By on January 26, 2009

TTAC commentator psarhjinian explains GM’s seemingly inexplicable decision to turn down a $3b bailout offer from the Canadian government. “A large part of that would be that, effectively, GM Canada is a dead company walking. St. Catharines Powertrain and Oshawa Truck are both scheduled to close, and with the Lacrosse going Epsilon and Camaro an only child, Oshawa Car isn’t far behind. That leaves CAMI in Ingersoll, which might not survive the new Equinox (it builds the Equinox, Torrent and XL-7—winners all, there) and Windsor Transmission (the old-school four-speeds). Good luck. GM asking for bailout bucks obliges them to maintain a manufacturing presence in Canada. Since, other than St. Catharines—which is scheduled to close—GM Canada makes nothing with a future, this isn’t going to happen. The fiasco of their getting millions of dollars just before announcing the closure of Oshawa Truck did not sit well with the Canadian public or it’s government and I suspect the Canadian bailout came with job guarantees attached that GM has no intention of honouring. They won’t tap the Canadian line until they’re absolutely desperate. On a related note…

“This probably means that Chrysler (who will tap the big maple tree) intends to keep Windsor (vans) and Brampton going. Considering that the Caravan is Canada’s F-150 (in terms of sales) I can only hope they’ve clued in. I’ll bet the rank and file are wishing Magna, and not Cerberus, had won Chrysler from Daimler all those months back; Magna would have been able to net dollars from Canada without question.”

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21 Comments on “Bailout Watch 360: Why GM Refused a $3b Canadian Bailout...”


  • avatar
    John Horner

    “I’ll bet the rank and file are wishing Magna, and not Cerberus, had won Chrysler from Daimler all those months back; Magna would have been able to net dollars from Canada without question.”

    Magna at least has a clue about the automotive business. Cerberus and Nardelli knew even less about it than the Boy Wonders at Tesla did when jumping in.

  • avatar
    seanx37

    I still don’t know why they didn’t take the money from Canada. SO what if they plan to close all Canadian plants? Canada doesn’t know that. Take the money, then declare Chapter 11. A few more billion to try to restructure with. It almost seems like someone at GM has a sense of right and wrong. Weird.

  • avatar
    Richard Chen

    Thanks to the unfavorable CDN-USD exchange rate, CAMI vehicles such as the upcoming Equinox/SRX/GMC Terrain could join the Vue in Mexico.

  • avatar

    I would tend to agree with this post but in the back of my mind I can’t help but think they are negotiating to up the bailout amount (not that it will lead anywhere).
    It must be the Camaro curse. (First Ste-Therese then Oshawa.)

  • avatar
    MikeInCanada

    In today’s Toronto Star
    (http://www.wheels.ca/reviews/article/499395)
    an article discussing the pay negotiations with the CAW (Canadians Against Work) reiterated that there was no need pay cuts….

    “a senior CAW official says an internal study released today shows Canadian workers have a significant edge in productivity that gives them an overall labour cost advantage compared with their counterparts at unionized and non-unionized U.S. plants.”

    Note the term “Internal Study”

    The fun part (for us, not them) is that they really believe this and will repeat it verbatim, over and over until the last factory closes.

    I miss Buzz. He would never dignify statistics much less some in-house union economist (comrade?). Buzz could be counted on to simply say “F you, hurray for me…we’re keeping our money….” and then proceed with the work stoppages and disruptions.

    Ah, simpler times……..

  • avatar
    MagMax

    Thanks for investigating this story, Robert. I’m delighted that GM Canada has refused to take my money because it was inevitable that they would close those plants in any case so at least now my fellow taxpayers and I won’t be pouring cash down a black hole. Oh, wait a minute, Chrysler still gets a few billions of our money. Damn. Of course Chrysler outsells Ford in the Canadian market so maybe that makes the Ontario-focused federal government want to reward them with my taxes. I mean, hell, don’t we still subsidize Ontario’s tobacco farmers? So why not Chrysler too?

  • avatar
    TheRealAutoGuy

    No, no, no.

    Taking a loan — before needing it or when you don’t need it, means paying the interest on excess capital.

    And that, dear friends, would not be smart.

  • avatar

    With just days to go before the federal budget is tabled, Canada’s industry minister seems to be running out of patience with the automakers.

    Ottawa and Ontario have agreed to provide $3 billion to General Motors and $1 billion to Chrysler as part of a bailout. The Canadian subsidiaries have until Feb. 20 to provide the governments with a restructuring plan.
    Cool cars

  • avatar
    mikey

    I don’t like your conclusion psarhjinian. Though I wouldn’t rule it out. You’re right GM didn’t want to deal with the strings.The wording of the press release left me thinking,that the door was still open.

    Its a myth to think that GM is totally stupid.They know how to play politics and know how to play the MSM.I’m confident that we have not heard the whole story.GM is playing thier cards very carefully.

    Oshawa status as of today:Impala down untill Feb 9th. The W Buick is history along with the 3rd shift.There is a down week March 30.The Camaro plant is SLOWLY ramping up on one shift only.Truck is running steady one shift untill mid May.

  • avatar

    The new SRX will be built in the same Mexican plant that builds the VUE. Probably plenty of capacity there.

    On the other hand, the new Equinox impressed me at the Detroit show.

  • avatar
    RickCanadian

    Whatever happens here in Canada depends entirely on the US bailout. If there are strings attached, such as “no foreign manufacturing of your cars”, GM Canada is history. On the other hand, if they get the money without such provisions, GM will ask for even more money from Ontario and Ottawa (call it “retooling” or something else). I don’t think GM cares too much about what models are made or not in Canada, the same way they don’t really care if they make money selling cars in the US or not (remember, they’re more a financial company than a car company). For them, keeping a factory open or shut it down is just another mean to get money from taxpayers.

    One way or the other, we Canadian taxpayers are screwed. Oh Canada !!!

  • avatar
    psarhjinian

    I don’t like your conclusion psarhjinian. Though I wouldn’t rule it out.

    I don’t like it either, truthfully. I live fairly close to Oshawa now, grew up in St. Catharines, still have family in both places and work at a second-tier supplier. GM’s tanking will affect a lot of people I know, myself included.

    I have a lot of pride in GM Canada in general, and Oshawa in particular. It’s a good plant, and it’s been consistently rated as one of the best in the world among any manufacturer, which is not something you could have said about the bulwarks of GM USA (Orion, Fairfax, Lansing, Moraine and such). GM’s response? Starve it of product.

    GM’s getting tax breaks and incentives on the eve of it’s announcing the closure of Oshawa Truck went over very, very badly, as I’m sure you’re aware. The Ontario government ended up with egg on it’s face and will not be played again (and will certainly have advised the Federal government to do the same), while Ford (Oakville) and Toyota (Woodstock) ended up smelling of roses.

    Since GM Canada builds nothing that can’t or won’t be built somewhere else and the job guarantees were likely ironclad (as opposed to the free money handed out in the US) and bailout offerings from Canada or Germany might not sit well with rust-belt congressmen and senators in the US, GM taking the easy road.

    One, I might add, that they’ve been pursuing for some time.

    Ottawa and Ontario have agreed to provide $3 billion to General Motors and $1 billion to Chrysler as part of a bailout. The Canadian subsidiaries have until Feb. 20 to provide the governments with a restructuring plan.

    That’s the guarantee of jobs that GM has no intention of providing, and it’s why GM is “choosing not the partake of the offering”. Chrysler is either being honest and intends to keep jobs in Canada (and why not? the minivans and LX/LY cars are about all they have that isn’t crap), or so far gone that they don’t care.

    One problem (for GM) is that Canada’s Parliament is much, much more partisan than the US Senate or Congress could ever hope to be. The members toe the party line to a fault, and you cannot play regional interests off against each other the way you could in the US, where congresspersons and senators’ loyalty is to their electorate first and their party second. The jobs guarantee is effectively a given, and there’s no chance of someone in Alberta (the oil industry more or less prints money) or Quebec (whose industries have been bailed out since the dawn of time) piping up the way rust-belt or southerners do in the US.

  • avatar
    psarhjinian

    SO what if they plan to close all Canadian plants? Canada doesn’t know that. Take the money, then declare Chapter 11.

    The problem is that they won’t get the money unless they provide the jobs. If they don’t provide the jobs (see above) and simply bail, the receivership agreement would structured as such that the Crown gets it’s pound of flesh and more. At that point, GM’s effectively forfeited assets it needs to sell in the event of a US C11 to Canada.

    Canada does not have the in-built opposition to overt government involvement in (or outright nationalisation of) industry. We’re socialist, remember? We kick ass and take names.

  • avatar
    psarhjinian

    Taking a loan — before needing it or when you don’t need it, means paying the interest on excess capital.

    Please. The Bank of Canada rate GM would get is so low it effectively amounts to free money, certainly a better rate than GM is getting on it’s private lines of credit.

    GM is desperate for capital. If they aren’t taking it, it’s because the stick is nastier than the carrot.

  • avatar
    Gardiner Westbound

    The problem is that they won’t get the money unless they provide the jobs. If they don’t provide the jobs (see above) and simply bail, the receivership agreement would structured as such that the Crown gets it’s pound of flesh and more. At that point, GM’s effectively forfeited assets it needs to sell in the event of a US C11 to Canada. – psarhjinian

    Notgonnahappen.com

    Meanwhile, the list of assets GM put on the line for its new secured credit facility should give GM boosters pause for thought: “certain” North American accounts receivables, unspecified vehicle inventories, the entire Saturn brand, its Canadian operating unit (plants and property) and 65% of GM de Mexico.. – GM Death Watch 85, 7-27-06

    Creditors with first call on Canadian assets will not roll over and play dead if the Canadian government attempts to step in front of them. An attempt by the Crown to seize assets will result in American creditors running to Uncle Sam for political muscle, and maybe the U.S. Marines.

  • avatar
    wmba

    @ psarhjinian:

    Think you’re correct. Why would GM bother with the CAW and its new president who seems far less with it than old Buzz was. The new guy is spouting stuff from 1926, and apparently has not had a recent education. Buzz could get you going with the same horse manure, but then back down when he saw how things were going. New guy is like a moose in the road. Unmovable and still complaining about Korean imports and tariff restrictions preventing the sale of CAW built cars in Korea (as if they had a chance in hell of selling a North American-centric vehicle there)

    Plus, horror of horrors, the application for money that federal Minister Clement wanted by Feb 20 no doubt requires some actual thinking from GM management to complete. Can’t have that — GM hasn’t had a plan for years but things are always going according to it, and US bailout billions were handed out with a nod and a handshake by Bush, who never had a plan either, but was concerned with his legacy.

    Imagine that: A Chevy Impala being a totally foreign car soon! Here in Canada!

    @ Richard Chen: Unfavorable US/Cdn exchange rate? Our dollar is back down to 80 cents US and has been for months. Apparently, financial gurus around the world cannot tell the difference between a bankrupt economy a la US, and one that hasn’t had a trade deficit for decades. Ah yes, due diligence is missing once again, but WTF, we’re downright boring here and who cares?

  • avatar
    Luther

    GM will move most manufacturing to Mexico and attempt to keep truck production in the USA.

  • avatar
    wsn

    The sad part? Canadians treat D3 as domestic; D3 views Canadian jobs as foreign jobs.

    It’s like, since most posters here are males, that you love a girl with your whole heart, but girl is actually a slut and sleeps around. The girl won’t accept an engagement ring from you, because she doesn’t want to commit yet.

  • avatar
    menno

    With GM Canada and 65% of GM de Mexico (as well as the Saturn BRAND) held as security against loans from mid-2007, this tells me something.

    Saturn can’t simply be closed down at will, even though it has a “special” agreement which would allow GM to do so without penalties / arguments by the dealer network – the ONLY dealer network in the United States to have such a facility written into the contracts from the beginning.

    Ergo; GM shot itself in the foot AGAIN.

    GM Canada can’t simply be shuttered without the possibility of these loans being called in.

    And finally, let’s not forget the extreme problems that Mexico is having with the drug cartels, anarchy, murders on a daily basis and so forth; how long before the worldwide economic crisis makes producing anything in Mexico untenable?

    The banksters holding 65% of GM de Mexico would simply walk away from those assets and write them off; in fact, nobody really could point a finger and “blame” GM for those losses if Mexico deteriorates into total anarchy.

    I suspect that GM (assuming it even survives) will center more production in the United States and keep just enough in Canada to make Oshawa essentially pay its way. Possibly the Suzuki-GM joint venture in Intersoll will continue, since many parts are imported from low-cost nations (like engines from communist China, for example). No more that that will probably survive in Canada, though, as a wild-ass guess.

    Interestingly, Chrysler will join Ford in placing a lot of production in Mexico and continuing to close down US and Canadian “higher cost” production; this may well bite them in the ass if/when Mexico collapses into a dustpile reminiscent of Zimbabwe or some other hellhole.

    I do see how Chrysler could take monies from the Cannuck gummint, then “rationalize” Canadian production to the more modern, newer (AMC originated) plant in Bramalea. Could front wheel drive minivans be build alongside rear wheel drive Challengers, Chargers, 300’s and 200’s (assuming Chrysler survives long enough to do it)? Why not? it’s called “flexible production”.

    The FIAT based junk will probably be built in Mexico (see above for my comments about how “well” that’s likely to work out for them).

  • avatar
    psarhjinian

    Creditors with first call on Canadian assets will not roll over and play dead if the Canadian government attempts to step in front of them.

    Here’s the thing: the Canadian government would have been one of the largest creditors of GM Canada. That would give them as much say as any of the banks or suppliers who have claims on GM Canada (emphasis intended).

    Three billion is a lot of exposure, and unlike TARP or the American program, this is a straight loan. Normal bankruptcy/receivership rules would apply. I suppose it’s a case of which would be worse, the mothership declaring bankruptcy, or GM Canada being closed.

    If GM corporate declares bankruptcy, Opel, GM Canada, GM-DAT, Holden and so forth are assets that get sold off to creditors, of which the Government of Canada is one. If GM Canada becomes insolvent, then the US firm is both creditor and shareholder. It gets it’s piece, but it also has to pay up. If GM Canada is closed down, then there’s a breach of contract suit in the making.

    All of this GM can avoid by not taking the bailout, or by pressing for a no-strings-attached offer, much as Opel was angling for.

  • avatar
    Richard Chen

    @wmba: thanks, I thought CDN was still about equal to the USD. Mexican labor rates are still rock bottom low though, last time I heard.

    @menno: the outgoing Equinox’s engines were built in China and the transmissions picked up in Japan on the way to CAMI. Don’t know where the new powertrain is sourced.

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