Bailout Watch 360: Why GM Refused a $3b Canadian Bailout

by Robert Farago

Published: January 26th, 2009

bailout watch 360 why gm refused a 3b canadian bailout

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.”

Robert Farago

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4 of 21 comments

Wsn on Jan 27, 2009

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.

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Menno on Jan 27, 2009

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).

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Psarhjinian on Jan 27, 2009
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.

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Richard Chen on Jan 27, 2009

@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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