GM Canada worth saving

By 
  • June 4, 2009
{mosimage}History may record it as throwing good money after bad, but the governments of Canada and Ontario had little choice but to go blue-collar and join the Barack Obama assembly line to keep General Motors going.

As announced on June 1, the government of Canada contributed $7.1 billion and Ontario another $3.8 billion to an American plan to try to save General Motors. Taxpayers in Canada now own 11.7 per cent of the once-giant automaker.

It would be one thing, perhaps, if Canadian governments had ready cash to fund this risky venture. But both levels of government must finance their stake by piling more debt onto deficits that have grown to record levels — $50 billion for Ottawa and $18.5 billion for Ontario.

The current global recession was caused in large part by blind consumerism in which people spent beyond their means and drove their households into unmanageable debt. Governments, too, were guilty of reckless spending. So there is valid cause for concern when our governments continue to spend money they do not have, particularly to become owners in what should be a private enterprise. On that level, the GM bailout is troubling.

For its money, though, the Canadian governments bought assurance of no more GM plant closures and no more GM job cuts beyond those already announced, and guarantees that Canadian plants would produce 16 per cent of the total annual output of GM vehicles until at least 2016.

Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty agreed failure to join the rescue plan would lead to closure of GM’s entire Canadian operation and the direct loss of approximately 9,000 GM jobs. Then the dominoes would fall. First would be the death of the entire Ontario automobile industry because GM’s departure would cripple the auto-parts sector that feeds plants operated by Ford, Toyota and Honda. Second, without a vibrant auto-parts industry, none of the big auto makers would likely remain in Canada.

“We would be into job losses of six figures within six months,” Harper said.

In addition to saving jobs, a potential good outcome of this deal is a commitment from GM’s new government owners to turn the tired old company into a lean, green auto making machine that will advance hybrid technology and expand the lines of eco-friendly cars. Who knows? That may portend a rosy future. The bailout is also good news for GM pensioners, whose retirement incomes were at risk.

Still, neither GM nor its government nannies should become smug about this deal. GM executives should feel considerable shame over needing government handouts following years of poor management that led to bankruptcy. Governments should feel no joy in having to invest billions of taxpayer dollars to join a risky venture with a bankrupt company during a time of recession and ballooning deficits.

There are many reasons to dislike this bailout but they don’t add up to a reason to reject it.

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