The $14.4-billion Canadian taxpayers contributed to the bailouts of Chrysler LLC and General Motors Corp. was necessary and correct, but future government subsidies to auto makers should be based on the willingness of workers to reduce wages.
That's one conclusion of a study that examined participation by the federal and Ontario governments in the bailouts, which helped prevent the collapse of the two Detroit companies during the recession and saved about 18,000 of the highest-paying jobs in Canada's manufacturing industry.
"The economic costs of the closure of GM's and Chrysler's Canadian operations in 2009 would have far outweighed those incurred by the federal and Ontario treasuries in providing the funding," says an analysis done for the Montreal-based Institute for Research on Public Policy (IRPP) that will be released Wednesday.
Had the governments not been involved, 100,000 jobs would have vanished. Governments would have faced an average of $2.2-billion in extra spending annually between 2010 and 2014, and $2.9-billion between 2015 and 2025, the analysis found.
But a recommendation that auto assembly-line workers agree to reduce their wages – which at more than $30 an hour are about $10 higher than average manufacturing pay – is proving controversial.
That suggestion comes as the Canadian Auto Workers union faces growing pressure from the Detroit Three auto makers to eliminate annual wage increases and replace them with pay based on companies' profits.
The principle of pay based on profit became more prominent last year in contracts between the companies and the United Auto Workers union.
Senior executives – notably Chrysler chief executive Sergio Marchionne – have stated that wages at their Canadian operations also need to be based on profit-sharing instead of annual percentage wage increases.
That view is steadfastly opposed by the CAW, which divorced itself from the UAW in the 1980s. in part because the Canadian division of what was then a North America-wide union refused to trade hourly wage increases for profit sharing.
The auto makers will hold up the new UAW contract during negotiations that start this summer and insist the CAW match it, CAW president Ken Lewenza said in an interview this month.
"They've been throwing the UAW contract at us for 10 years," he said.
The IRPP study says "proactive behaviour by Canadian workers to agree to concessions on pay would be more successful in preserving jobs in the industry than reactive behaviour focused on resistance."
The premium in auto workers' wages above average manufacturing wages in Canada is unsustainable, University of Ottawa economics professor Leslie Shiell and Robin Somerville, a director with the Centre for Spatial Economics in Ottawa, argue in the study.
They said competition from lower-wage jurisdictions such as Mexico, China and the southern United States poses a big threat to wages in Canada.
Jim Stanford, the CAW's economist, argued in a separate commentary attached to the IRPP study that auto workers' wages everywhere in the world are higher than average manufacturing wages.
"If investment subsidies are necessitated by high wages, why are even larger subsidies offered in jurisdictions where auto wages are much lower than they are in Canada?" Mr. Stanford asked.
The IRPP study also examined federal and Ontario loan and grant programs that have paid out $1.43-billion to auto companies and parts suppliers between 2004 and 2011, which generated about $9-billion worth of investments.
It says the amount of government money for every job saved or created by those investments ranged from $13,975 to $212,946.