Will Bailing Out the Automakers Help Canadians?

If Government Intervenes in Auto Sector, Taxpayers Must be Protected

Dec 9, 2008 Angela Browne

While Canadians are concerned about huge job losses in the auto sector, many are concerned that bailing out these companies sets a bad precedent.

In the midst of national economists gradually coming to an agreement that Canada is either in a recession or slowly approaching one, workers are increasingly anxious about their jobs.

Over the past five years, Canada’s economy has been shifting whereas we have seen hundreds of thousands of manufacturing, forestry and mill jobs disappear, only to be replaced by lower-paid service sector jobs. In 2008, it seems that enough jobs have disappeared to impact on consumer confidence and a decline for the first time in over fifteen years of our Gross Domestic Product.

In particular, Ontario and Quebec have felt most of the losses, as manufacturing has until now dominated the engines of these economies. In particular, the auto sector’s losses have tied into other losses, ranging from parts manufacturing and dealerships.

The reality is that our auto sector has been responding to substantially declining sales in the United States, as their economy struggles to regain its own footing. When fewer people are buying, less cars need to be made and less cars need to be sold. Further, with less cars being sold, there is less demand for workers in this sector - at least until things turn around once again.

After striking out initially in Washington, the chief executives of General Motors, Chrysler and Ford, respectively, came to Canada and Ontario to make a business case for billions of dollars in loans and grants to help keep their plants from sinking. Our federal Conservatives are wisely reluctant to hand out money until it is determined what plans the U.S. government makes for this sector. At the same time, Ontario is reluctant to act until it is aware of how much the federal government is willing to commit.

In the midst of this period of indecision, the auto sector is dishing out dire warnings of economic depression never felt in either country since the 1930’s. If they go bankrupt, our federal and provincial governments may as well close up shop and go home, as billions and dollars will be lost from our Treasury. While there will be losses either way, politicians need to see through this rhetoric and only act in the best of interests of taxpayers.

It is more than just the auto manufacturing sector that is declining with increased rapidity in our economy. Workers from other sectors, such as forestry, steel, pulp and paper mills, financial and other sectors are seeing pink slips as well, while traditionally disadvantaged workers, self-employed persons and service sector workers continue to see declining incomes. If the government intervenes, it must do so with the broadest stroke.

Some critics have worried that our government may become more concerned about the future of highly paid autoworkers and even more highly paid auto executives, than other taxpayers - many of whom work without benefits or even job security. While citizens continue to debate this question, the auto sector will try to convince everybody about how all of our lives are tied to the health of the auto industry.

At the same time as the Big Three automakers threaten to go down in flames, Toyota and Honda are opening new plants and hiring new workers. How come companies like Toyota and Honda seem to be avoiding the worst of this recession while the Big Three appear to be enmeshed in it?

The answer is labour costs. For the Big Three, automakers have shown that labour costs for its unionized workforce sits at about $77 (U.S.) per hour, while these same costs run at about per worker to run its plants. For the non-unionized Toyota and Honda plants, this same cost is about $49 an hour. While there is some additional legacy (pension) costs for the Big Three, it is fact that workers at the non-unionized plants, while still earning a reasonable wage, cost less.

This situation can only get worse as Ken Lewenza, recently elected National President of the Canadian Auto Workers (that represent hourly workers in the Big Three) states publicly that his members will not be making any wage concessions in order to keep their jobs in Canada.

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