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Canada bought stake in GM to save jobs

January 1, 2010

Canada bought stake in GM to save jobs

The Detroit News

When Canada bought a stake in General Motors Co., it did so for one reason: to preserve jobs on its side of the border.

And while the auto industry hasn’t fully recovered and much uncertainty remains, Canada has benefited since its investment.

In December, GM announced it was buying out partner Suzuki Motor Corp. for full ownership of the CAMI Automotive Inc. plant in Ingersoll, Ontario, and adding a third shift and new body shop.

In Oshawa, GM has promised an additional shift in 2011 to add production of the new Buick Regal, in addition to previous promises to invest in other facilities in the nation.

Those moves bolster Prime Minister Stephen Harper’s calls last year for approving bailout money, which came with the acquisition of an 11.7 percent stake for investing $9.5 billion in GM, and for the first time warranted a foreign government getting a seat on the board of directors of an iconic American company like GM.

Ontario Finance Minister Dwight Duncan told The Detroit News that if Canada had not been at the table to protect production within its borders, he had no doubt the work would be repatriated.

The Ontario government contributed about a third of the money and got 3.8 percent of the Canadian government’s stake in the company.

In negotiations leading up to GM’s June bankruptcy filing, the Detroit automaker threatened to pull its operations out of Canada. That would have meant the loss of more than 9,000 direct jobs, almost all of them in Ontario.

Duncan said the cost of GM’s liquidation to the provincial economy "would have been so much greater than the cost of the loans and equity."

Instead, the loans bought an eight-year commitment from GM to continue to build vehicles in Canada and invest in plants, products, and research and development, he said.

The investment was never about power or governance, Canadian officials said, and Harper acknowledged that taxpayers may recoup little of the $9.5 billion in loans the national government gave to GM.

It was about preserving the auto industry in Canada, which is an integral part of the economy.

Canada’s single seat on the 13-person board doesn’t buy much clout as the agreement stipulates the appointee must vote Canada’s shares with the majority of the independent directors. Canada’s board member is Carol Stephenson, dean of the University of Western Ontario’s Ivey business school and a member of a number of government and corporate boards in Canada.

The Canadian contribution was both protectionist and formulaic.

About 16 percent of GM’s North American production has been in Ontario.

To maintain that proportion of manufacturing, Canadian politicians said early on that they would lend a figure amounting to 16 percent of what the U.S. Treasury provided.

The Canadian and Ontario governments also have a 2 percent share and one seat on the board of the new Chrysler Group LLC formed with Fiat SpA in return for more than $3 billion. Calgary businessman George Gosbee, founder of Tristone Capital Inc., sits on the Chrysler board.

The Canadian government had no choice but to invest in the companies, said analyst Dennis DesRosiers of DesRosiers Automotive Consultants near Toronto.

Decisions affecting GM Canada are made in the U.S. and most vehicles made in Canada have been traditionally viewed as domestic.

"Now we’re being considered a hard border," DesRosiers said. "The U.S. is now seeing a Canada-built vehicle as foreign when it didn’t a year ago."

Politicians in Canada say they don’t want to stay in the car business.

The goal is to sell the GM shares within eight years, with some flexibility if market prices are horrendous.

Canadian politicians are optimistic the investments will pay off.

But DesRosiers disagrees, saying the government may have saved GM in Canada but it could cost the prime minister his job when angry taxpayers rebel.

"(Harper) wrote the shares off on the first day and had already built (the loss) into the deficit," he said.

"This has got disaster written all over it.""> (313) 222-2504

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