news CAW report finds GM, Chrysler made billions in Canada since '72

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CAW report finds GM, Chrysler made billions in Canada since '72


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By Kristine Owram, The Canadian Press

TORONTO - A new analysis by the Canadian Auto Workers union indicates General Motors' and Chrysler's Canadian branches racked up an estimated $36.7 billion in after-tax profits between 1972 and 2007, but one analyst questioned the accuracy of the study's numbers.
The report, written by CAW economist Jim Stanford, relies on the companies' publicly reported profits until 1996, when the Canadian subsidiaries' numbers began to be lumped in with the companies' overall results. After that, Stanford estimates the subsidiaries' profitability based on industry-wide data from Statistics Canada.
The study suggests the Canadian auto sector as a whole had more than $100 billion in after-tax net income in the 35-year period, and the CAW estimates that included $31.75 billion at GM and $4.95 billion at Chrysler.
Stanford said the study should make people question why GM and Chrysler - both asking for billions of dollars in emergency government loans to survive slumping sales - say they can't afford to pay the legacy costs of retired workers.
"We had an industry that made $100 billion in profits over that 35-year period, yet today is saying it can't afford the pensions it promised to the people who produced that profit," Stanford said in an interview Monday.
"That's not just immoral in my view, it also undermines the legitimacy of the whole pension system."
But Joe D'Cruz, a professor at the University of Toronto's Rotman School of Management, said the CAW's numbers may be exaggerated.
"The profits attributed to GM and Chrysler include an estimate for years in which the data are not publicly available, and those are the very years in which GM and Chrysler were experiencing significant losses, so these two facts don't jibe with each other," D'Cruz said.
"They certainly don't reflect the fact that in the last three or four years, both GM and Chrysler have been losing significant amounts of money and that's the current reality," he added.
GM Canada spokesman Stew Low confirmed that the company hasn't been profitable for "several years."
Bill Pochiluk, president of industry adviser AutomotiveCompass, said the study's methodology and conclusion are sound, but cautioned against using the past to predict the future of the Canadian auto industry.
The industry underwent significant structural shifts in the last five to 10 years that altered its competitiveness on the global stage, including the death of the Auto Pact - an agreement between Canada and the U.S. that removed tariffs on vehicles and guaranteed a certain amount of production in Canada - lower vehicle prices and a higher loonie.
Canada's vehicle mix is also less profitable than it was, particularly with the closure of GM's pickup truck plant in Oshawa, Ont., this spring, Pochiluk added.
"The period in 2005 and going forward represents a new era for Canada's auto industry, and we have to basically be more cognizant of the fundamental changes if we're going to really understand our future and, frankly, have a future," Pochiluk said.
D'Cruz said one of the reasons the companies saw such high profits in the 1990s is because they were "significantly" short-changing their pension plans thanks to a relaxation of funding rules by the Ontario government.
"They're probably underfunded in GM's case in the region of $5 billion to $6 billion over the last several years, so if you take those into account, then GM's profits will be much less than the CAW is estimating," D'Cruz said.
The CAW study says the auto industry was more profitable than any of Canada's other heavy industries in the period examined, including metals, chemicals and aerospace and transportation.
Stanford said the sector's profitability underlines the necessity of government aid "if Canada wants to reap the benefits of this uniquely profitable sector into the future."
The CAW study suggests the auto industry made its largest profits in the late 1990s and only lost money once, in 2002.
Stanford said this contrasts sharply with the U.S. auto industry, which has been barely breaking even or losing money every year since 2001, and shows the Canadian auto industry has several advantages over that in the U.S.
"Even before the credit crisis and all that, the U.S. industry was losing money, whereas the Canadian industry was still making it," Stanford said.
"Our health-care system is a very cost-effective health-care system, and that reduces costs by several dollars an hour. The productivity in the Canadian industry is superior and for most of the period total Canadian labour costs were lower," he added.
Stanford said Canada's pension system needs to be strengthened, including more reliable rules on when and how much companies have to contribute to their pension funds and a public backstop in case companies go bankrupt and are no longer able to pay retirees.
He also called for a U.S.-style fund to administer retiree benefits, including prescription-drug and dental costs.
The issue of legacy costs was brought to the forefront of the ongoing drama in the auto industry last week when Ontario Premier Dalton McGuinty warned that the province's pension guarantee fund only has $100 million - not even close to enough to cover auto workers if General Motors goes under.
Ontario's Pension Benefits Guarantee Fund provides pensioners with up to $1,000 a month in the event a pension plan fails to provide its full benefit, or any at all. It is funded by corporate contributions.
General Motors, which is weighing a bankruptcy protection filing as an option as it continues to work on its restructuring plans, was given a holiday on contributions to its own pension fund by the provincial government in the 1990s, back when it was widely considered "too big to fail."
Today, both GM and Chrysler haven been given tight deadlines to provide viable restructuring plans to governments in Canada and the U.S., and reports say the U.S. government is asking GM to prepare a bankruptcy filing as one possible option.