The recent Globe and Mail headline, "GM seeks government pension aid," took me back to April, 2005, when former Canadian Auto Workers (CAW) president and labour movement icon Bob White received the Public Policy Forum's prestigious Lifetime Achievement Award.
As this retired union leader recounted his career, the most repeated word could just as easily have come from the memoirs of a famous war general. That word was "fight" and it seemed Mr. White had spent his entire career fighting a never-ending series of battles: fighting to break away from the U.S.-based United Auto Workers union to form the CAW, fighting against the Canada-U.S. free-trade agreement, and on and on.
But one of the biggest battles Mr. White recounted, and the victory he held up as his finest hour, was the strike-driven extraction of those rich CAW pension plans that may ultimately prove to be the deadweight that drags the Detroit Three down to their demise.
As co-chairmen of that Public Policy Forum dinner, Ontario Premier Dalton McGuinty and I alternated the presentation of awards. As it turned out, I presented Mr. White's award. However unlikely an image this free enterpriser and that lifelong socialist made as podium fellows that evening, it's just as well that it was me and not Mr. McGuinty who presented Mr. White's award. Now that federal Industry Minister Tony Clement has made it very clear that pensions are a provincial responsibility, it is up to Queen's Park to decide whether hard-pressed Ontario taxpayers should bail out the spiralling CAW pension-funding shortfalls. In wrestling with this toxic dilemma, at least Mr. McGuinty will not have to recall honouring the architect of one of the biggest financial and political problems he will ever face.
At the end of 2007, GM Canada's pension plan alone had a shortfall of over $4-billion and, given the collapse of securities markets since then, the current shortfall is probably closer to $6-billion.
At GM, the pension plan Mr. White was so proud of now has 34,000 retirees versus only 14,000 active employees, and each time the foundering company throws workers overboard to try and keep the sinking ship afloat, most of those workers climb back on board as pensioners.
In an opening salvo designed to coerce government to include pension bailouts in the billions of dollars in taxpayer largesse already requested, GM Canada's vice-president of corporate and environmental affairs, David Paterson, said: "Instead of carrying one work force like our competition at Honda and Toyota, we're effectively carrying three additional work forces out there, and those will grow further."
Grow indeed. GM's bailout filings predict that its work force in Canada will drop by half next year to 7,000, and most of those laid off will be added to the pension fund. So, for every active worker, GM will need to pay pension costs for almost six retirees. While I haven't seen corresponding data for Chrysler and Ford, their pension plans are designed in the same disastrous way.
Even if Queen's Park were to saddle Ontarians with the huge decades-long expense of the Detroit Three pension plans, it wouldn't prevent more layoffs. The breathtaking rate at which the Detroit auto makers are burning through cash makes it highly probable that another bailout-begging trip to Ottawa and Queen's Park won't be far off.
Some insight into that question may be gained by looking at the $13.4-billion (U.S.) granted to GM by the U.S. Congress in December. GM has stated that without more funds, they will be in bankruptcy by the end of March. That works out to a cash burn rate of around $4-billion a month.
Meanwhile, GM and Chrysler continue their bailout dances on both sides of the border.
GM Canada's request is reported to be around $7-billion (Canadian). Using their projected 2010 employment number of 7,000 yields a bailout cost of a whopping $1-million per worker.
And despite union and corporate assertions that their pitiful state is all because of the economic crisis, in actual fact, the Detroit Three were bleeding billions in red ink years before last fall's financial meltdown, at the same time as competitors like Toyota and Volkswagen were racking up record profits.
In the midst of this job-destroying financial crisis, and if the U.S. Congress keeps handing out cash to Detroit auto makers, Canadian politicians face the threat of the closing of all GM and Chrysler plants in Canada if they don't ante up.
But let's be realistic. The 18-million-a-year North American vehicle market is never coming back and a legacy of lethal decisions by auto executives acceding to union demands means they can't be competitive in a smaller market against more nimble and lower-cost auto makers.
The idea of taxing beleaguered Canadians to fund auto bailouts is already unpopular across the country. As politicians consider operating cash and pension bailouts now, imagine how much more unpopular those decisions will be when these companies fail anyway, taking billions of dollars of taxpayers' money down the drain.
The sad thing is that if only a fraction of the taxpayer money wasted on extending the tenuous life of these doomed companies were spent on transitional financial support and retraining, taxpayers and auto workers would both have a much brighter future.
Gwyn Morgan is the retired founding CEO of EnCana Corp.