No to Auto Bailout, Auto Invigoration Instead

In the first 2 months of 2009 the top 10 selling cars in Canada were small cars and of the 10 only 2 were from domestic manufacturers. Cars of Japan and Korea dominate the small car market. Chinese cars are not on the North American scene.

The Canadian government is planning to use taxpayer's money to subsidize car manufacturing in Canada by the old line producers.

China has invested a large portion of its trade surplus in US Treasury bonds. With the present turmoil in the financial markets they are understandably becoming uneasy. To exchange to Yuan would drive the Yuan up and the US$ down, something neither country wishes.

The Canadian $ is somewhat low relative to the US$, the Canadian banking system is robust and stable. It would be a prudent move for China to move some of its investments to Canada.

Chrysler Canada is in financial difficulty and has threatened to shut down its Canadian operations unless it receives adequate government bailout.

Put all this together and what may emerge?

China moves some of its reserve holdings to Canada.

A Chinese car manufacturer keen on entering the North American market with their small and efficient cars buys out the Chrysler facilities. They borrow the Canadian $ from the Chinese government who are holding Canadian Treasury bills.

With imported components plus North American components and assembly in Canada, the Chinese cars qualify for auto pact free trade.

What a win win situation. Car manufacturing continues in Canada, perhaps with reduced employment and perhaps with reduced demand for North American components. No consumption or waste of Canadian taxpayer dollars. A new competitor in the market provides an invigorating shock to an ailing industry.