Auto bailout: Why the plan won't work

The move to save jobs and GM will likely do neither.

The Canadian auto sector ran off the road and over a cliff in the first quarter, dropping employment at vehicle assembly and parts plants to the lowest level since the early ’70s, when the Middle East oil embargo forced the industry to slam the brakes on production. The good news, if you can believe the political spin, is that at least 100,000 jobs will be saved thanks to the $13 billion (and counting) that’s coming out of Canadians’ pockets to try to save local operations of General Motors and Chrysler.

That number is ridiculous. “There are only about 100,000 manufacturing jobs in the Canadian automotive sector,” points out industry analyst Dennis DesRosiers, “and two-thirds of them are tied to Ford, Toyota and Honda.” When GM is done downsizing, DesRosiers says, it will employ maybe 4,400 hourly Canadian workers. “Those jobs were indeed vulnerable,” the analyst admits, but to claim that job numbers in the six-figure range are being rescued, as the Harper government is doing, “doesn’t pass the laugh test, even if you throw in Chrysler and all the suppliers and toolmakers.”

In May, Canadian vehicle sales were down on a year-over-year basis for the seventh month in a row. Car lots moved 154,000 units, up from 143,000 in April, putting the seasonally adjusted annual sales rate at about 1.45 million vehicles. Last year, total sales in this country were 1.6 million.

Canadian auto manufacturing is of course heavily tied to the United States, where the annualized selling rate hit 9.91 million units last month — which allowed most automakers to report their best month for 2009. But year-over-year numbers are still ugly. Japanese automakers posted worse results than GM’s 29% decline and Ford’s 24% drop. Toyota posted a 38% decline; sales at Nissan and Honda fell 33% and 39%, respectively. Chrysler sales were off 47%.

Yet despite the stabilization of U.S. sales, not to mention the taxpayer-funded bailouts of GM and Chrysler, there is very little chance the Canadian sector will ever top its 157,130 peak employment in 2001 — when total North American sales of cars and light trucks were around 20 million. According to Statistics Canada, auto manufacturing jobs in this country crashed by about 20%, reaching 99,684 in the three-month period ending March 31. But the Q1 figures do not account for the recent downsizing of GM and Chrysler operations, so that number will go even lower. As well, the recently increased value of the loonie might already have wiped out most, if not all, of the cost savings GM and Chrysler gained from concessions made by the Canadian Auto Workers, when the troubled Detroit duo renegotiated contracts to try to make local operations more competitive.

Meanwhile, DesRosiers and other industry watchers say aggressive competition from solvent automakers, not to mention government involvement in product planning and plantlocation decisions, could seriously hinder attempts by GM and Chrysler to stabilize their operations. That would probably lead them back to the public trough — especially given the way private-sector lenders have been treated by Washington and Ottawa during the restructuring process. And every bailout dollar handed to these industry dogs hurts the stronger North American operations of offshore-based players while making it more likely that Ford will eventually hit a wall.

In short, relatively few Canadian jobs have been saved, and a lot more bailing may be required to keep the shrinking Big Three from running off the cliff again.