Advice to the Prime Minister about Auto Industry Bailouts Follow U.S. Congress Lead

Transcription

1 Advice to the Prime Minister about Auto Industry Bailouts Follow U.S. Congress Lead BDO Dunwoody Weekly CEO/Business Leader Poll By COMPAS in Canadian Business For Publication December 12, 2008 COMPAS Inc. Public Opinion and Customer Research December 12, 2008

2 Business for Publication December 12, 2008 ii

3 1.0 Introduction Irrespective of the outcome of Congress decisions about bailing out the Detroit big 3 automakers, the CEOs and business leaders on the COMPAS business panel advise the Prime Minister to hold still and follow the U.S. lead. That is the key finding from this past week s Internet survey of CEOs and business leaders on the COMPAS panel. The weekly business survey is undertaken for Canadian Business magazine under sponsorship of BDO Dunwoody LLP. 2.0 Findings Though there has been much pressure from some media commentators and from the Opposition in the House of Commons to provide a bailout to the U.S. auto manufacturers, the overwhelming opinion of members of the business panel is that Canada should wait for Congressional decisions before taking action. Eighty-seven percent of the panelists recommend waiting, as shown in table 2a. Irrespective of the magnitude of ultimate Congressional support, the majority inclination among panelists is to extend support parallel in magnitude to that of Congress, as shown in table 2b and c. Approximately a third would extend no support, preferring restructuring or bankruptcy. 3

4 Table 2a: (Q1) There has been much talk about if and when the Canadian and Ontario governments should make decisions about loan bailout support for the Canadian subsidiaries of the big 3 Detroit automakers. Do you think that Canadian governments should wait for a decision by the U.S. Congress on the size and nature of its financial support before making decisions for Canada or should Canada proceed first (in percent) Definitely wait for Congressional decisions 65 Probably wait for Congressional decisions 22 Probably proceed ahead of the U.S. Congress 8 Definitely proceed ahead of the U.S. Congress 4 Don t know or no opinion 1 Table 2b: (Q2) Suppose Congress aid is good enough to keep the Detroit firms alive for, say 2-3 months. Should the Canadian and Ontario governments (in percent) Extend no support 35 Extend a corresponding amount 54 Extend proportionately more assistance than that provided by Congress 10 Don t know or no opinion 2 4

5 Table 2c: (Q3) Suppose Congress aid is good enough to keep the Detroit firms alive for at least a year. Should the Canadian and Ontario governments (in percent) Extend no support 30 Extend a corresponding amount 64 Extend proportionately more assistance than that provided by Congress 6 Don t know or no opinion 1 The following verbatims provide a nuanced sense of panel opinion: The Canadian Government should only provide assistance to the auto companies if the employment stays in Canada. Following the American lead is pointless if the jobs go south of the border. The Americans pride themselves on being champions of the free market system. Why are they propping up industries that have failed to adapt and be competitive? The size of the industry should not be a consideration. The resources in the economy will find other locations. And yes, there will be some short term pain. You must allow the dead wood to die a natural death to promote new growth. Canada must not follow suit. The taxpayer must not be asked to bankroll business interests that cannot raise funds in the private sector on their own merit. I think any aid to automakers should be based on plans to improve quality and efficiency or we will be revisiting the problem again in a number of months. First, no bailout should be granted without a commensurate guarantee that the Canadian plants will remain open. Secondly, the bailout, if actually required, should be 5

6 structured in a way that the funds are advanced only as long as the plant remains viable. Thirdly, the Union contract absolutely has to be part of the deal. The wage/benefit package is so lucrative that it is grossly out of whack with a commensurate skill level required anywhere else. If you want your job saved then come to the table with something substantive. Giving support to the auto manufacturers must have serious strings attached. The union must grant concessions in wages as well as work rules. This is the opportunity to bring them back to reality. They are a major cause of the problems. The auto companies must also make serious commitments by conceding to the Government options to convert loans into equity interests with significant shareholder controls. Without serious concessions, a bailout will only mean pumping money into a dry hole. Canada alone cannot save the North American Big 3. It can only augment the efforts of the U.S. American aid will surely come with many strings attached and one of these may threaten the terms of the Auto Pact. Before providing any aid, Canada must wait until it can assess the full impact of the terms of the U.S. bailout. Also, the stated demand from the automakers to the Canadian Government is disproportionate compared to the aid it is likely to receive from Washington. About 1.5B in aid from Ottawa would seems more reasonable and that amount should only be provided if the terms demanded by Washington for their aid are not harmful to Canada. Any auto assistance should come with wage, management reductions and go only towards tooling for the appropriate cars. U.S. support for the auto industry will likely be conditional with maintaining jobs in the U.S. Now, without Auto Pact protection, we do need to provide added incentive to 6

7 maintain our fair share of jobs here. The Recession, I think, has more or less "bottomed out"; but we likely will not see any material recovery for at least another 9 months or more - but barring anything unforeseen, we will be on great shape. 3.0 Methodology The COMPAS web-survey of CEOs and leaders of small, medium, and large corporations was conducted December 10 11, Respondents constitute an essentially hand-picked panel with a higher numerical representation of small and medium-sized firms. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of n=136 are deemed accurate to within approximate 8.4 percentage points 19 times out of 20. The principal and co-investigator on this study are Conrad Winn, Ph.D. and Tamara Gottlieb. 7