statism watch

Flashback: ‘New GM’ to emerge from bankruptcy | Auto bailout costs soar, contribute to $50B deficit

Rob Ferguson, Tony Van Alphen, Toronto Star
June 2, 2009

Will taxpayers get their money back from ‘Government Motors’? ‘We are not counting on that,’ PM says. But Ontarians will get a record $18.5 billion deficit

Ontario’s $3.5 billion share of the rescue package for General Motors has helped push the provincial deficit to at least $18.5 billion, a record amount that is almost one-third higher than the McGuinty government’s projection made in March.

Provincial taxpayers now own 3.8 per cent of the iconic automaker, being dubbed Government Motors. The federal government gets another 7.9 per cent for a total Canadian stake in the firm of 11.7 per cent.

Prime Minister Stephen Harper confirmed yesterday Ottawa is kicking in $7.1 billion, meaning the two levels of government are providing $10.6 billion to help GM restructure as a smaller company designed to “break even” with production of just 10 million vehicles annually in North America.

Just as the bailouts of GM and Chrysler contributed to a stunning $50 billion deficit revealed last week by federal Finance Minister Jim Flaherty, the Ontario government now faces a deficit $4.4 billion higher than projected in March. Ontario’s previous record deficit was $12.4 billion in 1993.

Earlier yesterday, GM gained court protection from creditors in the U.S., but did not apply here. GM officials had predicted the action for weeks to allow the company some breathing room to resolve creditor disputes and reorganize.

The U.S. government is pumping another $30.1 billion (U.S.) in loans into the company, in addition to $19.5 billion that it committed earlier. American taxpayers will get 60 per cent of equity in the “New GM.”

A United Auto Workers health-care trust will hold 17.5 per cent of the company’s shares while bondholders will get about 10 per cent.

Harper cautioned that Canadians should not expect much when the government sells its share on the stock market over the next few years.

“Clearly, taxpayers will get some money back when the day comes that we begin to sell our equity share, but to be frank we are not counting on that,” he said, standing with McGuinty at a news conference at a downtown hotel yesterday.

The bankruptcy protection filing marked a low point for the auto icon, which ruled the world’s market for decades with brands such as Chevrolet, Pontiac and Oldsmobile.

But the company’s share of the market had been declining since the 1970s and it ran into a cash crunch last year because of the worldwide credit crisis that triggered the worst industry downturn in more than a quarter of a century.

The depth of Ontario’s financial commitment caught Queen’s Park off guard.

“Clearly, suffice to say, we did not plan enough contingency (funds) for the General Motors and Chrysler deals taken together,” Finance Minister Dwight Duncan told reporters at Queen’s Park yesterday, noting that corporate tax revenues have also been lower than expected in the recession.

It was hard to nail down a number because the aid figure for GM was “bouncing around as late as” Sunday, Duncan added, refusing to say how many years it will now take to eliminate Ontario’s deficit. The plan had been to do so in seven years.

“I’m not dealing today with any outlying years … because, frankly, it’s far too early to say that,” he said, conceding the deficit could end up being higher than $18.5 billion.

The massive aid has sparked a national controversy over whether taxpayers should spend money saving companies at a time when government could be tackling other economic and social problems.

Industry watcher Dennis DesRosiers has questioned the extent of aid and company concessions, and dubbed GM “Government Motors.”

Harper and McGuinty have said that if their governments didn’t help, it would trigger thousands more job losses and push the economy into a deep recession.

“If you think this side’s dark, take a look at the other side,” McGuinty said. “The choice our government is making is not an easy one but the right one.”

But wary of growing public criticism over helping an automaker fix years of mismanagement, U.S. and Canadian leaders said their governments won’t be offering more aid.

“We cannot do this ever again,” said Harper. “We’re going to do it right. … We’re not putting money into a company that we think will fail.”

GM’s new restructuring plan contemplates the company will break even in an annual North American auto market of about 10 million vehicles, down from 16 million a few years ago. The company will close 11 more plants and idle three operations in the U.S., but reopen one of the latter factories with production of a small car. GM of Canada, which employs about 9,000, plans no more closings after significant downsizing during the last decade.

GM kept its plants open yesterday and hopes to emerge from bankruptcy proceedings as a smaller, leaner automaker within 90 days and conduct an initial public stock offering next year.

Although government leaders say they don’t want to hold GM stock for long, Canadian taxpayers could be shareholders until 2018 under terms of the restructuring plan.

The plan calls on the Canadian and Ontario governments to divest a minimum of 5 per cent of their holdings in the stock market annually with a minimum of 30 per cent after three years and 65 per cent after six years.

GM must pay half of the loans in seven years and the remainder in the eighth year at a minimum interest rate of 7 per cent.

Canada will get one seat on a new 13-member GM board in recognitions of its shareholdings.

McGuinty dodged questions about how much Ontario would contribute to reducing the huge shortfall in GM’s pension plans.

But federal Industry Minister Tony Clement said later that almost all, if not all, of Ontario’s aid would be used to tackle GM’s long- term pension woes including a big upfront payment.

“I think Mr. McGuinty and the Ontario government should be commended for taking the lead on that,” Clement added in an interview. “It helped make this deal happen.”

Source | See also under Nationalization: Government to acquire ’substantial’ stake in Citigroup | ‘New GM’ to emerge from bankruptcy | U.S. judge approves sale of Chrysler assets to Fiat | Auto bailout costs soar, contribute to $50B deficit | US could own 69% of GM as bankruptcy looms | Autoworkers accept GM deal in 86% vote | GM, CAW reach new labour deal | GM Canada plans to cut 40% of its dealer network | Oshawa truck plant closes | GM deal likely involves bigger sacrifices: McGuinty | GM execs dump stock, shares plummet | GM bankruptcy likely, CAW says | Chrysler Canada assembly plants shut down | Banker at heart of credit crisis leads plan to buoy auto sales | Ontario mulls equity stake in GM | US government may take controlling share of General Motors | US govt considers becoming bank shareholder | GM chief says company is preparing in case it files for bankruptcy | Aussies Announce $31B National Broadband Network | Whitehouse fires General Motors CEO | Geithner wants a bigger stick | UK government takes control over Lloyd’s bank | GM pensions: Who’s responsible? | GM wants twice as much taxpayer’s money | Greenspan backs bank nationalisation | World stocks fall on skepticism over U.S. bank plan | Britain unveils plans for nationalized internet service | Auto bailout gives Federal, Provincial governments incremental nationalization powers | Canadian auto bailout could reach more than $4-billion | U.S. to spend $17.4-billion to ‘rescue’, nationalize auto industry | State to bail out, control US auto industry | Bush outlines radical plan to part-nationalise bank | US considers following British example of taking stakes in banks | New World Order: Global co-operation, nationalisation and state intervention – all in one day

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