Canada is in the car business

Quite the weekend/start-of-week for the car industry, especially for Canada and Canadians.

First, Frank Stronach's Magna Corporation, backed by some Russian partners, won the rights to some 1.5 billion euros worth of German government money to finance the purchase of General Motors' European arm, consisting largely of Opel; I'm not entirely sure how much of the British Vauxhall is part of the package.

Stronach has always wanted to be more than just a parts supplier to the industry - he made a bid for Chrysler when Daimler unloaded it a while back.

Now he's there.

Discussions between the German government, Magna and Fiat, the other main contender for the dubious privilege of acquiring these assets, carried on to the last moment. Magna was considered the odds-on choice, apparently because they promised to retain more jobs in Germany than Fiat did.

However, the ink was barely dry before Stronach was quoted as saying he wanted to build Opels in Canada.

Don't hold your breath.

Then today, the government of Canada became something like a twelve percent owner of what is soon to be the restructured General Motors - the wags are already calling it
'Government Motors' - as part of the so-called 'surgical' bankruptcy that the American car giant is undergoing. The Canadian arm of GM remains in operation, thanks largely to the concessions granted recently by the Canadian Auto Workers, and to additional financing provided by the governments of Canada and Ontario.

Where will this all lead?

Everyone is hoping to a leaner, more competitive car maker. GM's product line-up is actually pretty strong right now. and the Chapter 11 (American bankruptcy) process will get them out from under a lot of the legacy cost liabilities the USA's failure to act like a 20th century (let alone 21st) country has saddled them with. (No national health care? No portable pensions? What's wrong with those people?)

It's these failures which made it mandatory for the US government to step in - it essentially created a huge chunk of GM's problems; it is incumbent on it to fix the damage it caused.

US President Barack Obama still refuses to do anything meaningful to develop the market for more fuel-efficient cars, however. As we have said here before, forcing car makers to build them is far from being sufficient. Absent a realistic close-to-world price for fuel and a scrappage program - policies which have been proven to work everywhere they have been tried - the domestic car makers will continue to struggle.

What was all that election blather about change and hope?

Unless the Americans DO change, they don't have a hope.

Comments

[John Frewen-Lord]

Just how much of this government aid falls foul of WTO rules? Funny how America, lead by Boeing, brings major trade disputes to WTO regarding government 'subsidies' to Airbus (in reality repayable loans, not subsidies), but has no compunction about doing the same when one of its own (GM) need a bit of government help.

Still, the record of government aid to the auto industry is not good (just look at the disaster for the UK from the '70s to 2000 - all money wasted, all aided companies gone), and it remains to be seen if this aid is simply delaying the inevitable.