Front Burner - GM Oshawa closure casts new light on bailout

Episode Date: November 27, 2018

On Monday, General Motors announced it is pulling out of Oshawa, Ontario, where it employs more than 2,500 people. This comes years after a major Canadian bailout pulled GM back from the brink. The National's Jonathon Gatehouse breaks down corporate bailouts the Canadian auto sector has received and explains how that fits into Canada's broader relationship with buoying big business.

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about hidden disabilities. Short Sighted, from CBC's Personally, available now. This is a CBC Podcast. Hi, I'm Jamie Poisson and this is FrontBurner. The news started to trickle out Sunday night. Unconfirmed reports on Twitter that General Motors was going to close its plant in Oshawa, Ontario. And by yesterday morning, it became a solid piece of confirmed bad news. For the GM workers, at least. I've been here 28 years. I've been through a closure in Scarborough.

I've been through a closure in London. I moved my family twice for this company and they do this to me. It's terrible. Fury, anger. I don't know. Anger doesn't do it any justice because they're ripping the heart and soul out of this community. It's just an absolutely ruthless betrayal and right before Christmas. GM says the decision is part of a global restructuring plan. The company will now focus on lower carbon emissions and electric and autonomous vehicles. So, not the kind of cars they make in Oshawa. As the day ran its course, people were quick to point out that Canadian taxpayers spent billions of dollars bailing out GM in 2009. We're going to talk about auto bailouts and bailouts more broadly today. Since it's such a huge part of the U.S.-Canada trade relationship, you know, there was a feeling, at least in 2009, that the governments didn't have any choice.

But first. 2,500 people work at the Oshawa plant. And many, many more rely on those GM paychecks to keep their own businesses afloat. People like Melanie Pringle. She runs Melanie Pringle's restaurant just a few minutes from the GM factory. Melanie, how are you feeling today? Well, you know, everybody's in a state of shock, I think. I've had my business in Whitby for

31 years. I have a restaurant. Yeah, so it's a hard hit. Can you tell me a little bit about your restaurant? Yeah, it's an independent Melanie Pringles restaurant, and I've had it for 31 years. It's, you know, I employ 40 people. So there's a lot of mortgages. There's lots of students paying their way through university, people with kids, single moms.

I'm a single mom putting my daughter through university. So, yeah, I mean, we've been around for 31 years and had to diversify over the years and seen, you know, numerous recessions. I understand your restaurant is just up the street from the GM plant? It is, yes. Yeah. And from Lear Feeding. So they provide a lot, all the feeding for GM. So what are you concerned about now? Obviously concerned for the families that are affected by all of this and what it'll do to the community, what it'll do to all the small business people and big, big business people. You know, it's just such a trickle-down effect.

What are you hearing today from people in your community, maybe from some of your customers? Just the uncertainty and how could they. A lot of disdain in their voice regarding GM. You know, they were bailed out by the people, by the government. We were kind of their plan B, and now they're not giving the community a plan B. Can you explain to me what you mean by how you were kind of their plan B?

Like when the government gave them a bailout years ago, and it was, you know, the taxpayers essentially funded it. Now I know they paid it back. So the government and the people were their plan B. essentially funded it. Now I know they paid it back. So the government and the people were their plan B. So now that they're doing this, they haven't come forward to all the people that have been working for them for years with a plan B. They're just pulling the plug and thinking that's okay. And it's very destructive. Destructive to the families, destructive to the communities, destructive to all of us. I mean, where I go get my hair done,

you know, what's the effect going to be on them? Will people just wait longer? Will people eat in more? Will they, you know, when they buy their gas from the local guy right outside of the plant, what happens to that guy when people bought their lottery tickets or snacks in that garage? You know, what happens to all that? The independent burger guy that's right around the corner that relied heavily on that 3,000 people coming and going. I'm really sorry for everything that's happened to you today.

And I hope that things are going to be okay for you and your business. Yeah, well, thank you. Thank you. I appreciate that. And, you know, it's perseverance and it has to be. You know, you just have to diversify and probably work harder for less. Thank you so much for taking the time to chat with us. No problem. Take care. Okay, so let's dig into this a bit. Jonathan, introduce yourself.

I'm Jonathan Gatehouse from The National, and I write The National Today newsletter. So we just heard from Melanie Pringle say that we, Canadian taxpayers, bailed out GM around the height of the financial crisis in 2008, 2009. What did Canada do to help GM back then? Well, you know, it was part of a larger bailout for the auto sector, both in the United States and in Canada. Today, the Premier and I are announcing the fulfillment of Canada's commitment to provide 20% of the U.S. support package. Our choice is to passively preside over the demise of the industry in Canada and observe its consolidation

in the United States of America or to act, we choose to act. In Canada, that took the form of loans and a buy-in of stock and some subsidies for both Chrysler and GM. And GM's take out of that was about $10.8 billion. Canadian? Canadian. And why did the Canadian government decide that that was something they needed to do back then?

Well, for the same reason that the government's always been in to try and help the auto sector because it's a huge part of the Canadian economy. About $20 billion a year of GDP. It's Canada's biggest export in recent years. Almost all to the United States, 95% of the United States, about $65 billion worth of cars in 2016. And in Ontario alone, it's got 120,000 associated jobs. So if we don't help this company in 2009, then what could have happened? Well, the company would have failed. There is no question. I mean, the auto sector would have failed, right, without the government intervention on both sides of the border.

without the government intervention on both sides of the border. Magna's exterior on plant in Aurora has seen better days. And today looks like its last. For workers at this General Motors plant, the company is cutting one of three shifts, laying off 700 workers. Outside this weekend's Canadian International Auto Show, auto workers staged a demonstration to say they're hurting,

plants are closing, and thousands have lost their jobs. And since it's such a huge part of the U.S.-Canada trade relationship, you know, there was a feeling, at least in 2009, that the governments didn't have any choice. Is the issue around this bailout, especially in 2009, was it just connected to jobs directly related to manufacturing cars? No. I mean there's a trickle-down effect of all of these jobs, right? I mean 120,000 direct auto jobs but then like the lady that owns the restaurant that you just heard from. I mean there's other people in these communities who also are impacted by the health of the auto sector. And it's not just one community in Ontario.

It's several of them and in Canada at large. So it's worth noting that as the years go on, the number of people directly employed by these big companies has shrunk drastically. I mean if we look back to the mid-1980s in Oshawa, there were almost 23,000 people working for GM. Today, it's 2,500. And do you think that that's because jobs are going elsewhere like Mexico or perhaps machines are taking over some of the jobs that people used to do? I mean, I think it's both, right? I mean, there are fewer people employed in the auto sector total because of automation. But you look at what the choices have been made in the last few years.

I mean, in 2015, Oshawa lost 1,000 jobs because GM moved the last of its Camaro production to Lansing, Michigan. It was a very popular car. The cars that were built in Oshawa were highly rated. It was a very efficient plant. But the same thing had happened in Quebec, where GM moved the auto production for Camaros out of Bois-Briand and into Michigan. And, you know, the Quebec government had just given them $220 million to retool that plant. I want to get to this bailout money and whether or not there are any strings attached.

But before we do, we also heard Melanie mention the GM paid that money back. And is that the full story there? No. You know, like all of these things, it's very complex and it hasn't been helped by the fact that the federal government and the Ontario government have been anything but transparent about what happened with the bailout money. But depending on whose calculations you take as the truth, the net loss for taxpayers from these two bailouts, GM and Chrysler, was somewhere between $4 and $5 billion. And most of that money was from the GM bailout because it was the largest portion of it. So let's talk a little bit about whether or not there were any strings attached to this bailout in 2009.

Did GM have to do anything in exchange for all of this money? Well, it had to keep operating. It was – and it had to repay a portion of the money that it got. And it had to repay a portion of the money that it got. And the government of Canada got 73 million shares in GM, which it sold. The union will say far too soon because it sold them at a loss. It should have held on to them and kept some equity pressure on GM. It would have had some skin in the game. But the government wanted to get out, wanted to balance its books and lost whatever leverage it might have had for an announcement like today.

Let's move forward to this May. The auto crisis is now almost 10 years behind us, yet the federal government and provincial governments kicked in $220 million for two Toyota plants. Toyota is announcing a $1.4 billion investment in its Cambridge and Woodstock plants. And to support this investment, the government of Canada will be contributing $110 million in partnership with the government of Ontario, which will match our investment. And that's such good news, I'm going to repeat it in French. Why hand over that kind of cash recently? It's the perception, at least, that this is crucial for jobs and good paying jobs, right?

Jobs with good benefits. In the case of Toyota, I mean it's supposed to be 8,000 direct jobs. They were going to create another 450 jobs in exchange for this 220 million and 1,000 co-op placements. And so that's a big deal in communities like Cambridge and Woodstock. I guess the question that we're grappling with today is are these bailouts – can they be a good thing too, this government infusion of cash? Can they bring jobs, much-needed jobs to places that have sort of a trickle-down effect? Yeah.

I mean you can certainly make that argument. Listen, Unifor, the union that represents the Canadian auto workers now, when they were in the midst of negotiating their last contract and talking about government support for Oshawa, put a figure of $1 billion as the tax revenue that was generated not just by the plant and people that worked at the plant but associated workers and people in the community because that plant is there. And that's a lot of money. But then the flip side of that equation is the governments, all level of governments in Canada, give an awful lot of money to businesses.

So let's talk about the flip side of that equation. What's the argument against giving money to these businesses? I think you see it today, right? That the strings that aren't there are the ones that would be part of a social contract where you say, hey, we give you money but you're the lifeblood of this community. You need to think about more than just your bottom line or what duty you owe to your stockholders. You have a duty to the people, the taxpayers of Canada, to the people that live in these communities. But if you pull back and look at the big picture here, there's a study that came out earlier

this year from the University of Calgary School of Public Policy that tried to calculate how much Canadian governments and just the federal government in the four largest provinces, how much has been spent per year on subsidies for business. And the figure that they came up with was $29 billion a year. That's a stunning amount of money. It is a stunning amount of money. But the fact about that that sticks with me the most is that's half of what Canada takes in in corporate tax.

So we're giving it right back to companies. And it's the beneficiaries aren't who you think, right? The biggest single payout in terms of business subsidies goes to small businesses in terms of tax reductions because we believe that small businesses are the job creators in our economy. And then also sectors like oil and gas, which gets $3.3 billion a year in subsidies from governments, agriculture, big subsidies, and increasingly things like green energy, right? I mean, we might or might not agree that these are things that we need in Canada. We need to grow our own food. We need to transition to a greener economy. But it all comes with a cost.

Are you saying that small businesses are the ones that are benefiting the most? It's the single biggest ticket item out of that $29 billion. $7.7 billion a year goes to small business in all its various forms. It all comes down to whether you believe that this is necessary, right? I mean, the argument is always about a level playing field. Well, the United States just drastically cut its corporate tax rates and now there's a lot of pressure on Canada to follow suit. And what we saw in the fall economic statement last week was another huge tax break for corporations in Canada in terms of being able to write off investment into their businesses. You know, will that ultimately stop a company like GM or Chrysler

or whatever big multinational from picking up and moving out of a Canadian city if they think they can get a better deal somewhere else? I think the answer that you see today is no. Is it possible, is the other side of the argument that we haven't even done enough in this country possibly to make this a hospitable environment for businesses? I mean you can get engaged in a race to the bottom, which is what some people will term these things as you cut more and more taxes and you cut regulation and red tape. And sometimes that can make a difference into where a company invests. But the other argument that people make is that there should be more to how a decision like this is made by both corporations as well, right? If you want to attract employees

and keep them, especially for a higher paying job, maybe they want to live in a place that has safe streets, safe communities, that has decent health care, decent services, and that comes from tax revenue. And if we're not getting that money from businesses, then how are we going to pay for it? Another question I have is the Oshawa plant here was making the Impala, which is a kind of car that it would seem pretty clear is not for this world, right? Like, why do you think there's also this move to bail out companies or help companies financially that aren't necessarily at the forefront of innovation. One of the interesting points about GM, right, is that they've created internal competition

for the models of cars at various plants around the world, right? So where you have these production allocations, and this is what's happening here. The production allocation for the pickups in Oshawa runs out at the end of December 2019, and then they're not going to get a production allocation of a different vehicle or a new vehicle. And so yeah, you might get stuck with building the Impala and everybody knows that it doesn't have a future. But they've often – they've used this as a way to extract concessions from labor

when they're doing their negotiations, right? What kind of vehicles are going to be built in this particular plant and what's that mean for the future of the plant? You were talking a little bit about how governments here in Canada and it seems like regardless of their political stripe are wanting to give money back to businesses. What do you think their political calculation is when they're doing this? Well, they think it's their votes in it.

I mean that's always the political calculation for everything a government does is will this result in us getting reelected? And not so much that people might reward you across the province for what you do. I mean maybe the people of Oshawa would be happier with you if you give a nice big subsidy to GM. But I note that the local MPP in Oshawa is from the NDP, not the conservatives or the liberals who were in power. But that if you don't handle these files well, it's the kind of thing that can get you kicked out of government. It's easier as a government to throw money at a problem than to take the loss or to – as a government to throw money at a problem than to take the loss or to, as you say, say to people in Oshawa that gas guzzling cars are not the future.

Pickup trucks are not the future. But keep in mind, right, GM is trying to transition like every automaker to electric vehicles. Right now, GM is saying that – trying to have a rule put in place in the United States that will require GM and all the other automakers to have 25% electric vehicles by 2030 rolling off the production lines. Well, if that's the case, I mean, they'll probably think about building electric vehicles here in Canada. And if they do, they'll be back looking for more money to help facilitate that change. I think that's a good place for us to leave this conversation. Thank you so much, Jonathan. Oh, you're welcome.

Yesterday night, the House of Commons convened an emergency debate on the closure of the GM plant in Oshawa. Here's some of what was said. The government of Canada loaned $10.85 billion to that industry and certainly General Motors was a recipient. It would seem to me that $10.85 billion should have been

the basis of a requirement for something far more secure. Now is a time to address the signal being sent that our manufacturing environment in Ontario has some underlying competitiveness issues. As Jonathan mentioned, he writes the National Today newsletter. You can subscribe on the National's website. That's it for today. I'm Jamie Poisson. Thanks for listening to FrontBurner. slash podcasts. It's 2011 and the Arab Spring is raging.

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