Editorial: $3.5 Billion And Counting
The final tally is in for the Canadian taxpayer. With the Canadian government unloading the last of its shares in General Motors, the estimated loss is said to be $3.5 billion.
For the purposes of this column, the bailout of GM and Chrysler is settled, at least as far as debating whether it should have been carried out or not. To paraphrase Sean Bean in Ronin, the automakers “got the swag, kept the money, job well done”. American cars have never been better, factories are still humming along, labor costs have come down and may be reduced even further. For the American auto industry, it’s hard to think of a better outcome.
North of the 49th parallel, things are not so rosy. Investment in the auto sector continues to slip away from the Great White North, with Mexico and the United States bleeding away production. While Ford, Chrysler, Honda and Toyota have made investments in their Canadian plants to help retool them for new product, there hasn’t been a new standalone plant built since before the bailout.
On the other hand, the biggest news in Canada’s auto manufacturing sector is the unabated ebbing away of product from GM’s Oshawa plant. Oshawa was once a flagship plant for GM – to this day, they are still known for producing some of GM’s highest quality products. But in recent years, new product that was once built at Oshawa has been awarded to GM plants in the United States, Mexico and even Germany. At the same time, no new products have been awarded to the plant.
While GM claims that it will take them until the end of 2016 to come to a decision on the plant’s fate, a closer analysis reveals a bleaker picture. Two major agreements are set to expire in 2016 – the agreement between Unifor (formerly the Canadian Auto Workers union) and GM, as well as the Vitality Commitment signed by GM ( which binds GM to producing 16 percent of its output in Canada, as a condition of receiving bailout funds). Once these expire, GM will essentially have no obligations to Canada, save for two smaller plants in Ontario, which build the Theta crossovers and selected powertrains respectively.
Given these circumstances, it would be an opportune time to close Oshawa. The fallout for the town, which is literally dominated by General Motors (the company has its Canadian headquarters and an R&D center located there), would be nothing short of devastating. But in today’s corporate environment, these ties mean absolutely nothing. Canada’s car market is small enough that any anti-GM backlash would mean nothing. If GM can weather the storm following its shutdown of Holden’s Australian plants, it will survive this scenario.
But Australia didn’t help keep GM afloat in a time of acute need. Canada did. Closing Oshawa may be a financially prudent decision when viewed from the RenCen, but it would be an enormous middle finger to Canada. Unfortunately, it’s difficult to imagine any other scenario playing out.
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Robert....Did you read the article ? Australia didn't participate in the bail out, to the extent that GM did.
$35.90 per share. If they would wait another couple of years the share price would likely be in the high 40s.