Fed’s GM stock sale bad news, union says
Government said to have lost ‘power’ to protect local jobs
Ottawa’s decision to unload its remaining multibillion-dollar stake in General Motors could come at the expense of auto industry jobs, the union representing Canadian auto workers warns.
The federal Finance Department disclosed in a statement late Monday that it had sold nearly 73.4 million shares in an unregistered block trade to Goldman, Sachs & Co.
Ottawa’s stake in the automaker was worth more than $3.3 billion, based on a $36.66 (U.S.) price at Monday’s close and a Canada-U.S. exchange rate of $1.2473.
The deal marks the end of “Government Motors” — the nickname the company earned after governments on both sides of the border injected a total of $60 billion (U.S.) into the auto industry to save thousands of jobs and soften the economic blow from the U.S.-led financial crisis in 2009.
The GM share sale is also expected to help Ottawa keep its election year promise of balancing its books despite a dramatic plunge in oil prices. The government plans to unveil its 2015-16 budget on April 21.
“It’s bad news,” Unifor national president Jerry Dias said in a telephone interview Tuesday. “It’s completely short-sighted. In this quest to balance the budget, they throw common sense out the window. This is all about politics. It’s not about sound economic judgment.”
By selling its GM stake, Ottawa has forfeited a major bargaining chip in negotiations with the U.S.-based automaker over the future of its Oshawa assembly plants, Dias said.
“Shareholders have power. They could have used their power to really push GM to put a product in Oshawa and then, once GM was stable in Canada, then they could have sold the shares,” Dias said.
GM’s Oshawa facility, which employs 4,100 people and supports tens of thousands of others at suppliers, is scheduled to lose production of the Chevrolet Camaro to a plant in Lansing, Mich., this year, at a cost of1,000 jobs. As well, production on the older consolidated line of the Impala sedan and Chevrolet Equinox is scheduled to end in 2016.
The union is pressing GM to commit to a new product for the facility. But GM Canada president Steve Car- lisle has said no decision will be made until after negotiations with Unifor toward a new contract take place in 2016.
How much of a gain Ottawa will record on the sale of its GM shares has yet to be disclosed. Additional details were to be released “in the next several days,” the finance department said.
Finance Minister Joe Oliver said the sale means GM has returned to private-sector ownership and taxpayers are no longer exposed to the market.
“Our investment in GM was always meant to be temporary,” Oliver said in a statement. “We never believed the government should be a shareholder of a private sector company for an indefinite period of time.”
Canada was the only North American government still holding GM stock. Ontario and the U.S. had sold their stakes earlier.
The federal and Ontario governments invested roughly $10.8 billion in GM, both in the U.S. parent company and the Canadian operations in 2009, according to Finance Canada documents. Ottawa contributed roughly two-thirds.
As of the end of December, they had recovered $4.7 billion in loan repayments and share sales over the previous six years, of which Ottawa’s portion is $3.2 billion, the documents show.
Prime Minister Stephen Harper said at the time the government did not expect to profit from the investment. It was more about savings jobs and the economy.
However, the sale will allow the government to book a “gain” on the deal if the shares fetched more than expected when Ottawa made the investment back in 2009.
All levels of government gained from the investment by preserving jobs and incomes, something Ottawa could have continued doing by hanging on to the shares, said Unifor chief economist Jim Stanford.
“Political optics is the worst reason to sell the shares,” he said.
Others agreed with Oliver that it was time to get out.
The timing of the sale “is no real surprise,” said Tony Faria, a professor with the University of Windsor’s Odette School of Business. “Everyone pretty much expected the federal government to sell their remaining shares sometime during 2015 or early 2016 at the latest.
“The GM share price right now is pretty good, not as high as at its peak but better than the low $30s where it was a few months ago. It was time to pull the plug on the investment, Faria said.
Ottawa found itself in a budget bind after plunging oil prices wiped out most of an expected $1.6-billion surplus for the 2015-16 fiscal year.
With an election scheduled for this fall, the federal government had also committed itself to a number of new spending programs.
Oliver has previously acknowledged that achieving balance may mean dipping into Ottawa’s $3-billion contingency reserve, which was set aside for unforeseen circumstances.
The government had already set a target of $1.5 billion in assets sales for this year, economists at Scotiabank wrote in a note to clients Tuesday. The sale of the GM shares could help it exceed that goal.
The province of Ontario, which contributed $3.5 billion, sold its remaining GM holdings in the winter, while the U.S. government sold the last of its stake in December 2013. With files from Star wire services
“In this quest to balance the budget, they throw common sense out the window.” JERRY DIAS UNIFOR NATIONAL PRESIDENT