Saturday, December 20, 2008

Auto Bailouts in U.S. & Canada

Yesterday, President Bush offered $17.4 billion from the $700 billion bailout money to the U.S. auto industry.

Today, Canadian Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty have offered a $4 billion package (about $3.3 billion in U.S. dollars) to the Big Three who have subsidiaries in Canada centered in southern Ontario. Over half a million Canadians work for the Big Three.

It is interesting that this was a joint announcement. In the past, Harper's Conservative government (Finance Minister Jim Flaherty in particular) has clashed with McGuinty's Liberal government. Given that the Conservative government could fall in a month's time one wonder if McGuinty's involvement will persuade new federal Liberal leader Michael Ignatieff to not proceed with the vote of confidence after the government presents its budget. If the Conservatives are still in power in a month's time the auto bailout will have a lot to do with it.

Yes, the auto bailout is a bad idea. When the feds decided to bailout the financial services sector (including AIG where this author is employed by one of its subsidiaries) it was inevitable that other industries would be seeking federal help. The biggest drawback of the bailout is that it will likely not encourage businesses to improve their practices. On the other hand, in the absence of a viable alternative and bleak prospects if nothing is done it is better than all the other bad ideas out there. Moreover, given that the company I work for got federal money I don't think I'm in a position to tell others that their companies will have to do without whatever my reservations.

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