Whose Auto Bailout Is Most Expensive? Go Canada!

Time - May 6, 2009

Is the Canadian government's bailout of Chrysler north the worst deal it has ever made? Quite possibly, some critics say, and more of the same is waiting just around the corner as General Motors prepares to ask that country's taxpayers to fork over a similar amount of money in a few weeks time.

Ottawa and the Ontario government are contributing a total of $3.2 billion in loans to keep Chrysler Canada alive, including $850 billion extended to the ailing automaker at the beginning of the year. Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty have characterized the Canadian contribution as proportional to the $12 billion in emergency loans the Obama administration has made available to Chrysler LLC, now under Chapter 11 bankruptcy protection. (See the worst business deals of 2008.)

Not quite. In fact Canada is paying a significant premium over the U.S. to save Chrysler jobs at home, with no guarantees that the billions it is laying at the automaker's door will ever be repaid or do anything to help maintain the country's 20% production share of the North-American auto industry.

The Canadian rescue package works out to more than $340,420 for every employee at Chrysler Canada, which has 9,400 hourly and salaried workers on payroll. That's 15% more than the $295,000 per employee that Washington is shelling out to save about 40,000 Chrysler jobs in the U.S. "This money will never be paid back to the Canadian government," says Toronto auto analyst Dennis DesRosiers with DesRosiers Automotive Consultants. "The deal has been spun in a positive way, but if taxpayers understood what's really going on they would revolt."

What's really going on behind the scenes of the Canadian bailout of Chrysler has more to do with politics than economics. Car dealers and parts suppliers have engaged in a ferocious campaign to save the automaker, both in Ottawa and at the Ontario legislature in Toronto. At the same time Harper and McGuinty are fearful of the repercussions of having Chrysler Canada fail on their watch, possibly triggering a collapse of Ontario's auto sector.

Prime Minister Harper's minority Conservative government in particular needs votes in Canada's industrial heartland if it's to survive a general election, which might come as early as next month. (See the 50 worst cars of all time.)

Also, the Obama administration has made it clear that Canada needs to step up with a serious rescue package for Chrysler and General Motors if it wants a voice in how the North-American auto industry is restructured. But already it's a silent partner, receiving just 2% of Chrysler and one director on the new board in exchange for $3.2 billion in support. That's poor payback, says Jack Layton, head of the New Democratic Party, Canada's fourth largest federal party, which enjoys strong union ties. "The government did not fight hard enough for job and production-share guarantees," he says.