When Ottawa and Ontario this month unloaded some of their shares in Government Motors – the auto maker also known as General Motors – federal Finance Minister Jim Flaherty touted the $1.1-billion (U.S.) stock sale as another milestone in the successful state rescues of GM and Chrysler.
It didn’t matter that the $37-a-share selling price was far below the price needed for Ottawa and Ontario to break even on the $10.8-billion (Canadian) they contributed to the 2009 bailout of GM. Or that the two governments had already lost $800-million on their loans to Chrysler.
“We took the necessary action to protect Canadian jobs and communities,” Mr. Flaherty said. “The value of this investment can be seen in the companies saved and tax bases preserved.”
The Finance Minister’s tone was only slightly less triumphant than that of Prime Minister Stephen Harper – the politician formerly of the anti-tax National Citizens Coalition – when he announced in January that Ottawa was renewing its $250-million Automotive Innovation Fund.
“The rebound of our auto sector,” Mr. Harper boasted, “is one of Canada’s biggest economic and industrial success stories of the last five years.”
The truth is more complicated. Had governments here not been enablers of Ontario’s overdependence on auto assembly jobs in the first place, they wouldn’t have found themselves facing such a Hobson’s choice when GM and Chrysler cratered five years ago.
The short- and medium-term consequences of not participating in the U.S.-led bailouts of GM and Chrysler would have made Detroit look like a boom town next to Oshawa and Windsor. Ottawa and Queen’s Park anted up a combined $13.7-billion faster than they could utter uncle.
But the auto sector rebound Mr. Harper boasts about is bypassing Canada. Cars are flying off North American lots at a near record pace and production is booming in the United States and Mexico. But the number of cars assembled in Canada has fallen 8 per cent so far this year.
Production at GM’s Canadian plants was down 11.5 per cent in the first half of 2013. Chrysler’s Canadian operations assembled 6 per cent fewer vehicles in the first six months. Production of GM’s Camaro will move from Ontario to Michigan after GM closes one Oshawa assembly line next year. And of the $12.2-billion (U.S.) that auto makers plan to spend on factory expansions in North America through 2015, only 3 per cent was slated to come to Canada as of July.
“Ontario’s relative position in this industry may become more permanently impaired unless investment in capacity starts to trend higher,” the Royal Bank warned in a report this week.
No wonder Ottawa and Ontario seem so eager to hand out $135-million (Canadian) to Ford. The two governments are to announce on Thursday that they are lending that sum to the only Big Three auto maker to avoid bankruptcy in order to preserve 3,000 assembly jobs in Oakville, Ont.
While there will be much joy in Oakville, what the Ford subsidy really shows is that Ottawa’s policy cupboard is bare and its bargaining power non-existent. The Automotive Innovation Fund is supposed to support “strategic, large-scale research and development projects.” Instead, it’s being used as a slush fund to postpone the inevitable disappearance of relatively low-skilled assembly jobs that are either destined be performed by robots or move to Mexico.
For developed countries, the most desirable auto sector jobs these days are not in the factory. They’re at one of the four “innovation centres” GM has just opened in suburban Detroit, Atlanta, Phoenix and Austin, Tex. GM will soon employ 9,000 software engineers and other tech workers at these centres, including hundreds of new graduates recruited at nearby universities.
Canada needs these kinds of auto sector jobs if it is to get a return on the bailouts. But Ottawa seems oblivious to the fact that steel and labour account for an ever diminishing share of every car made. Increasingly, the value-added is in the intellectual property – the software, transmission and propulsion systems designed in the labs of the auto makers and the thousands of start-ups that cater to them.
“There is tremendous entrepreneurial opportunity here,” explains Paul Glomski, CEO of Detroit Labs, one of the tech start-ups that has sparked a wave of optimism about the future of the Motor City’s decrepit economy. “There is to be explosive growth in automotive-related apps.”
Until Canada gets in on the act, Mr. Harper and Mr. Flaherty have nothing to boast about.