Toronto, Ontario – The dramatic decline in auto sales in North America last month, to their lowest levels since the recession of 1991, reflects the crisis in credit conditions in the industry, said Canadian Auto Workers Union (CAW) president Ken Lewenza. He called for North American governments and central banks to act immediately to offset the industry’s credit freeze with the same urgency as they have assisted banks and financial institutions.
“The federal government and the Bank of Canada have channeled close to $50 billion in financial assistance to Canadian banks and other financial firms,” Lewenza said. “But banks aren’t the only victims of this crisis. It is essential that our government, in concert with U.S. officials, move quickly to get credit flowing again through the auto industry. Otherwise, we will face an industrial disaster, with consequences that will haunt us for decades to come.”
Auto sales declined in October, Lewenza said, with the decline most severe in the U.S. market, which receives close to 90 per cent of the output of Canada’s auto assembly sector, and over two-thirds of Canadian-made auto parts.
According to CAW economist Jim Stanford, the industry is facing a credit freeze on several levels. He said that prospective auto customers cannot obtain credit to finance new vehicle purchases, especially from the in-house credit divisions of the automakers; new car dealers cannot attain credit to finance their wholesale orders of vehicles; and the automakers themselves cannot attain financing to carry them through the temporary sales downturn. He also said that auto parts companies are in desperate financial straits due to falling demand, and their access to normal operating credit has also been severely compromised.
Lewenza urged the federal government and the Bank of Canada to work to provide emergency liquidity injections into the auto industry in the form of low-interest loans, loan guarantees, and/or the swap of liquid for illiquid assets; all of these have been offered to Canadian banks in recent months. “There is no dividing line between banks and the rest of the economy. The credit crisis is now badly damaging our real economy, not just the financial sector, and the government has a responsibility to act. We cannot allow this financial chaos to inflict more bankruptcies, shotgun mergers, and long-term damage to our real economy.”