GM to cut production of 6 cylindar trucks

This week, GM announced the closing of (4) truck & SUV plants. The truck plant in Oshawa will be the Canadian victim of these cuts. The move comes in response to a drop in demand for gas guzzling vehicles. With the decline in the manufacturing sector there is plenty of finger pointed directed towards, the Union (CUPE), GM and the government.

The federal government is being blamed for not having a strategy to save the auto industry. The Liberals are blaming statements made by Finance Minister Jim Flaherty that Ontario was a poor place to invest. They now claim that GM took the ministers advice. GM is a multi-billion dollar company. They are capable of doing their own cost/benefit analysis to determine the most cost effective way to meet their production needs. They would not make such decisions on political statements. Flaherty has indicated that money set aside in the budget for greening the auto industry could be used to entice a more fuel efficient car produced in it's place.

In an effort to save the auto industry the Province provided financing for GM. The plan did not work as effectively as had been hoped. The government will now need to attempt to recoup the funds.

GM is being blamed for bargaining in bad faith. They just signed a contract with the union without any mention of the pending closures. Considering CUPE made concessions to try to help GM be more competitive they have a right to be upset on this point. The price of oil has been on the rise. People are being more concerned about the environment and carbon emissions. The US economy is tanking. It does not take a PhD economist to predict that the overall trend is moving towards more fuel efficient vehicles. GM slowness to react to such market changes are why they are performing so poorly in the first place.

Unions create an environment where businesses cannot respond quickly to changing market conditions. Perhaps the reluctance of the big 3 to meet marketplace demands resulted from their inability to work with the unions for the greater good of the company.

There has not been much focus on the environment impact of this move. Less gas guzzlers means less carbon emissions. This could be taken as good news for the environment.

GM has been slow to respond to the trend away from large vehicles. Instead of being leaders they chose to be passive and have left the market of the future wide open for the foreign manufacturers. Adjusting to market forces requires retooling and in some cases job loss. If they had taken a larger share of the fuel efficient job market sooner, they may not have been popular with the workers but the longer term job losses would have been minimized. This may be the first painful but necessary step to achieving a strong financial future.

Another solution not being considered is what to do with the workers. Perhaps they can be retrained to work for another automaker or take their expertise to other areas of the economy. Relying on one company to be a lifelong employer is not realistic. Perhaps this is a point that needs to be considered before making the decision to join the ever changing auto industry.

Federal Budget Day

The Conservative government tabled their 3rd budget today. As the economy is started to sour and previous budgets have lowered the budget surplus there was not a lot of room for new big commitments. Their was a sprinkle of money for infrastructure, mass transit, manufacturing sector, middle income earners, green projects.

The government has introduced a tax free saving account of up to $5000. This account provides a type of tax shelter for people who want to invest their savings but cannot wait until retirement before they may need to cash out. This will also help encourage some people to invest in savings, which are important for future economic growth. Keeping the contribution value low will prevent high end income earners from being able to take advantage of the program. This is a small way to try to repay the middle class that shares a disporportional amount of the tax burden.

The most disappointing aspect of the budget is the end to the rebate of fuel efficient cars. The goal of the program was to make the purchase of green cars more affordable. The Canadian car makers were against this plan because they did not have vehicles available on the market to meet the rebates. Hopefully the help being offered to the auto sector will allow for the development of more affordable green technology vehicles.

The Liberals have declared this to be a watered down Liberal budget. They don't love it but it is not worth having an election over. With the economy heading towards a down turn and the days of double digit budget surpluses in the past, it may be hard for the Liberals to put their vision of Canada in place without new sources of government revenue or reversal of 3 years of Conservative programs.

Chrysler Layoffs, Dion misses golden opputurnity

On Thursday, Chrysler announced they would be laying off 1,100 Canadian employees. The company blamed the move on a drop in car sales. It appears to be just the beginning with the US economy starting to tank and the rapid increase in the Canadian dollar.

CAW National President Buzz Hargrove was quick to place blame on the federal government. He blamed the dollar and free trade agreements with Asian countries as the reason for the job losses. He made it a point that tax cuts would not help the situation. He also blamed the tax incentives on the purchase of fuel efficient cars. On Friday he presented his solution to the federal government. He wants to drastically cut interest rates to bring down the value of the Canadian dollar. He wants Asian countries to guarantee buying as much automotive product from Canada as they sell.

Stephane Dion has been busy defining the Liberal party policies as being against whatever the Conservatives support. This was his opportunity to step out of the shadows and present a Liberal vision to save the auto industry. He could have presented a policy that merges financial requirements of the auto industry (investment, tax incentives) with a plan to make the auto industry fit with the Liberal environmental goals. Instead Dion started off mentioning something about $1 billion (perhaps a reference to money promised to the auto & aerospace industry in the last election). Dion then went on to say that this was an example demonstrating that the GST cut was the wrong tax strategy and income tax cuts would be much better.

Dion completely missed the point. An income tax cut will not help those workers already on the chopping block nor would it do much to cure the problems in the auto sector. The Conservative strategy is to let the free market take it's course. If the Liberals want to bail out the auto sector they need a real plan. Any plan that does not include initiating an environmental program designed to reduce pollution is a missed opportunity from someone who touts himself as champion of the environment.

The reality is the Big 3 automakers have not been successful at manufacturing cars consumers want to buy. Their production costs are higher than foreign cars due to labour costs. They have earned a reputation of not hitting the high standard of quality that some of the other companies have been able to achieve. The job loss of the Big 3 is being offset to some extent by the growth of the foreign manufacturers. It would be nice to see different types strategies to best suit improving an important aspect of the Ontario economy.