Amidst all the noise about failing companies and government bailouts, louder than anything else in Canada we hear the voice of our auto industry. They claim to be hit by the global financial crisis more seriously than others and ask for taxpayer money. One of the major roles of the government is to stabilize the economy, and there is nothing wrong with financially supporting a large company or a whole industry to help them overcome temporary difficulties. But are their difficulties truly temporary? Is the liquidity crisis to blame for their troubles? Is everything going to be OK once credit starts flowing again?

The Big Three (Ford, GM and Chrysler) are simply unable to compete with their Japanese, Korean and even European competitors. One of the reasons is the well established consumer perception that American cars are of lower quality than their foreign rivals. While independent expert studies confirm year after year that Fords, Chryslers and Chevys are as good or better than their competitors in terms of reliability, performance, design, fuel economy, etc., consumers stubbornly continue to believe that American cars are nothing but gas-guzzling pieces of garbage. A new long-term marketing strategy, perhaps coordinated between the three, is needed to overcome this misconception.

Another major reason for their weak competitive position is higher costs. Although the costs of auto components and materials are pretty much the same across the industry, labor costs differ quite significantly. Canadian economy as a whole is crippled by unions, which makes labor costs disproportionately high. When an assembly line worker in Ontario with no education or skills makes $70 an hour, it is close to impossible for the auto manufacturers to remain profitable. Thousands of people would gladly work in these jobs for one third of what the union employees are paid, by the law doesn’t allow the companies to get rid of the unions.

If our government succumbs to the pressure from the unions and continues supporting the failing auto industry, it will only prolong the agony, delay the inevitable collapse and lead us to major budget deficits. What they should do instead is force the auto manufacturers into bankruptcy. This will help them get rid of the unions or at least limit their power and emerge from this turmoil with a better competitive position and a new marketing strategy. The current government is very unlikely to do it due to its week minority position and vulnerability to the socialist opposition. But deunionization must eventually happen if Canada wants to remain globally competitive.

Nikolay Sisan is a Certified Financial Planner and freelance writer in Vancouver.