Cost of auto industry aid could exceed any benefit
"Saving the auto industry is a must!" That's what economists and politicians keep yelling these days.
Everyone agrees that bankruptcy for Detroit's Big Three is not an option. That's why, after the Republican senators balked at a $15 billion (U.S.) bailout package last week, the White House immediately stepped in to provide the money from other funds. Ottawa and Queen's Park quickly followed suit.
But what no one says openly is that the North American auto industry already is potentially bankrupt and no one knows how to save it.
I feel that Canadian taxpayers are about to be taken for a ride.
First of all, I don't like to talk with people who are holding a gun to my head. The big brains in Detroit and the unions in Canada and the United States have run the industry for decades without seeking any input from anyone. They have treated themselves very well with hefty bonuses, corporate jets and, on the union side, with good paycheques, generous benefits and pensions that many workers enjoy at age 55. Good for them – they've earned it, even if many other Canadians also have worked hard and diligently and never enjoyed such treatment.
But now that they are in trouble, they want money from taxpayers to fix their industry. That's understandable but the request should be properly documented. And even if they don't provide a full apology to Canadians for the mess they led us into, they should at least start taking responsibility, explain what went wrong and stop blaming and blackmailing others.
I'm not an expert, although considering the state the industry is in, I wonder who is. Still, I don't understand why the Big Three don't open their books and tell us how they intend to fix the problem.
The first glimpse of what we can expect in the future came last week from Sergio Marchionne, president and CEO of Fiat Group. What he said sent shivers down my spine.
In an interview with the authoritative Automotive News, the Canadian-educated and internationally respected leader of the Italian auto industry said that "by the time we finish with this, in the next 24 months, as far as mass-producers are concerned, we're going to end up with one American house, one German of size; one European-Japanese, probably with a significant extension in the U.S.; one in Japan; one in China and one other potential European player."
What about the others?
Said Marchionne: "I cannot continue to work on cars on my own. I need a much larger machine to help me. I need a shared machine."
He compared the new structure of the auto industry to the one adopted by the computer business: "I don't mind being a participant and part-owner of the machine. The rest of it I can dress up. I can give it colours. I can give you that suspension, that engine, that stuff, but at the end of the day, I can't afford to spend half a billion [euros] on doing a platform."
So while our governments are about to give billions to the Big Three, someone in the industry is saying there is a good chance that two of them are not going to be around in the next 24 months.
What's more, if Marchionne's assessment is right, we will be giving money to companies that plan to transform themselves into parts or automobile systems manufacturers.
Before we do that, consider this: Canada is the only G8 country that doesn't have a domestically owned auto maker. We build cars and we are very good at it, but we build for others, not for ourselves. This isn't just a nationalist issue; it's about jobs. We're always shaking in our boots when there are problems in the industry because we fear – rightly – that our operations will be the first to be shut down.
But although we don't build our own cars, we are the best in the world – with our own Canadian brand – in the auto-parts industry.
Now I'm wondering whether we, with Canadian taxpayers' money, are about to help Detroit's Big Three restructure themselves into companies that produce parts for the world's surviving auto makers. It's one thing to give money to auto makers that will give contracts to Canadian parts companies, but quite another to give money to firms that are going to restructure themselves as parts producers.
If that's the case, our priority should be to promote and help Canadian companies that are world leaders in the parts industry. Canada can turn this economic mess into an opportunity to become the powerhouse of the new international auto industry. We have the expertise, the manpower and the resources. The only thing missing is political vision.
Our provincial and federal ministers often are in Washington and Detroit these days to talk with American leaders. They also should go to Aurora and talk to Frank Stronach, the world's most respected authority on automobile systems manufacturing, whose company has the capability to assemble complete vehicles.
Because of the political turmoil in Ottawa, I fear the federal and provincial governments are being rushed into making decisions without having all the necessary information in hand. Advocates of aid are demanding that the two governments immediately provide an economic stimulus package. But I've never heard any suggestion as to what – exactly – governments should do.
The McGuinty and Harper governments are willing to intervene but they want to do it right. On the other hand, proponents of a bailout package want to be fast. If you are right but late, they say, we will fall into a real economic disaster.
That may well be true, but it might be worse to be fast and wrong because what's at stake is $6.8 billion from Canadian taxpayers. We cannot afford to waste that kind of money by giving it to the same business leaders who landed us in this mess, won't apologize for their mistakes and won't tell us how to fix it.