Life & Style | Motoring
Detroit bailout casts shadow on investments in Canadian plants
The proposed US government bailout of the three beleaguered Detroit carmakers has raised nervousness in Canada that General Motors, Ford and Chrysler could direct less investment in future to their operations north of the border.
- By Bernard Simon, Financial Times
- Published: 23:41 December 11, 2008
Toronto: The proposed US government bailout of the three beleaguered Detroit carmakers has raised nervousness in Canada that General Motors, Ford and Chrysler could direct less investment in future to their operations north of the border.
The three companies have asked the federal authorities in Ottawa and the provincial government of Ontario, where all their Canadian plants are located, for about $6 billion (Dh22 billion) in loans and loan guarantees.
They have dropped strong hints that, without such aid, some operations could be moved to the US.
The situation illustrates how government assistance to the US industry could darken prospects for the carmakers' overseas operations and suppliers if foreign governments baulk at contributing their own emergency loans to the industry.
Promises
Members of the US Congress elicited promises from the carmakers' chief executives during hearings last week that any loans from Washington would not be used to expand their foreign operations.
One of Chrysler's two Canadian plants - a line that builds minivans in Windsor, a stone's throw from Detroit - is seen as most vulnerable. Chrysler has idled a similar plant in St Louis.
GM's plant at Oshawa, east of Toronto, is one of the biggest in North America.
Assembly line
It has already announced that it is closing the Oshawa light-truck assembly line in response to the decline in orders for pick-ups and sports utility vehicles.
Ford also has a plant in Oakville, west of Toronto, that produces its newest crossover vehicles.
Although the industry is closely integrated across the border, the fortunes of many Canadian parts suppliers are tied to local assembly plants.
"There is a lot of worry," said Richard Cooper, vice-president for Canada at JD Power, a consultancy.
"The reality is that we can't rest on our laurels. The Oshawa plant has won awards for productivity, but that's history now."
Ontario pulled ahead of Michigan in 2005 as the biggest producer of cars in North America.
But the Canadian plants have lost some of their competitive advantage since then.
Last year's deal by the carmakers to transfer their US healthcare liabilities to a trust administered by the United Auto Workers union has wiped out the benefits of Canada's publicly financed healthcare system, which had meant Canada was a more competitive location in terms of cost than the US.
Stephen Harper, the Canadian Prime Minister, indicated earlier this week that Ottawa would be prepared to put some money in the carmakers' pot before the federal budget, which is due to be tabled on January 27.
Disadvantage
"We don't want to be in a situation where we would put our sector at a severe disadvantage because we are not necessarily doing what [the US is] doing, or moving along similar lines," Harper told the CBC.
But he added: "We have to make sure we don't pile a bunch of money in and lose jobs anyway. We've got to make sure that what we are going to do here is going to preserve jobs, protect our economy and be in the interests of everybody."
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