By Jamie Sturgeon Financial Post 11.25.08The tens of billions of U.S. taxpayer dollars being asked for by Detroit could be the tip of the iceberg, analysts at JP Morgan said Tuesday.
With Congress preparing to hand struggling automakers General Motors Corp., Ford Motor Co. and Chrysler LLC US$25-billion in loans, JP Morgan analysts said any emergency cash would just be a lifeline until Barack Obama's administration takes over in January.
Mr. Obama's economic team would be put to work quickly, tasked with crafting a second, more comprehensive bailout package involving concessions from creditors and labour in what would amount to a sweeping restructuring of the Big Three.
Structural costs would be a primary target under any Washington-brokered overhaul, JP Morgan said, with concession from creditors and the United Auto Workers "inevitable."
The so-called "shared sacrifice scenario" would take months to negotiate, analysts said, likely equating to further injections of operating capital for Detroit.
What all of this means for Canada, which has already shed more than 10,700 auto-manufacturing jobs this year, is uncertain.
Ottawa, too, is mulling a co-ordinated effort to prop up the North American industry, as GM, Ford and Chrysler's Canadian operations pine for up to $6.5-billion in loan guarantees here.
What is certain is that a significant turnaround is of paramount importance. Reeling from a maelstrom of economic headwinds, Canadian auto manufacturers are expected to collectively lose $1.7-billion this year, according to a report by the Conference Board of Canada, also published Tuesday. The loss will be the third in as many years.
Moreover, as demand crashes in the United States, where 90% of Canadian automotive production heads to, 2009 is shaping up to be equally as bleak. New vehicle sales are expected to fall to their lowest point since 1992, leading to another loss of more than $1-billion.
The decline in the Canadian dollar will provide little support, the Ottawa-based independent research association said, adding it expects the loonie to recover to US85¢.
"At this level, the dollar dampens prospects for vehicle exporters, who are being forced to contend with competitive headwinds from low-cost foreign suppliers and more competitive U.S. labour settlements."
Another certainty is that the lines of communication between the federal Conservatives and the Canadian Auto Workers union are quiet for the time being.
Industry Minister Tony Clement said on Monday any restructuring effort would require concessions from the union, but has yet to begin in earnest any dialog with CAW officials.
"He's not talked to me. I've sent him a letter asking for a meeting," said Ken Lewenza, CAW president. "He has not followed up in terms of talking to us about what role the labour movement can play. And until I hear from [the Minister], I prefer to continue to do what we've been doing, and that's building cars."
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