Kenney’s GM Bailout Reference Sparks Debate on Industry Rescue
Alberta Premier Jason Kenney earlier this week tweeted a two-minute video clip of him explaining why the oil and gas industry deserved a federal rescue. The vignette, a reference to Canada’s energy industry deserving similar treatment to the auto sector, invoked the 2009 bailout of General Motors Co. and Chrysler LLC by the United States, Canada, and Ontario governments.
The video quickly failed to load, prompting readers to refresh their browsers or access the content directly. The message was clear: a government-backed company bailout isn’t desirable.
The crux of the argument centers on a distinction between “same” and “similar.” There’s little evidence that Canada’s Big Oil is ready for the medicine that was administered to GM and Chrysler a decade ago. Provincial politicians and CEOs need to carefully consider the implications of ceding control to Ottawa.
Paul Boothe, the federal public servant who oversaw Canada’s role in the auto rescue, offered a cautionary tale. He used Twitter to remind everyone what the treatment meant for GM and Chrysler, emphasizing that it was a harsh one. He stated unequivocally that “provincial politicians and CEOs should think long and hard before they turn over control of their companies to Ottawa — and to protect taxpayers, that change of control is what must happen.”
The parallels between the Canadian oilpatch today and the Detroit-based automakers in 2007 are stark. Unlike the desperate pleas of the auto executives, Canadian energy companies haven’t yet demonstrated that same level of urgency. Alex Pourbaix, chief executive of Cenovus Energy Inc., acknowledged that the industry is “fine for now,” and stressed the importance of “liquidity” – specifically, government-backed loans without restrictive equity stakes or the risk of bankruptcy proceedings. This contrasts dramatically with the situation in 2009, where Ottawa forced a merger between GM and Italy’s Fiat SpA, ultimately stripping away shareholder value.
A key difference is the level of desperation. The auto companies went to Washington in person, begging for money. There are no such overt pleas from Canadian energy leaders. Pourbaix emphasized that the industry’s current state is “fine for now,” and cautioned against relying on government assistance in the same way. The government’s objectives differ from those of private companies or provinces, and the consequences of such a shift could be profound.
The 2009 bailout provided loans at market rates, and triggered a review of restructuring plans. The plans were ultimately rejected because policy-makers were unsatisfied with the ambition of the companies’ cost-saving plans. Furthermore, GM and Chrysler were rushed through bankruptcy, which wiped out shareholders, left creditors with pennies on the dollar, and eliminated many senior managers’ jobs. The government took equity stakes and seats on the boards of directors, and executives’ pay was severely restricted. This contrasts sharply with the situation today, where Canadian energy companies are seeking solely liquidity without control.
The distinction between the Canadian and American situations is significant. The Canadian oilpatch is currently characterized by a relatively stable, albeit challenging, financial landscape, while the Detroit-based automakers were facing imminent collapse. Ultimately, the experience of federal assistance would forever change these companies. The difference is not in the potential need for liquidity, but in the willingness to accept government intervention and the potential consequences of granting control to Ottawa.
