Effects of the 2008-2010 automotive industry crisis on Canada
Encyclopedia
The Canadian auto industry is closely linked to the U.S., due to the Automotive Products Trade Agreement
and later the North American Free Trade Agreement
(NAFTA), and is in similar trouble. Canada's 3,500 car dealers, which employ 140,000 people, told the federal and Ontario governments in mid-November they are at risk from the financial crisis; they are asking the national government to help out despite a retarded record year of sales. Ottawa is considering providing financial aid to the Canadian subsidiaries of the Big Three, and possibly auto parts companies as well. The auto industry argued that loan guarantees and other help would try to save tens of thousands of Canadian jobs threatened by the sudden drop in North American car sales. Chrysler Canada has asked for $1 billion in aid, making it the only Canadian arm of the Big Three to make a specific dollar request.
Industry analyst Anthony Faria criticized the labor contracts that Canadian Auto Workers
then-president Buzz Hargrove
negotiated with the Big Three US automobile manufacturers
in 2007, predicting that the subprime mortgage crisis
and currency would hit Canadian auto production especially hard. Faria noted that UAW president Ron Gettelfinger
agreed to have the UAW's "all-in" wage, benefit and pension costs drop from a high of $75.86 per hour in 2007 to an average of about $51 per hour starting in 2010. By comparison, the CAW's cost per hour was $77 in 2007 and will rise to over $80 per hour by the end of the new contract. Faria said that Gettelfinger went into negotiations "with the right intention...Save jobs. The CAW strategy was to squeeze every dime out of them." Hargrove was said to have "instilled backbone and an attitude that the union could always make the auto makers buckle at the bargaining table".
Current union president Ken Lewenza
has argued that labor is not responsible for the bankruptcy crisis facing the Big Three automakers, saying that his members would not make concessions part of any taxpayer-funded bailout. "We don't see this as us being the problem", Lewenza said, adding he would "absolutely not" accept any further cuts after losing tens of thousands of jobs in recent years. "We've suffered our share of pain."
Lawenza argued that the CAW agreed in 2007 to make concessions that will save the Big Three $900 million over three years.
A spokesman for the Canadian Taxpayers Federation
has criticized the CAW's "no-concession" stance, saying that it only serves to strengthen the opposition to a taxpayer-funded bailout for the struggling Detroit Three automakers. The CTF further pointed out that "It is especially difficult to understand anyone asking for government help that refuses to do anything to help itself to begin with", since they "fail to realize they've existed at the substantial largesse of taxpayers for decades". Kelly McParland, a columnist for the National Post
, has suggested that "if he won't give anything, he and his members are likely to lose everything." He also said that the problem facing the North American auto industry was borne equally by management and labor alike, criticizing labor for building up pay and benefits for themselves that was as unsustainable as it was enviable, while attacking management for its short-term strategy of selling gas-guzzling trucks and sales tactics (price cuts, rebates, free gas and cash-back schemes).
The CTF has opposed the proposed $3.5 CAD billion bailout for Canadian subsidiaries of the Big Three, saying that it was an unfair financial burden on the average Canadian, as well as another excuse for the Detroit automakers to postpone much needed change. The CTF noted that federal and provincial governments spent $782-million in the past five years on the Big Three, saying "These have been a bottomless pit of requests for cash". Lewenza disagreed, saying that the bailout should be seen by Canadians as a loan that will be paid back when the country's economy is prosperous again.
On December 20, the government of Canada and the province of Ontario
offered $3.3 billion in loans to the auto industry. Under the plan GM
will receive $3 billion and Chrysler
will receive the rest. Ford only asked for a line of credit but will not be participating in the bailout.
The CAW negotiated a cost-cutting deal with General Motors Canada on March 8, 2009. The deal would extend the current contract for an additional year to September 2012, and preserves the current average assembly-worker base pay of about $34 an hour. It would eliminate a $1,700 annual "special bonus," and reduce special paid absences or "SPA days" from two weeks to one week a year, while maintaining vacation entitlements which range up to six weeks a year for high-seniority workers. The deal also introduce payments by members toward their health benefits - $30 monthly per family for workers and $15 a month for pensioners. Lewenza said it also would trim by 35 per cent company contributions to union-provided programs such as child care and wellness programs. Lewenza called the package a "major sacrifice." However, observers noted that the deal did not go far enough; DBRS analyst Kam Hon described it as "not material." Automotive industry consultant Dennis DesRosiers said that General Motors had missed the chance to slash labour costs, pointing out that bankruptcy was a looming threat, Ottawa and Queen's Park demanded cuts to the labour bill as a condition of the bailout, and that the deficit to the pension fund would prevent the CAW from striking. He estimated the total hourly cost of a GM Canada worker, including benefits, is $75 to $78, and saying that "they [GM] got six or seven" when it should have been cut by $20. DesRosiers also said giving up cost-of-living increases is not significant when inflation is nearly non-existent and added that the 40-hour reduction in paid time off merely means "five fewer spa days." University of Toronto
professor Joe D'Cruz calculated that it would save $148 million a year, though GM is seeking $6 billion in Canadian government support.
CAW autoworkers with seniority were able to maintain 10 weeks of vacation with full pay, while not contributing to their pension fund, relying instead on taxpayers (including these without pensions) to help make up their unfunded liabilities.
The agreement is contingent on Canada being allocated 20% of GM's North American, and getting billions of dollars in federal and provincial taxpayer support, which Lewenza stressed will be loans. However, some suggested that this would not be the final time that automakers would request a bailout.
Dennis DesRosiers estimated that GM will go through its government loans in a couple of quarters, long before any recovery in the market. Furthermore, GM Canada president Arturo Elias had admitted to MP Frank Valeriote
that GM had pledged all its assets worldwide to the U.S. government in order to secure the first tranche
of a US$30-billion loan, leaving no assets to collateralize the $6 billion loan from the Canadian government. The Canadian Taxpayers' Federation noted that between 1982 and 2005, Ottawa handed out over $18.2 billion to corporations, of which only $7.1 billion was repayable, and only $1.3 billion was ever repaid.
Chrysler vice-chairman and president Thomas W. LaSorda
(himself the son of a CAW official) and Ford's chief of manufacturing Joe Hinrichs said that the GM-CAW deal was insufficient, suggesting that they would break the CAW's negotiating pattern set by GM. LaSorda told the Canadian House of Commons
finance committee that he would demand an hourly wage cut of $20, suggested that Chrysler may withdraw from Canada if it fails to achieve more substantial cost savings from the CAW.
On March 31, 2009, the Canadian federal and Ontario governments jointly rejected the restructuring plans submitted by GM and Chrysler. This came a day after US President Barack Obama
had rejected the plans of their parent companies. Both federal Industry Minister Tony Clement
and Ontario Premier Dalton McGuinty
suggested the CAW's initial deal was insufficient in cutting costs and the union had return to the bargaining table to make further concessions, in order to show that taxpayers' money is justified.
As well, Fiat
CEO Sergio Marchionne
has asked that the CAW's wages be reduced to the levels of non-unionized workers from Honda and Toyota operating in Canada, or else they would walk away from the proposed alliance with Chrysler, resulting in the latter being forced into bankruptcy.
Automotive Products Trade Agreement
The Canada—United States Automotive Products Agreement, commonly known as the Auto Pact or APTA, was an important trade agreement between Canada and the United States. It was signed by Prime Minister Lester B. Pearson and President Lyndon B...
and later the North American Free Trade Agreement
North American Free Trade Agreement
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
(NAFTA), and is in similar trouble. Canada's 3,500 car dealers, which employ 140,000 people, told the federal and Ontario governments in mid-November they are at risk from the financial crisis; they are asking the national government to help out despite a retarded record year of sales. Ottawa is considering providing financial aid to the Canadian subsidiaries of the Big Three, and possibly auto parts companies as well. The auto industry argued that loan guarantees and other help would try to save tens of thousands of Canadian jobs threatened by the sudden drop in North American car sales. Chrysler Canada has asked for $1 billion in aid, making it the only Canadian arm of the Big Three to make a specific dollar request.
Industry analyst Anthony Faria criticized the labor contracts that Canadian Auto Workers
Canadian Auto Workers
The Canadian Auto Workers is one of Canada's largest and highest profile social unions. While rooted in Ontario's large auto plants of Windsor, Brampton, Oakville, St...
then-president Buzz Hargrove
Buzz Hargrove
Basil Eldon "Buzz" Hargrove, OC is the former National President of the Canadian Auto Workers trade union...
negotiated with the Big Three US automobile manufacturers
Big Three automobile manufacturers
The Big Three, when used in relation to the automotive industry, most generally refers to the three major American automotive companies:Ford, General Motors, and Chrysler...
in 2007, predicting that the subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
and currency would hit Canadian auto production especially hard. Faria noted that UAW president Ron Gettelfinger
Ron Gettelfinger
Ronald A. Gettelfinger was the president of the United Auto Workers from 2002 to 2010.Gettelfinger started his union involvement in 1964 in Louisville, Kentucky, at the Louisville Assembly Plant run by Ford Motor Company while working as a chassis line repairman...
agreed to have the UAW's "all-in" wage, benefit and pension costs drop from a high of $75.86 per hour in 2007 to an average of about $51 per hour starting in 2010. By comparison, the CAW's cost per hour was $77 in 2007 and will rise to over $80 per hour by the end of the new contract. Faria said that Gettelfinger went into negotiations "with the right intention...Save jobs. The CAW strategy was to squeeze every dime out of them." Hargrove was said to have "instilled backbone and an attitude that the union could always make the auto makers buckle at the bargaining table".
Current union president Ken Lewenza
Ken Lewenza, Sr.
Ken Lewenza, Sr. is the National President of the Canadian Auto Workers union, having been acclaimed at that organization's national convention on September 6, 2008. He was previously the president of the Canadian Auto Workers, Local 444 in Windsor, Ontario, Canada...
has argued that labor is not responsible for the bankruptcy crisis facing the Big Three automakers, saying that his members would not make concessions part of any taxpayer-funded bailout. "We don't see this as us being the problem", Lewenza said, adding he would "absolutely not" accept any further cuts after losing tens of thousands of jobs in recent years. "We've suffered our share of pain."
Lawenza argued that the CAW agreed in 2007 to make concessions that will save the Big Three $900 million over three years.
A spokesman for the Canadian Taxpayers Federation
Canadian Taxpayers Federation
The Canadian Taxpayers Federation is a Canadian federally incorporated, non-profit organization and taxpayers union that claims to have over 70,000 supporters across Canada. The organization advocates lower taxes, and a reduction of what it considers to be waste in government...
has criticized the CAW's "no-concession" stance, saying that it only serves to strengthen the opposition to a taxpayer-funded bailout for the struggling Detroit Three automakers. The CTF further pointed out that "It is especially difficult to understand anyone asking for government help that refuses to do anything to help itself to begin with", since they "fail to realize they've existed at the substantial largesse of taxpayers for decades". Kelly McParland, a columnist for the National Post
National Post
The National Post is a Canadian English-language national newspaper based in Don Mills, a district of Toronto. The paper is owned by Postmedia Network Inc. and is published Mondays through Saturdays...
, has suggested that "if he won't give anything, he and his members are likely to lose everything." He also said that the problem facing the North American auto industry was borne equally by management and labor alike, criticizing labor for building up pay and benefits for themselves that was as unsustainable as it was enviable, while attacking management for its short-term strategy of selling gas-guzzling trucks and sales tactics (price cuts, rebates, free gas and cash-back schemes).
The CTF has opposed the proposed $3.5 CAD billion bailout for Canadian subsidiaries of the Big Three, saying that it was an unfair financial burden on the average Canadian, as well as another excuse for the Detroit automakers to postpone much needed change. The CTF noted that federal and provincial governments spent $782-million in the past five years on the Big Three, saying "These have been a bottomless pit of requests for cash". Lewenza disagreed, saying that the bailout should be seen by Canadians as a loan that will be paid back when the country's economy is prosperous again.
On December 20, the government of Canada and the province of Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
offered $3.3 billion in loans to the auto industry. Under the plan GM
General Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
will receive $3 billion and Chrysler
Chrysler
Chrysler Group LLC is a multinational automaker headquartered in Auburn Hills, Michigan, USA. Chrysler was first organized as the Chrysler Corporation in 1925....
will receive the rest. Ford only asked for a line of credit but will not be participating in the bailout.
The CAW negotiated a cost-cutting deal with General Motors Canada on March 8, 2009. The deal would extend the current contract for an additional year to September 2012, and preserves the current average assembly-worker base pay of about $34 an hour. It would eliminate a $1,700 annual "special bonus," and reduce special paid absences or "SPA days" from two weeks to one week a year, while maintaining vacation entitlements which range up to six weeks a year for high-seniority workers. The deal also introduce payments by members toward their health benefits - $30 monthly per family for workers and $15 a month for pensioners. Lewenza said it also would trim by 35 per cent company contributions to union-provided programs such as child care and wellness programs. Lewenza called the package a "major sacrifice." However, observers noted that the deal did not go far enough; DBRS analyst Kam Hon described it as "not material." Automotive industry consultant Dennis DesRosiers said that General Motors had missed the chance to slash labour costs, pointing out that bankruptcy was a looming threat, Ottawa and Queen's Park demanded cuts to the labour bill as a condition of the bailout, and that the deficit to the pension fund would prevent the CAW from striking. He estimated the total hourly cost of a GM Canada worker, including benefits, is $75 to $78, and saying that "they [GM] got six or seven" when it should have been cut by $20. DesRosiers also said giving up cost-of-living increases is not significant when inflation is nearly non-existent and added that the 40-hour reduction in paid time off merely means "five fewer spa days." University of Toronto
University of Toronto
The University of Toronto is a public research university in Toronto, Ontario, Canada, situated on the grounds that surround Queen's Park. It was founded by royal charter in 1827 as King's College, the first institution of higher learning in Upper Canada...
professor Joe D'Cruz calculated that it would save $148 million a year, though GM is seeking $6 billion in Canadian government support.
CAW autoworkers with seniority were able to maintain 10 weeks of vacation with full pay, while not contributing to their pension fund, relying instead on taxpayers (including these without pensions) to help make up their unfunded liabilities.
The agreement is contingent on Canada being allocated 20% of GM's North American, and getting billions of dollars in federal and provincial taxpayer support, which Lewenza stressed will be loans. However, some suggested that this would not be the final time that automakers would request a bailout.
Dennis DesRosiers estimated that GM will go through its government loans in a couple of quarters, long before any recovery in the market. Furthermore, GM Canada president Arturo Elias had admitted to MP Frank Valeriote
Frank Valeriote
Frank Valeriote is a Canadian politician. He is the Liberal Member of Parliament for the riding of Guelph.-Background:...
that GM had pledged all its assets worldwide to the U.S. government in order to secure the first tranche
Tranche
In structured finance, a tranche is one of a number of related securities offered as part of the same transaction. The word tranche is French for slice, section, series, or portion, and is cognate to English trench . In the financial sense of the word, each bond is a different slice of the deal's...
of a US$30-billion loan, leaving no assets to collateralize the $6 billion loan from the Canadian government. The Canadian Taxpayers' Federation noted that between 1982 and 2005, Ottawa handed out over $18.2 billion to corporations, of which only $7.1 billion was repayable, and only $1.3 billion was ever repaid.
Chrysler vice-chairman and president Thomas W. LaSorda
Thomas W. LaSorda
Thomas W. LaSorda, often known as Tom LaSorda, is a Canadian-American automobile industry executive who served as CEO and President of the Chrysler Group....
(himself the son of a CAW official) and Ford's chief of manufacturing Joe Hinrichs said that the GM-CAW deal was insufficient, suggesting that they would break the CAW's negotiating pattern set by GM. LaSorda told the Canadian House of Commons
Canadian House of Commons
The House of Commons of Canada is a component of the Parliament of Canada, along with the Sovereign and the Senate. The House of Commons is a democratically elected body, consisting of 308 members known as Members of Parliament...
finance committee that he would demand an hourly wage cut of $20, suggested that Chrysler may withdraw from Canada if it fails to achieve more substantial cost savings from the CAW.
On March 31, 2009, the Canadian federal and Ontario governments jointly rejected the restructuring plans submitted by GM and Chrysler. This came a day after US President Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
had rejected the plans of their parent companies. Both federal Industry Minister Tony Clement
Tony Clement
Tony Peter Clement, PC, MP is a Canadian federal politician, President of the Treasury Board, Minister for the Federal Economic Initiative for Northern Ontario and member of the Conservative Party of Canada....
and Ontario Premier Dalton McGuinty
Dalton McGuinty
Dalton James Patrick McGuinty, Jr., MPP is a Canadian lawyer, politician and, since October 23, 2003, the 24th and current Premier of the Canadian province of Ontario....
suggested the CAW's initial deal was insufficient in cutting costs and the union had return to the bargaining table to make further concessions, in order to show that taxpayers' money is justified.
As well, Fiat
Fiat
FIAT, an acronym for Fabbrica Italiana Automobili Torino , is an Italian automobile manufacturer, engine manufacturer, financial, and industrial group based in Turin in the Italian region of Piedmont. Fiat was founded in 1899 by a group of investors including Giovanni Agnelli...
CEO Sergio Marchionne
Sergio Marchionne
Sergio Marchionne is an international manager best known for his turnaround of the Italian automotive group Fiat and, more recently, for managing the US automotive group Chrysler from bankruptcy to profitability...
has asked that the CAW's wages be reduced to the levels of non-unionized workers from Honda and Toyota operating in Canada, or else they would walk away from the proposed alliance with Chrysler, resulting in the latter being forced into bankruptcy.
See also
- Automotive industry crisis of 2008–2010
- Chrysler bankruptcy
- Effects of the 2008-2010 automotive industry crisis on the United States
- General Motors bankruptcy