TORONTO (Reuters) - A collapse of the Detroit Three automakers would put nearly 600,000 Canadians out of work within five years, most of them in Ontario, as the impact ripples through the entire economy, a report released on Tuesday said.
The study, commissioned by the Ontario Manufacturing Council, warned that a collapse of General Motors Corp, Ford Motor Co and Chrysler Corp would spread across the country, hitting creditors, suppliers, parts manufacturers and dealerships.
The report came as the Canadian and U.S. governments debate plans for a possible rescue of the Big Three.
Prime Minister Stephen Harper called President George W. Bush on Saturday to say that if the United States provided aid, Canada would provide its own aid of 20 percent, a U.S. diplomat said on Tuesday. That could amount to several billion dollars from Ottawa.
The manufacturing council, which advises the Ontario government, said that if the Detroit Three were to cease production, 323,000 Canadians would lose their jobs immediately, including 281,800 in Ontario. That would rise to 582,000 nationally and 517,000 in the province by 2014.
“This report says that Canada is better off providing life support to GM and Chrysler because the demise of (the) auto (industry) in Canada is the economic equivalent of a nuclear freeze, with catastrophic effects that would knock us into a deep recession,” said Michael Bryant, Ontario’s economic development minister.
Under an alternative scenario, if the U.S.-based automakers were to cut production by 50 percent, at least 157,000 jobs would be lost right away, 141,000 of them in Ontario, the study said. By 2014, job losses would rise to 296,000 nationally, including 269,000 in Ontario.
Canadian auto consultant Dennis DesRosiers took sharp issue with the report, saying North Americans would continue to buy cars and someone would fill in the gap even in the unlikely event that all three companies disappeared.
“I don’t want to discount the short term (2 to 3 year) disruption and chaos a complete collapse could cause but to write a report that says that 517,000 jobs disappear in Canada is irresponsible to the nth degree,” DesRosiers wrote.
“Indeed this extreme fear mongering we see day to day is part of the current problem.”
Bryant, who called the job loss estimates in the report conservative, said action by the Canadian and Ontario governments would ensure that neither scenario plays out.
“Transformation of the auto industry? Absolutely. Armageddon? No. Our governments won’t let that happen.”
Rob Wildeboer, executive chairman of autoparts maker Martinrea International Inc, said GM spends C$14 billion to C$16 billion a year in Ontario on parts.
He said the loss of one or two of the automakers would force about 50 parts makers out of business. And, if the auto manufacturers were to survive, but pull out of Canada, the parts makers would have to follow.
“For a company such as Martinrea, we have to locate, as a parts supplier, where our customers are,” said Wildeboer, who is also a member of the Ontario Manufacturing Council.
“We do have plants in Mexico, we do have plants in the United States.”
A permanent contraction of the auto industry would hurt the United States and the global economy, in turn reducing demand for all Canadian exports, and depressing prices of commodities such as oil and minerals, the report said.
The housing slump that would follow would kill construction jobs and have an impact on the retail, insurance, real estate and financial services sectors.
Canada’s economy would partially recover between 2015 to 2019 due to the depreciation of the currency, lower interest rates and lower production costs, but there would be a permanent dent in terms of jobs and output, the report said.
A similar study in the United States by the Center for Automotive Research said the loss of one or more of the Detroit Three would cut up to 2.5 million U.S. jobs in the first year as industry production ground to a halt.
Additional reporting by Jennifer Kwan; editing by Rob Wilson