The auto industry has taken a financial beating over the last year, and the current climate is still shaky. However, Canada’s decision to buy a stake in General Motors Company is one that has benefitted the auto industry there, preserved jobs and helped the country as a whole.
GM’s decision to buy out Suzuki Motor Corporation’s stake in the CAMI Automotive Incorporated plant in Ingersoll, Ontario and add a third shift and a new body shop was a positive sign for the Canadian government when considering bolstering the company financially. The Suzuki buy out now gives GM sole ownership of the CAMI facilities.
One other encouraging sign was the promise that GM would add another shift in 2011 in Oshawa to boost production of the Regal. GM also made prior promises to invest in other facilities in Canada.
In light of these announcements, Prime Minister Stephen Harper’s calls for bailout funds for GM were seen as financially sound. As a result, Canada acquired an 11.7% stake in exchange for $9.5 billion in supportive funds for GM. The move also meant that for the first time, a foreign government would have a seat on the board of directors of a major American company.
Ontario, which contributed approximately one third of the money, now has a 3.8% share of the Canadian stake in GM. Ontario Finance Minister Dwight Duncan says that Canada needs to protect the production facilities within its borders from repatriation.
Before GM filed bankruptcy, it threatened to do just that. Almost all of the 9,000 direct jobs lost would have been in Ontario. Duncan says that the cost of such a loss “would have been so much greater than the cost of loans and equity.”
In exchange for the funding, Canada receives an eight year guarantee that GM will continue production and investments in Canada, says Duncan. Officials say the decision has nothing to do with power and everything to do with saving the auto industry in Canada, which is crucial to the economy.
In order to preserve the 16% of GM’s North American production that takes place in Ontario, Canadian officials said they would lend an amount equal to 16% of what the U.S. Treasury loaned GM.
Chrysler also received more than $3 billion from the Canadian and Ontario governments equal to a 2% share in the company and one seat on the board of directors, occupied by George Gosbee, who founded Tristone Capital, Incorporated.
Dennis DesRosiers, an analyst for DesRosiers Automotive Consultants near Toronto believes that Canada had no other choice but to provide the funds to the ailing automakers.
In the past, vehicles made in Canada were generally considered domestic, and decisions affecting GM’s operations in Canada were made in the U.S. DesRosiers said, “Now we’re being considered a hard border. The U.S. is now seeing a Canada-built vehicle as foreign, when it didn’t a year ago.”
Canadian politicians are confident the investments in the car companies will pay off. Echoing the sentiment expressed by President Obama, they say they have no intention of staying in the auto business, and plan on selling the shares in GM within eight years, with some allowances for extra time if market prices are too low.
DesRosiers disagrees, saying, “This has got disaster written all over it.” He noted that Prime Minister Harper, who has already added the shares into the nations deficit, may lose his job if angry taxpayers rebel.