deal in April to help Chrysler survive, almost twice as much as was initially promised to cover both Chrysler and GM.
When asked if Canadian taxpayers could be asked to pour more money in the auto sector, Harper said the amounts announced so far are sufficient to restructure the sector – calling it a one-time cost.
Harper also made it clear his Conservative government has no plan to run a car company, even though Canada can appoint one member to the GM board.
“We don’t intend to run automobile companies. The companies will run themselves, and we are not seeking to be equity holders in the long term,” he said after announcing the deal.
“In fact, we are seeking to exit our equity position in a reasonably short period of time, but obviously we will time that to ensure we get decent value in the marketplace.”
The U.S. government would hold 60 per cent of the new, slimmer GM when it emerges from bankruptcy protection.
The Ontario government said it was worried the province would lose 85,000 jobs if GM was allowed to fail. Ontario has already lost 171,000 jobs since last October.
Premier Dalton McGuinty said it’s not an easy choice but the right one to save thousands of jobs and entire communities from financial failure.
The province failed to meet its goal to retain about 20 per cent of GM’s North American production, which will fall to 16 per cent under even though the province will contribute about twice what it originally planned, McGuinty admitted.
“We bargained hard to maintain a greater level of production, but it just wasn’t there for us in the end,” he said.
“Had we failed to come to the table, after the Obama administration made it clear they were prepared to participate in the restructuring plan, our choice would be to give up the entire industry ultimately here in Ontario or to participate.”
Harper has made it clear in recent statements that he didn’t want any federal money being used to help prop up GM’s pension plan, which has an estimated $7-billion shortfall.
McGuinty insisted Monday that it was up to GM to decide how to spend the government money, but admitted some of Ontario’s contribution would go to the pensions.
“I don’t think you can take Ontario, Canadian and U.S. dollars and specifically say where they’re going to go in terms of the restructuring plan,” he said.
“We’re contributing to restructuring, and in truth, necessarily, they’re going to have to find a way to address legacy costs, including pension issues.”
Ontario Finance Minister Dwight Duncan reported Monday the packages for Chrysler and General Motors have helped drive up the province’s projected deficit for this year from $14.1 billion to $18.5 billion.
His federal counterpart, Jim Flaherty, last week reported the federal deficit had shot up from an estimated $34 billion in January to $50 billion.