Flaherty doesn’t want to ’waste’ money on automakers

Assurances needed before Ottawa hands over bailout cash, finance minister says... By Sheldon Alberts, Canwest News ServiceMarch 5, 2009

Finance Minister Jim Flaherty says he wants assurances that taxpayers money won’t go down the drain if it’s given to major U.S. auto companies.

Flaherty made the comments following emergency meetings Thursday in Washington about the auto industry crisis with Lawrence Summers, chairman of the White House’s National Economic Council.

"We need to have an integrated response to the Detroit Three. . . . That’s where we are. We are both concerned, both countries of course, with viability of the operations," Flaherty told reporters.

"Taxpayers’ money is going to be invested - lots of taxpayers’ money invested - in one or more of these enterprises," Flaherty said.

Canada needs "some assurance this will not be a waste of taxpayers money, that it will result in a sustainable industry in Canada."

Asked if he was worried General Motors might go bankrupt even if it receives billions of dollars in aid from Canada and the U.S., Flaherty responded: "Of course it’s a concern. It’s a major concern."

Flaherty was joined at his meeting with Summers by Canadian Industry Minister Tony Clement, who was also making the rounds on Capitol Hill to discuss the crisis facing GM and Chrysler.

Their trip to the U.S. capital came in the wake of a report Thursday by GM’s auditor in the U.S. that said there is "substantial doubt" the automaker can continue operating outside bankruptcy without substantial government aid.

"The corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern," said the report from Deloitte & Touche.

The situation with GM was one factor that helped drive down stock markets Thursday. The Toronto Stock Exchange’s main index fell about 2.4 per cent, while the Dow Jones industrial average in the U.S. plunged more than four per cent.

The federal government announced in December it was prepared to offer $4 billion in aid to the automakers, including $3 billion for GM Canada and $1 billion for Chrysler Canada.

General Motors, in a proposal submitted last month to Ottawa, is seeking $6 billion in Canadian aid as part of a restructuring plan that also proposes sharp cuts to employee pay and benefits for retirees.

GM is asking the U.S. government for an additional $16 billion U.S. in aid, on top of more than $13 billion it has already received. Chrysler wants another $5 billion from the U.S. government, on top of $4 billion already approved by the U.S. - and wants proportionate aid from Ottawa and the Ontario government.

Flaherty characterized discussions about providing the aid as "ongoing" as Ottawa takes a detailed look at requests from both GM and Chrysler, and said the companies must pass a "survivability test" before the government takes action.

"When one talks about the sustainability of one of these companies, one has to look at the legacy costs they are facing. One needs to look at what’s a reasonable assumption with respect to the volume of sales of motor vehicles in Canada and the United States over the course of the next several years," Flaherty said.

"As you know, there’s been a significant decline in volume (of auto sales), but what’s a reasonable assumption going forward? People are still going to drive cars in Canada and the United States. One has to look at what concessions are the unions prepared to make with respect to competitive wage rates, and competitive compensation packages overall."

The Canadian Auto Workers union began discussions with GM on Thursday to try to reach an agreement that would save GM millions of dollars in costs and retain Canada’s manufacturing investment advantage over the U.S.

"Our intention is to bargain an agreement that retains our labour and productivity advantage over U.S. plants so that there will be no incentive to move production from Canada," said CAW economist Jim Stanford.

Once an agreement is reached with GM or talks stall, the CAW would move on to similar discussions with Chrysler with the intention of wrapping up both within 10 days.

Clement, who also met Thursday with U.S. Senator Debbie Stabenow (D-Mich.), told reporters that the GM auditor’s report "leads us to the same conclusion that we had before, namely that we have to review their plans very closely and make sure they make sense" for Canadian taxpayers.

"This is a broader issue than just GM or Chrysler. It’s about making sure this whole sector can survive to the day when Americans start buying cars again, and they will start buying cars again at some point," Clement said.