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Posted by cwaddell under All, Political Strategy

Christopher Waddell

Now that the federal and Ontario government have agreed to put up $10.5 billion for an 11.7 per cent interest in General Motors, it is worth noting what the US government’s auto industry task force said about GM at the end of March this year. In its report that concluded GM was not viable without major changes, it noted:

  • GM earns a disproportionate share of its profits from high-margin trucks and SUVs and is thus vulnerable to energy cost-driven shifts in consumer demand. For example, of its top 20 profit contributors in 2008, only nine were cars.
  • GM is at least one generation behind Toyota on advanced, “green” powertrain development. In an attempt to leapfrog Toyota, GM has devoted significant resources to the Chevy Volt. While the Volt holds promise, it is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable.
  • Absent the successful introduction of a number of new-generation nameplates, as described in the Company’s plan, GM’s product portfolio is more vulnerable to CAFE (corporate average fuel economy) standard increases than the portfolios of many of its competitors (although GM is in compliance today with current standards). Many of its products fail to meet the minimum threshold on fuel economy and rank in the bottom quartile of fuel economy achievement.

In the end this industry is all about products and a financial rescue of GM doesn’t provide any short term solution to that problem, particularly with oil prices edging upwards again.

Media attention in recent months has focused on GM and Chrysler, but the Japanese, Koreans and Chinese are exceptional competitors and are not standing still. They already have significant advantages in terms of products as the U.S. task force has noted.

Three obvious questions emerge from this.

How can Ontario and Ottawa assure the other automakers in Canada (the successful ones – Honda, Toyota and Ford) that government will remain impartial in its programs and decision-making on the auto industry when it has such a major financial stake in promoting the interests of the two weakest competitors to try to keep them alive to avoid the political fallout of giving away $10 billion only to see the recipients fail?

What will the two governments do when GM and/or Chrysler come back for more, as they have done repeatedly throughout the past decade? When will enough be enough and how will the governments make that decision?

How much longer will the Japanese and Koreans stand by silently while the Canadian and Ontario governments put them at a competitive disadvantage?

Christopher Waddell is associate director of the School of Journalism and Communication and Carty Chair in Business and Financial Journalism at Carleton University. He is a former reporter, Ottawa bureau chief, national editor and associate editor of the Globe and Mail and a former CBC-TV parliamentary bureau chief and executive producer-news specials for CBC TV News.