As their prospects continue to circle the drain, the big North American car makers and their Canadian subsidiaries are turning to governments for loans or loan guarantees. And while it would be fair to question their business judgment and operating abilities over the past several years, there is no way you can take issue with the industry's ability to lobby.

They've already shaken down the Ontario government for $600 million and just prior to the election, federal finance minister, Jim Flaherty, ponied up some cash to salvage an engine plant in Windsor. This, from a man who said Ontario was pretty much the worst place in Ontario to invest.

But then, it appears he was referring to private sector capital - not taxpayer's money.

A rescue plan for the auto sector will certainly be on the agenda at the Tory convention and even before the faithful gathered in Winnipeg, the prime minister publicly dangled the possibility of assistance by allowing that Ottawa would consider "all possibilities" to avoid the "tremendous dislocation" the $28-billion-a-year sectoral collapse would have on the Canadian - and specifically the Ontario - economy.

It's also worth noting that Mr. Harper can claim precedent: the United States, Australian and the European Union have all come to the aid of their auto industries.

Political considerations aside, the bigger question is whether this is the best use of taxpayers' money. Yes, about five per cent of national gross domestic product (GDP) is riding on the auto sector - along with 400,000 jobs. But the current problems started long before the financial crisis: it has only exacerbated such issues as their failure to compete.

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Compare GM & Toyota

Amount from each car sold going to cover worker health plans

GM....... $1500.
Toyota.....$110.

They have incredible health care and pension costs that their foreign competitors don't have.

This is one area where unions have done a disservice to their workers and america at large.

Unions on the other hand had been fighting fiercely to defend incompetent and unwilling workers. Majority of workers who are convicted to stealing and drinking on the job do make it back after a dismissal with back pay. Good workers just wait for their turn to see union representative.

==http://www.prospect.org/csnc/blogs/ezraklein_archive?month=01&year=2007&base_name=whats_killing_gm

General Motors established its pension in the "treaty of Detroit," the five-year contract that it signed with the United Automobile Workers in 1950 that also provided health insurance and other benefits for the company's workers.

increasing worker benefits. Such promises significantly burdened the company's future. As workers lived longer, the cost of fulfilling pension commitments rose. And health care costs exploded.

In the '90s, the consequences of maintaining a corporate welfare state became too obvious to ignore. In that decade, General Motors poured tens of billions of dollars into its pension fund -- an irretrievable loss of opportunity.

G.M. acknowledged in its most recent annual report that from 1993 to 2007 it spent $103 billion "to fund legacy pensions and retiree health care -- an average of about $7 billion a year -- a dramatic competitive and cash-flow disadvantage."

==http://blog.cleveland.com/letters/2008/07/democrats_union_leaders_are_ki.html

According to the latest calculations, the gap between Japanese and American carmakers' profits average out to about $2900 per vehicle, and the home team does not have the advantage.

A big reason is the cost of labor. As analyzed by Harbour-Felax, labor costs the Detroit Three substantially more per vehicle than it does the Japanese.

Health care is the biggest chunk. GM, for instance spends $1,635 per vehicle on health care for active and retired workers in the U.S. Toyota pays nothing for retired workers - it has very few - and only $215 for active ones.

Other labor costs add to the bill. Contract issues like work rules, line relief and holiday pay amount to $630 per vehicle - costs that the Japanese don't have. And paying UAW members for not working when plants are shut costs another $350 per vehicle.

Here's one example of how knotty Detroit's labor problem can be:

If an assembly plant with 3,000 workers has no dealer orders, it has two options. One is to close the plant for a week and not build any cars. Then the company still has to give the idled workers 95 percent of their take-home pay plus all benefits for not working. So a one-week shutdown costs $7.7 million or $1,545 for each vehicle it didn't make.

If the company decides to go ahead and run the plant for a week without any dealer orders, it will have distressed merchandise on its hands. Then it has to sell the vehicles to daily rental companies like Hertz or Avis at discounts of $3,000 to $5,000 per vehicle, which creates a flood of used cars in three to six months and damages resale value. Or it can put the vehicles into storage and pay dealers up to $1,250 apiece to take them off its hands...

http://money.cnn.com/2007/01/26/news/companies/pluggedin_taylor_ford.fortune/index.htm?postversion=2007012611

Auto executives, labor leaders and other industry proponents are mounting an intense lobbying effort for a bailout, painting a grim scenario for the economy if even one of the Big Three companies were to go under. They want an immediate $25 billion loan to keep the companies operating and a separate $25 billion to help cover future health care obligations for retirees and their dependents.