We should seize the unique opportunity that the combination of the Big Three’s impending collapse and calls for government intervention presents to transform our economy, once and for all, by allowing all Canadian manufacturers — not just Chrysler, GM and Ford — to compete for public investment.
On Saturday, Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty agreed to loan $4 billion to General Motors and Chrysler, two lethargic and mismanaged companies that have yet to articulate a credible restructuring plan. And everyone agrees that this is just the beginning of a much bigger bailout package to come in the next few months.
Critics of the bailout rightly point out that it’s a band-aid solution that does nothing to make the auto sector more competitive in the long run. Indeed, the New York Times’ Thomas Friedman has colourfully observed that bailing out the Big Three would be like “pouring billions of dollars of taxpayer money into the mail-order-catalogue business on the eve of the birth of eBay.”
On the other hand, advocates of the bailout, like the Editorial Board of the Toronto Star, emphasize that if the Big Three are allowed to go under, thousands of jobs would be lost and the consequences for the families affected would be devastating. Unfortunately, both critics and advocates of the bailout are right.
The solution, therefore, is to find a way to keep as many people employed as possible while making Canada’s manufacturing sector more profitable. We can accomplish both at the same time, but we have to realize that the status quo isn’t an option. This means accepting that Canadian autoworkers will have to change jobs, not necessarily lose them. And it means getting beyond the Big Three — allowing innovative Canadian companies to replace them by putting capital and labour to better use.
Instead of falling for the false choice, Harper and McGuinty could have made the $4 billion subject to a Canada-wide request for proposals (RFP), inviting all Canadian manufacturers to submit their plans on how they would use that money to create new jobs and make innovative products. The company (or companies) with the best proposal — the one that promised to create the most high-paying jobs and catapult Canada into the new economy — would be the beneficiary of government investment. This approach has a number of advantages over the “bailout” model.
An RFP encourages innovation on the part of all bidders, including the Big Three. Chrysler, GM and Ford would still be eligible for the money, and their dominant position in the marketplace would certainly give them a major advantage over other bidders. But it would force the Big Three to come up with an innovative plan because, for the first time, they would have to go up against the likes of Zenn, a Canadian company that manufactures zero-emission electric vehicles.
Ironically, this innovative, home-grown company has dozens of retailers in almost every U.S. state, but only one in Canada, which is located in Quebec. Companies like Zenn are the future of the automobile industry and they should have a chance at that money too. And $4 billion in the hands on a dynamic, successful company is surely a much better investment in maintaining high-skilled, well-paying, and lasting jobs. But we’ll only know for sure if everyone is given an opportunity to compete for public investment.
Another company that could conceivably throw its hat in the ring is Innovative Hydrogen Solutions (IHS), a Winnipeg-based company whose flagship product, the I-Phi, is a hydrogen generator that significantly improves the efficiency of internal combustion engines. This amazing invention, which simply attaches to any gasoline or diesel motor, can reduce fuel consumption by up to 40 per cent and pollutants up to 100 per cent. While safe and reliable, the I-Phi isn’t yet on the market, but with a fraction of the money that government is ready to throw at the failing Big Three, IHS could change the world.
Making companies compete for taxpayer money would also shift the nature of government intervention in this crisis from a short-term rescue plan, to an enduring investment in the development of the Canadian economy. By harnessing the creativity and entrepreneurial spirit of Canada’s most innovative companies, the RFP process would turn each bid into a blueprint for the future of Canada’s manufacturing sector.
Critics of a wide-open RFP may argue that other Canadian manufacturers won’t be able to hire workers laid off by the Big Three right away. Admittedly, it will take some time for capital and labour to flow to their new homes, but that transition period may be shorter than we think. The whole point of the RFP is to find out the most effective way to invest public funds. Furthermore, the limiting factor for companies like Zenn and IHS seems to be capital and labour, not the lack of a marketable product. And even if the money ultimately ends up in the hands of the Big Three, the RFP process will have pushed them to re-invent themselves through exposure to healthy competition.
Other skeptics may point out that the collapse of the Big Three will have a ripple effect throughout the economy as their vast networks of suppliers and retailers tumble as a result. But if Chrysler, GM and Ford are replaced by more innovative firms with growing markets, surely this will be to the benefit of collateral industries like parts makers. Instead of selling fewer and fewer hubcaps for the Chevrolet Impala, they’d sell more and more of them for the Zenn.
Of course, this proposal isn’t perfect. The winners of the competition likely won’t be able to hire every former Big Three employee; many will need retraining and generous unemployment benefits until they find new jobs. But that would likely be the case under a bailout scheme as well since the consensus is that a significant contraction in the auto sector is unavoidable.
After floating this idea with a few Canadians working in finance on Wall Street, I’m convinced that it makes sound business sense in the circumstances. Since government intervention is now certain, even those who favour bankruptcy recognize that it’s better to make many firms compete for public money than write a blank cheque to a select few. All were, however, very pessimistic about the viability of a broad-based RFP for political reasons.
Whatever its merits on paper, embarking on a process for saving Canada’s manufacturing sector that doesn’t presuppose the continued dominance of the Big Three would be decried by powerful unions like the CAW as a threat to their existence. Many autoworkers themselves, especially those in the latter stages of their careers, would be loath to support a plan that foreshadowed too much change.
As a result, Canada’s elected leaders won’t go near it, and another good idea will become a political casualty.
{ 3 comments… read them below or add one }
janfromthebruce 12.22.08 at 11:22 am
And why wouldn’t hire the CAW workers, considered the best production workers in the world. The retraining would not be hard, and why move production to a different province but locate it in Ontario, in those same plants. All around it is cheaper for all.
Personally, I want to buy a electric “made in Canada and made by Canadian workers.” Buying Canadian keeps Canadian communities strong and viable. Paying workers good wages and benefits keeps their families and communities viable.
One thing people need to think about with electric cars is the strain on our electrical system. As folks plug in we are going need to ensure we have adequate stable power to do this.
Another thing, is that looking at the Zenn product it talks about city driving, so electric cars are going to need to be viable for rural Canadians. I can’t even buy a hybrid because hybrids are not commercially viable here. They can’t service them and because they weight about 500 pounds more than a gas one, they end up not being fuel efficient at all, and one ends up consumer more gas - bad.
Tell me, are Zenn cars made by unionized workers?
NewfieShark 12.22.08 at 2:45 pm
Great idea and maybe it would push the big 3 into becoming a “real business” and making them come up with a business plan before they ask for a hand-out.
I think the short term effects of an RFP on labour would not be as drastic as the autoworkers would have us to believe. Last time I checked, no one in Canada is going to start walking everywhere. We still need cars, we need them serviced, we still need gas and tire changes. Dealers make there money on servicing. The number of dealers would go down but they would still exist.
I don’t know how the auto lobbyists got so powerful in Ottawa but I guess we’ll have to keep spinning our wheels and get nowhere.
Damian 12.28.08 at 3:59 pm
Mike,
I like the analysis, and agree that there should be some kind of bidding for the lion’s share of whatever bailout package comes out in the next few months among a larger set of companies, including the Zenn. I think however, that there was little else that the initial $4 billion McGuinty/Harper package could be used for other than to tide over the big three (especially since the House went on an early break).
I hope that the future bailout packages, if they’re geared principally towards the Big Three, end up looking more like loans or are tied to some clear performance goals. There obviously needs to be some clearer oversight or monitoring by government if so much tax payer money is going to be funneled towards these three companies: taxpayers don’t need to bet on management and innovation disasters, again. Let’s not forget that GM was the company that built a fully electric car, the EV1, in the mid-1990’s only to collect them at the end of consumers’ leases and throw them away in the Arizona desert (check out “Who Killed the Electric Car?” on Google Videos).
There’s never been a better time in terms of Canada’s (North America/World?) economic or environmental needs to channel these kinds of dollars into true innovation with practical results. If it’s the Big Three who deliver, great, if not, Canadians need to have a very real discussion about how much longer they’re willing to prop up losing companies.