Ontario agree on $3.3B auto bailout package

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Federal government, Ontario agree on $3.3B auto bailout package
Deficit now 'likely,' finance minister acknowledges

Last Updated: Friday, December 12, 2008 | 9:31 PM ET

Industry Minister Tony Clement says Ottawa will closely watch what, if anything, the U.S. government does for the auto sector south of the border.Industry Minister Tony Clement says Ottawa will closely watch what, if anything, the U.S. government does for the auto sector south of the border. (Nathan Denette)

The federal government and Ontario have reached a deal to offer proportional funds to Canada's auto industry if a proposed $14-billion US aid package is approved in Washington, Industry Minister Tony Clement said Friday.

LINK:Federal government, Ontario agree on $3.3B auto bailout package

Speaking to reporters in Toronto, Clement said the proposed aid to Canada's ailing auto sector would amount to approximately 20 per cent of the U.S. proposal, or about $3.3 billion Cdn.

The U.S. bailout appeared to have died late Thursday night after hours of heated negotiations between lawmakers, representatives from automakers and unions. But lawmakers said they still hope an agreement on the Democratic- and White House-backed plan could be reached.

The Canadian subsidiaries of the Detroit Big Three automakers had asked Ottawa and Ontario for financial aid that could total as much as $6 billion.

Clement said the deal was contingent on GM, Ford and Chrysler working together with parts suppliers and unions for a long-term solution for their industry, as well as the American proposal going forward.

"Governments can decide to help, but these decisions will only be made in the best interests of the taxpayer," Clement told reporters.

The minister also said the Canadian government expects U.S. President George W. Bush to announce something "very soon."

"What we’re signalling here tonight, both the governments of Ontario and the government of Canada, is that we want to be part of the solution as well, and it will be commensurate with the production that takes place here in Canada," Clement said.

The pre-emptive move by Ottawa and Ontario will make it harder for U.S. lawmakers to strike a deal that protects American jobs at the expense of Canadian ones, said veteran auto analyst Dennis DesRosiers.

"You want to be out on front of this one because it sets the standard and sends a message out to Detroit that Canada is there, crystal clear," DesRosiers told CBC News on Friday.

South of the border, with the U.S. Senate gridlocked and the country's economy on the brink, the White House declared Friday it would step in to prevent the "precipitous collapse" of the nation's auto industry and the disastrous loss of hundreds of thousands of jobs.

White House press secretary Dana Perino said the White House is considering using money from the $700-billion US Wall Street rescue fund to support the domestic automakers.

But the Bush administration said no decisions had been made on the size or duration of the new bailout plan, or what type of concessions might be demanded from the struggling automakers, their workers or stockholders.
Flaherty: Budget 'likely' to include deficit

Meanwhile, the Canadian government acknowledged Friday that providing stimulus packages to kickstart the moribund economy would "likely" make it run a deficit.

Speaking to reporters after addressing the Saint John Board of Trade in New Brunswick, Finance Minister Jim Flaherty said it is "likely" that the government "will now be obliged to present a budget with a deficit."

"The key here is that the deficit be temporary and not structural, which means permanent and long term," Flaherty said.

"As we prepare to present the next budget [on Jan. 27], the challenge we are facing is how to fix a short-term problem without creating a long-term problem for our country."

Flaherty had already said the government was prepared to go into deficit next year if a stimulus package proved necessary to support the Canadian economy.

In his economic statement released last month, Flaherty said the federal government was projecting balanced budgets and small surpluses through 2012-13, but with an allowance that world economic uncertainty might make it impossible to rule out deficits.

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582,000 Canadians could lose jobs if Big 3 fail


December 15, 2008

TORONTO

Canada could lose more than 580,000 jobs within five years if the Detroit Three automakers go out of business -- 517,000 of them in Ontario, says a report obtained by the Toronto Star.

The review, prepared for Ontario's Ministry of Economic Development and to be released Tuesday, warns the collapse of General Motors Corp., Ford Motor Co. and Chrysler LLC would send lasting shock waves through the economy.

If auto output by U.S.-based manufacturers in Canada were cut in half, at least 157,400 jobs would be lost right away, 141,000 of them in Ontario.

By 2014, job losses would rise to 296,000 nationally, including 269,000 in Ontario.

If production were to cease completely, 323,000 jobs would be lost immediately in Canada, including 281,800 in this province, rising to 582,000 nationally and 517,000 in Ontario by 2014.

The Ontario Manufacturing Council, a provincial government panel, commissioned the 11-page report, which was prepared by the Center for Spatial Economics.

The report paints a gloomy picture if the provincial government and Ottawa and Washington do not bail out the automakers.

"The depreciation of the dollar, lower interest rates, and lower production costs eventually help the economy to partially recover (over the following five years, 2015 to 2019) but the loss of the Detroit Three leaves a permanent dent in Canada's economy in terms of jobs and output," the report says.

"For any Canadians who feel that the auto industry is expendable to our economy, this report is a wake-up call," Economic Development Minister Michael Bryant said in an interview Monday.

"This report suggests that even under a scenario where half the auto sector is lost, our economy (in Ontario) basically craters and brings the whole rest of the (Canadian) economy with it," Bryant said.

The damage would extend well beyond the auto and related parts industries to housing and a broad range of consumer spending, said Jayson Myers, an economist who is president of Canadian Manufacturers and Exporters.

Japanese-based automakers such as Toyota Motor Corp. and Honda Motor Co., which already build cars and trucks in Ontario, could not be expected to fill the void left by GM, Ford and Chrysler.

"The economic impacts estimated by this analysis are likely to understate the true economic impact for several reasons, despite the possibility that foreign vehicle producers could expand production in Canada," the report states.

LINK:582,000 Canadians could lose jobs if Big 3 fail -- chicagotribune.com

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Chrysler rescue has strings

Dec 17, 2008

Rescue cash for Chrysler will have strict terms to prevent the privately-owned automaker from taking advantage of Canadian taxpayers, warns Ontario's economic development minister.

"Chrysler will have to be treated differently," Michael Bryant said yesterday.

He promised the Detroit Three automakers will get the life-saving financial "CPR" they need to prevent the eventual loss of over 500,000 jobs in Ontario predicted in a new study if General Motors, Ford and Chrysler were to go bust.

But there will be strings attached, particularly with Chrysler, which has major assembly operations in Brampton and Windsor.

The company's American parent is controlled by Cerberus Capital Management LP, a New York-based firm that manages $27 billion (U.S.) in assets and has been under fire in Washington for not putting more of its own money into the faltering automaker, which is seeking $1.6 billion (Cdn.) in Canada.

Details are "yet to be determined" but could include special warrants placing restrictions on any profits taken by Chrysler at the expense of taxpayers, Bryant added.

"We are working on the assumption that ... the government is just not going to be providing (money) and kissing goodbye."

But a leading auto industry analyst said it will be "extremely difficult" to put any conditions including job guarantees on financial aid for the reeling auto companies.

"They need to shed jobs, not create them," said Dennis DesRosiers, noting none of the automakers are investing so guarantees for future spending are difficult.

"There could be long-term promises regarding intellectual capital like research and development and some broad guarantees regarding greening," he said, referring to more green friendly vehicles. "But it's impossible to get into specifics."

Cerberus, a giant private equity firm, bought most of Chrysler from Daimler in 2007 but has been trying to unload it for months as losses mount.

Discussions involving Cerberus selling Chrysler to GM in exchange for GMAC Financial Services fizzled recently. Cerberus already owns 51 per cent of GMAC.

Chrysler has indicated it could run out of money to operate plants within weeks. The Detroit Three are seeking $6.8 billion (Cdn.) from the federal and Ontario governments.

The Bush administration yesterday said it was still evaluating options and suggested any deal would require major concessions by all sides. Complicating its task, lawmakers in both parties – having failed in their efforts to push a $14 billion rescue through Congress – were pressing for an array of terms and conditions they said should be part of any alternative plan.

"We are not going to be rushed into it," said presidential press secretary Dana Perino.

While the federal and provincial governments worked on conditions for aid, Prime Minister Stephen Harper met privately with Frank Stronach, chair and founder of auto parts giant Magna International Inc., in Ottawa.

One government official said the meeting was part of pre-federal budget talks. A source close to Stronach would not say if they talked about the auto aid package.

Bryant said the aid package is not just for the auto companies but more to preserve the jobs and livelihoods of tens of thousands "in the public interest" and protecting the economy from a deep recession.

His comments came at the release of a new report disclosing that Ontario would lose 517,000 jobs by 2014 if the Detroit Three go under.

The study by the Ontario Manufacturing Council, an arm's length provincial government panel, warned 582,000 jobs would be lost nationally within five years under that scenario as the impact of lost auto, supplier and dealership jobs rippled throughout the country.

Even if domestic output were cut in half, the province would lose up to 141,000 jobs and the country as a whole 157,400.

Ontario Finance Minister Dwight Duncan acknowledged the bailout – which now hinges on the prospect of U.S. government aid that remains in limbo – will put the province deeper into the red than its forecast $500 million budget shortfall this year.

Federal Industry Minister Tony Clement last week pegged Canadian emergency aid at 20 per cent of the U.S. level, which given the $14 billion congressional assistance package means $3.4 billion from Ottawa and Ontario.

No decisions have been made on how that amount might be split between the two governments.

Ontario NDP Leader Howard Hampton said the governments must get job and product guarantees for Canadian plants before handing out any money – particularly to Chrysler.

"Because the owner of Chrysler really doesn't have a commitment to making cars, they're only committed to making money quickly and getting out the door," he said.

LINK:TheStar.com | Business | Chrysler rescue has strings

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Canada, Ontario to Give GM, Chrysler C$4 Billion Aid (Update1)



Dec. 20 General Motors Corp. and Chrysler LLC will get C$4 billion ($3.3 billion) in government loans from Canada and the province of Ontario, a day after the U.S. agreed to aid to keep the two automakers operating.

General Motors Canadian unit will receive C$3 billion while Chrysler is set to get C$1 billion, the two governments said today.

“This is a huge problem that faces the Ontario community and the Canada economy by extension,” Prime Minister Stephen Harper said at a press conference in downtown Toronto today.

Canada’s aid builds on the $13.4 billion in U.S. emergency loans announced by President George W. Bush. Canadian Industry Minister Tony Clement on Dec. 12 pledged to offer GM, Chrysler and Ford Motor Co.’s Canadian units federal and provincial aid “proportional” to the their contribution to North American production, which is about 20 percent.

“We will not allow catastrophic collapse” of the industry, Harper said. “But the auto companies have to change the way they do their business in a very serious way.”

Ontario will contribute C$1.3 billion to the package and the Canadian government C$2.7 billion, Ontario Premier Dalton McGuinty said at the same news conference.

GM had asked for C$800 million ($641 million) in aid from Canada by month’s end and an additional C$1.6 billion line of credit through the second quarter.

The industry will have to restructure and will probably end up being smaller, said Harper.

“This will be a difficult restructuring,” said McGuinty.

Ford’s Canadian unit had asked for access to as much as C$2 billion in “standby” credit, to be used if the current economic crisis worsens. Chrysler LLC didn’t say how much it was seeking.

LINK: Bloomberg.com: Worldwide

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Canada Gets Warrants for GM, Chrysler Shares, Toronto Star Says


Dec. 22-- The Canadian government has obtained warrants to acquire non-voting shares in General Motors Corp. and Chrysler LLC as a condition to granting almost C$4 billion ($3.3 billion) in loans to the automakers, the Toronto Star reported.

The warrants will allow the government to buy about 20 percent of the value of the loans they extended, or C$800 million in shares, the newspaper said.

Federal and Ontario officials weren't able to comment or provide additional details on the provision, which was disclosed in a background document, the newspaper said.
LINK:Bloomberg.com: Canada

Last Updated: December 22, 2008 05:16 EST