Pity the poor, poor U.S. automakers

“It is too late to cover your ears after you hear the thunderclap.”

This sage advice from the ancient Chinese military strategist Sun Tzu conveys an important message not just to our political leadership, but to each of us.

Triggered by the U.S. subprime mortgage crisis, an uncontrollable global turbulence in the world’s money markets is now igniting other emerging economic firestorms. In the new era of globalization, marked by growing economic interdependence, all nations are feeling the cascading negative financial impact.

While there are a number of catastrophic issues, emerging this week is the auto industry bailout. Let’s be clear; this is not an auto industry bailout but rather direct financial support for three specific American-based companies.

The auto industry both in Canada and the United States includes a number of Japanese, Korean, German and soon Chinese and Indian firms.

These firms demonstrate their confidence in Canada by making foreign direct investment and employing Canadian workers. Last week, the Toyota plant opened in Woodstock, Ont., and report they will employ 1,800 Canadians.

They too must wonder why their tax dollars are being given to their competitors.
The average worker’s hourly wage including benefits and legacy pensions in these three U.S. firms is $77 per hour according to General Motors and the Canadian Autoworkers Union. An amount that pales against their CEO’s pay packages of up to $20 million.
It is troubling then to many who wonder why we should continue to support these three automobile companies. Their hubris and unshakable belief that they are too big to be permitted to fail is incredulous.

Some of you might have viewed on TV the three CEOs appearing before the U.S. federal hearings a few weeks back. They were unshaken when confronted with the fact they flew their private jets to attend the Washington hearings to ask for taxpayer’s $15-billion initial handout.

This same hubris is still in evidence. General Motors and Chrysler, asking for a $3.5-billion handout, were asked by the Canadian federal and Ontario governments to provide some specifics of their restructuring plan in order to demonstrate their ability to establish a sustainable business model. They were unwilling to provide this information. Can you imagine adopting the same response when negotiating with your banker? Crazy.

This proposed handout by our federal government is also troubling to Western Canadians. There have been no similar offers to the folks in Alberta’s troubled oil and gas industry; nor British Columbia and Newfoundland’s fishing industry; and Ottawa’s complete disregard for the B.C. forestry industry is legendary.

Yet, why will legacy industries such as these automobile firms eventually receive funding?
 
The answer is clear. They have the power. They have the lobbyists and influence over the politicians that feel unable or unwilling to speak for us.

While these events are clearly a threat, we must recognize that they also present a wonderful opportunity.

If governments at all levels are determined to inject taxpayers’ funds into these three firms, then these monies must be used solely for restructuring and establishing new sustainable business models that reflect the current reality of the global ecosystem.

This is the opportunity for these three businesses and others to leapfrog into a new automobile era, powered not just by oil, but also by alternative fuels such as electricity, ethanol, and methanol.

So it is too late to cover your ears after you hear the thunderclap. B.C. tourism, forestry, mining and even government at all levels, because of significantly reduced tax revenue, must be prepared to lean into the wind. The economic tsunami has emerged and with it change.

terry.power@royalroads.ca

—Terrance Power is a Wharton Fellow and professor of strategic and international studies with the faculty of management at Royal Roads University.