Masse Speaks on Necessary Help for Auto Industry

PUBLICATION: The Toronto Star
DATE: 2008.11.13
EDITION: Met
SECTION: News
PAGE: A01
BYLINE: Richard Brennan and Ann Perry

Banks get help, but will GM?; FINANCIAL CRISIS: OTTAWA LENDS A HAND, BUT CONSUMERS FEEL THE PINCH

Ottawa moved to bolster the financial system by adding $50 billion to a plan to purchase mortgages from the big banks, but federal Finance Minister Jim Flaherty signalled the government's reservations about aid for the auto industry.

Despite a growing global recognition that Canada's banks are so far weathering the credit storm better than most, Flaherty said the measures announced yesterday for the banking industry are needed to maintain financial strength.

"The government of Canada is prepared to take whatever steps are necessary to ensure that Canada's strong financial system is not put at a competitive disadvantage by developments in other countries," Flaherty said.

The mortgage purchases, which now total $75 billion, have the effect of freeing up liquidity on the banks' balance sheets, helping them maintain capital ratios.

The government stands to profit if the housing market avoids a U.S.-style meltdown, but analysts said it would have to absorb losses if Canada enters a prolonged recession that triggers widespread defaults on mortgages.

But even as Flaherty announced support for the banking industry, he stirred controversy in another sector, saying people in his Whitby-Oshawa riding are urging Ottawa not to bail out the Big Three North American automakers considering they may not survive.

"There are many people saying we should do something with respect to the auto sector. But I can tell you, even in my own riding ... which is the home of General Motors of Canada, there are also people who say don't do anything - don't use my tax money to bail out an enterprise that may not survive," Flaherty said in Toronto.

"We have money available for innovation, transformational money if I can call it that, because at the end of the day we need car makers who are making cars that people want to buy, so that there's demand. And there's a challenge there."

His comments appeared to contradict the positive message from the first ministers' meeting earlier this week, which left premiers with the impression Ottawa was poised to help the struggling industry.

But an aide to Prime Minister Stephen Harper said Flaherty's remarks are consistent with the government's position. "I think we're communicating fairly clearly and consistently on that, that we're not slamming the door shut to proposals from the auto sector or other sectors," the aide said.

Ottawa is under pressure from the industry and Ontario to come up with a stimulus package for an ailing industry that is still the largest single employer in Ontario. Ontario Premier Dalton McGuinty is meeting tomorrow with GM, Chrysler, Ford, Toyota and Honda.

McGuinty last night said it's odd the federal government poured more money into the banking system and has done nothing yet to prop up the auto industry.

"There's no magical difference between the banks and the auto industry; they're both indispensable."

McGuinty tried to portray Flaherty as out of step with his boss.

"I had a very good conversation with the Prime Minister on this score and I think that we should all take the time to listen to industry representatives to find out more exactly what the issues are," the premier said at a reception to open a new production studio at TVO.

With the United States already making $25 billion (U.S.) in aid available to automakers, and the European Union considering the equivalent of $62 billion (Canadian), McGuinty added he's concerned other automaking jurisdictions could beat Ontario to the punch and lure production elsewhere.

"Our concern is that what the Democratic administration says is: 'We've got more money, but here are the terms - you've got to pull production out of Canada and Mexico," McGuinty said.

Gerald Fedchun, president of the Automotive Parts Manufacturers' Association, said any aid package for the Canadian auto sector should be developed in co- ordination with the U.S. government.

Addressing a business conference in Toronto, Industry Minister Tony Clement reiterated Ottawa's commitment to a special fund set up in the last federal budget. During the recent election campaign, the government boosted the value of the Automotive Innovation Fund - designed to support strategic, large-scale projects to build more fuel efficient vehicles - by $200 million earmarked for, among other projects, an engine assembly plant in Windsor.

Flaherty told reporters the challenge is to provide financial assistance that will "ensure the sustainability, survivability, product mix that is going to have popular demand. ... I think that has to be the goal."

Without that, he said, the federal government could risk a backlash from taxpayers concerned that their dollars are being used to bailout a failing business.

"We'll see what we are able to formulate for the industry," Flaherty said.

Former Canadian Auto Workers president Buzz Hargrove accused Flaherty of merely voicing his own opinion when he says there are people in his riding opposed to helping out the industry.

"I don't doubt there are some out there but the vast majority are saying this is a crisis situation and the government has to step in here," Hargrove told the Star.

Hargrove recalled the federal bailout for Chrysler in the early 1980s, noting "payback was done much quicker than anybody thought and the government actually made money on it."

NDP MP Brian Masse, whose riding of Windsor West depends on the auto industry, said Flaherty's comment is "telling in the sense of not appreciating where families are at right now.

"He chooses to bring up the naysayers ... at the expense of people who got up and went to work everyday and produced some of the best vehicles on the planet and contributed back into his coffers in the way of tax dollars," Masse said.

General Motors Corp. rose 5.5 per cent in New York trading after House Speaker Nancy Pelosi urged Congress to pass an industry bailout, embracing the premise that GM is too big to be allowed to fail.

In backing an emergency aid plan, Pelosi rejected calls to let the largest U. S. automaker collapse, saying she wanted to stop the loss of millions of jobs. Yesterday, Congressman Barney Frank, chair of the House Financial Services Committee, proposed tapping $25 billion from the $700 billion in bank-rescue funding.

With files from Robert Benzie,

Les Whittington, Linda Diebel,

Rob Ferguson and Star wire services