The CAW, Auto Industry and Government ... "STOP THE INSANITY"

Go to "You Tube" and search this phrase. You will get clips showing
Dieting Guru Susan Powter discussing dieting in front of huge audiences
of overweight Americans where she screams out at the top of her voice
... "STOP THE INSANITY". I watch these clips and can't help but wonder
when these words will be used in the automotive sector. Minister
Clements today announced a $ 700 million package for automotive
suppliers in Canada AND a warranty package to backstop repairs of
vehicles for any company put into receivership. He didn't spell out how
much the warranty program will cost for two reasons. First, he doesn't
know and second the number is so huge that it would create even more
resistance from taxpayers who are funding all these initiatives. Lets go
down the list ....

1. Taxpayer subsidized healthcare for retired CAW workers. I respect
that Canadians subsidize the healthcare for ALL retired workers in this
country but only in head offices of GM, FORD and Chrysler did they
immediately take this subsidy ( about $15.00 ) per hour and give 100
percent of this subsidy to the workers so that they can get SPA days and
their divorces paid for etc ...

2. The Taxpayer backstops their pension funds. So CAW worker so not
contribute a penny to their pensions and when these plans end up with
unfunded liability the taxpayer in Ontario makes up a good portion of
this unfunded liability. Only for companies in CCAA but that is where at
least two of these companies are heading.

3. The Taxpayer backstops termination pay. The auto worker has one of
the most generous severance packages on the face of the earth ... $100K
plus a car is not uncommon. For the ordinary working stiff who is laid
off their EI benefits are reduced by any income they receive on
termination. NOT so with CAW workers. On termination these funds are
contributed to a Government controlled Trust Fund. EI payments are then
paid in full totally untouched. Once the EI payments are exhausted they
then get the money out of the Government Trust. Nice deal and
effectively means that the Government is paying the severance payments
instead of the companies.

4. In my long career in this sector, virtually every time any OEM builds
a new factory they go to the Government to have part of the capital cost
paid for out of taxpayers pockets. Maybe necessary but none the less the
taxpayer subsidizes investments every year.

5. Any company that embraces R,D, D and T in Canada can conduct their
innovation for roughly 50 cents on the dollar. That's right, the
taxpayer covers the remainder of the costs.

6. Governments are creating multi billion dollar funds for things like
advance battery research and other advance technologies ( all with
taxpayer dollars ) in order to subsidize and in some case totally pay
for the research, design, development and technology behind these
advance innovations. You can't imagine how much money our Government
invested in Hydrogen technology for instance and the US Government is
putting into fuel efficiency technologies.

7. The Government is bailing out GM and Chrysler. They have asked for a
total of $10 billion so far and counting. The taxpayer foots this bill
as well. Yes I understand that it is a loan and not a grant but a risky
loan that may or may not be paid back in full. The taxpayer is on the
hook.

8. The Government has a $500 million EDC program to insure supplier
receivables and is now topping up that fund to the tune of another $700
million dollars. The Government essentially is being asked to pay the
supplier bills for these companies instead of the OEMs themselves ... $
1.2 billion and counting. This is an insurance product not a gift and
should be repayable but who know what is repayable or NOT repayable any
more.

9. And now the taxpayers will be backstopping the warranty repair bills
of GM and Chrysler when they are put through a CCAA process. Who knows
how much this will cost. I saw a number last week after Obama announced
the US will do this as well and it was in the $ 5 to 8 billion range for
America. So a Canadian program will be very expensive. The Feds are
capping the warranty payout at somewhere about $185 million per year. I
don't know about you but no taxpayer pays for my brake job every 3-4
years. Help me here. Isn't quality or lack of quality one of the reasons
that these companies have lost so much market share over the years? Now
our Governments are going to subsidize warranties for these same
vehicles.

10. The Government has a $85 million dollar program to remove older
vehicles off the road. The problem, every one of the consumers who use
this program without exception would have removed their old smoker
without a penny of Government assistance, indeed 1.2 million Canadian
will scrap an old clunker this year.

11. The Government is being asked to allow US style VEBA health trusts
in Canada which would provide these companies with even more Government
subsidies for health care. A VEBA allows companies to get a further tax
write off for contributions into a VEBA and for the unions who run VEBAs
to get a tax write off when payments are made from a VEBA. Double
dipping you might say.

12. The Government has a $12 billion program to securitize lease and
loan portfolios to facilitate more borrowing for vehicles in Canada. I
have no idea how much this might cost the taxpayer.

13. The Government is being asked to backstop PPAP payments for the
tooling sector

14 .... the list goes on and on and on.


Almost every one of these initiatives in isolation may make sense and
even I have supported many of them. Although some I really struggle
with ... like subsidizing the CAW benefits program out of taxpayer
funds. But at some point someone has to stand up and add them all
together and ask the simple question ... "WHY?" Why are taxpayers
expected to pay for all this. Where are we going to get the money to pay
for all these automotive perks. My pension is my RRSP and my RRSP is
down 30 percent this like everyone else's, no one is topping up my
pension plan. The taxpayer is paying billions and billions to subsidized
the automotive sector to protect manufacturing jobs in this country.
Through these subsidies the Government has done everything to
Nationalize this sector short of taking actual ownership of these
companies. Where will it all end? Lets face it we now have a
NATIONALIZED automotive sector in everything but name.

I'm going to venture into some dangerous territory and question the
fundamental driving force behind all these billions in subsidies for the
automotive sector. What we are talking about here is about 135,000
manufacturing jobs in Canada. That it folks, and indeed many of these
jobs would survive without any taxpayer involvement. Yes there are about
800,000 direct jobs in the automotive sector but most of them are
distributing vehicles, selling vehicles and repairing vehicles. All of
the these jobs would survive in Canada should we have a collapse in the
manufacturing sector. They would just be with different companies.
Extreme hardship on dealers and others but the jobs at these
organizations would survive.

So what we are protecting here is about 30,000 Detroit three jobs and
about 50,000 jobs from their suppliers. Many of these 80,000 D-3 and
related jobs would survive even in the worse case scenario. Ford for
instance is in much better shape than the other two in Canada. Many
suppliers also supply the new domestics. The other 55,000 jobs at the
new domestics and their suppliers will once again grow when the consumer
comes back to the market so on a net net basis the total number of D-3
and related jobs that Canada may lose would be in the 50,000 range in
the absolute worse case scenario. Even with multipliers into the economy
you may be looking a 100,000 jobs. Terrible yes but is it as
catastrophic as many make it out to be.

I suspect that a case can be made that these jobs are just too expensive
for taxpayers to support and they should be allowed to relocate to lower
cost jurisdictions. And by the way, all these workers who may be
unemployed are CAW members who have to share some of the
responsibilities for these companies being in the mess they are in
today. Why are we so worried about them. I believe there are over 20
million employed in Canada who collect a weekly pay check. Why not let
the markets work. Dangerous thinking I admit. I also have fully
supported many of these initiatives so I would have to eat crow and
reverse my position on many issues but isn't it time that we started to
debate the role and money in our industry relative to the number of jobs
we are trying to protect. I'm sure this will get me in some trouble in
some circles but at some point don't we have to "STOP THE INSANITY"!

My rant for the day.
Dennis


DesRosiers Automotive Consultants Inc
Dennis DesRosiers
President
dennis@desrosiers.ca
80 Fulton Way Suite 101
Richmond Hill, Ontario
L4B 1J5