SAO PAULO, Brazil, TORONTO — Ottawa is willing to go to the aid of teetering auto companies, but will consider help only for plants that are thought to be “sustainable,” Finance Minister Jim Flaherty said Sunday.
“The key is sustainability, a look to ensuring that the industry is sustainable long term, not in short-term fixes,” he said in an interview after meeting in Brazil with finance ministers and central bankers from around the world.
Mr. Flaherty recognized that the U.S. administration is poised to put together a rescue package for the major U.S. auto companies. He is under pressure to offer a similar package for Canadian branches of those companies so they do not close their shops in Canada to save money and consolidate where the government subsidies are.
Mr. Flaherty said he does not feel obliged to match the U.S. initiatives, in part because the lower Canadian dollar has given domestic plants back some of their competitive edge, compared with U.S. plants.
But he said he and Industry Minister Tony Clement are contemplating help all the same. “We don't have to match them, but this is an integrated industry,” he said.
Mr. Flaherty said most economists would consider a bailout unwise, since such a package puts government in the dicey business of choosing winners and losers. Rather, he said, he would be guided by which plants have the best chance of remaining viable over the long term.
“So if General Motors is going to build a hybrid car in Oshawa, people can understand that that is a good investment for the longer term. Operating a large truck plant, pickup trucks – probably not a good investment of taxpayers' money,” Mr. Flaherty said.
His top priority, however, is to ensure that banks are lending to each other, and that credit is available to corporate and household borrowers at a decent price. A well-functioning credit market, he said, will help the manufacturing sector as much as any kind of direct aid.
“There are a number of initiatives that the government of Canada could take. There are some more initiatives that the Bank of Canada could take. All of this goes to the availability and cost of credit, which is fundamental to the functioning of the real economy.”
He also pointed out that Ottawa had already budgeted $250-million for innovation in the auto sector, and that much of that money had not yet been tapped.
Mr. Flaherty's comments followed a wave of bad news for the Detroit Three that was capped on Friday by General Motors Corp. announcing that its cash has dwindled to the point where it may be unable to keep operating by next year. Ford Motor Co. also announced a large third-quarter loss and an even larger cash burn than GM at $7.7-billion (U.S.) during the quarter, but Ford has larger cash reserves than GM.
The Canadian units of the Detroit Three have asked Ottawa and Ontario for short-term financial help to see them through the crisis, as their parents have done in asking Washington for $25-billion in loan guarantees.
David Paterson, vice-president of corporate and environmental affairs for General Motors of Canada Ltd., said the largest auto maker in Canada has not outlined specific proposals to Ottawa, but supports calls for both immediate assistance and a longer-term Canadian program similar to an existing $25-billion fund Washington created this year. That fund is supposed to help the industry develop more environmentally friendly technologies.
“They have far more policy tools available to them than we will ever understand,” Mr. Paterson said of the federal government.
Ken Lewenza, president of the Canadian Auto Workers union, wants the government to sit down with stakeholders such as the companies and the unions, in part to make sure Canada does not lose out if Washington introduces a loan package with strings attached that require investment in the United States.
“It has to be expedited and the discussion has to be serious,” Mr. Lewenza said. “It's not just about asking for cash, it's about sitting down concretely and saying, ‘How did we get here and what policy alternatives can we come up with?'”
Mr. Paterson said GM is in the midst of transforming its business in Canada to meet the sustainability objective Mr. Flaherty has outlined.
“But we cannot complete the transformation and restructuring of our business in a market that has fallen from 17 million vehicle [sales annually] to 11 million in the United States,” he said Sunday. “We need to have access to liquidity to keep going until that market comes back, and it will come back, but it's going to be a rough patch.”
Among the actions GM has taken in Canada are plans to produce three small or mid-size front-wheel-drive cars at its Oshawa, Ont., plant after 2010, including one that will be available in a hybrid version.
New versions of compact utility vehicles assembled at its joint-venture plant, Cami Automotive Inc. in Ingersoll, Ont., are designed to be the most fuel-efficient in their class, Mr. Paterson said, and the company's engineering centre in Oshawa is helping develop electric vehicles.
© The Globe and Mail
