Canada, Ontario commit $10.5B to revamped GM
Saying it was judged to be too risky not to participate in the restructuring of General Motors, the governments of Canada and Ontario will contribute about $10.5 billion in financial aid to the automaker.
The federal government will contribute $7 billion, while $3.5 billion will come from Ontario. In exchange for their commitment, Canada and Ontario will get an 11.7 per cent stake in the equity of the restructured GM.
Canada will also appoint one independent director to the board of directors of GM.
The company will not file for creditor protection in Canada.
Prime Minister Stephen Harper called the move to support the company with public money "regrettable," adding that the actions will account for the greatest part of the increase in the federal deficit. The federal government recently said the deficit for the current fiscal year is expected to balloon from $33.7 billion to more than $50 billion.
Harper said governments in Canada faced two options: participate in the restructuring or stand idly while the company was restructuring completely outside Canada.
The prime minister said that second option was judged to be "too risky in the current fiscal climate."
Without the Canadian financial support, GM production would have quickly left Canada, said Ontario Premier Dalton McGuinty.
Expectation of return on debt portion
"Without Canadian money in the game, we would be out of the game," he said, adding that a GM departure from Ontario would have affected the province's parts suppliers, which employ about 45,000 Ontarians.
Harper said the government is assuming it will be able to recoup the $1.3 billion it will hold in GM debt, but he said the government is not counting on getting a large amount back on its equity stake. The Canadian and Ontario governments will also get about $400 million in new GM preferred shares.
"We are counting on significant return on the debt portion, but on the equity portion, we’re assuming up front, we will be assuming that that’s a 100 per cent cost," said Harper. "Obviously, it will be something lesser than that in the long term, but we're not making any assumption of getting large amounts of money back."
Dow Jones and Bloomberg reported that the Canadian and Ontario governments will sell off their stake in the new GM within eight years of an initial public offering that is slated for 2010.
Canadian Auto Workers union president Ken Lewenza said he is optimistic that taxpayers will see their money come back.
"It is a lot [of money] but at the end of the day, I believe that, you know, it will be paid back," he said. "You have to be optimistic."
He said GM's Canadian plants are expected to remain open, although the Windsor transmission plant could see some downtime as it feeds the Orion, Mich., assembly plant, which is slated to be idled in September.
"There could be adjustments of employment levels relative to the demand on the components that we provide, but the plants in Oshawa and the CAMI Suzuki plant, they tell me, will operate business as usual," he said.