Tuesday, March 24, 2009

Suncor/Petro-Can wedding

The “Corporate Efficiency” Racket.

This week two of Canada’s biggest energy companies, Petro-Can and Suncor, announced their engagement. The marriage will occur this autumn. Soon another corporate giant will be born.

And why is this giant merger being undertaken?

They say it’s something about corporate efficiency. Apparently the new giant oil company will be able to lay off thousands of workers and save millions of dollars in expenses. Very efficient.

What an interesting country we live in. Governments are being asked to put up billions of dollars of taxpayer money to prevent the layoff of thousands of auto workers. And now two corporate oil giants have a plan that will likely result in the layoff of thousands of oil patch workers. The Petro-Can/Suncor wedding seems to do the exact opposite of what the government is trying to do in the auto industry.

I wonder what our federal government will do. Will they approve the oil merger and allow the oil companies’ corporate efficiency to neutralize their auto industry bail out? Will they block the merger and receive criticism from corporate Canada for preventing the corporate IN-efficiency that got GM, Chrysler and Ford into the jam they are currently in? Will they attach strings to the deal: approve the merger only if the new merged company agrees to cooperate with the government’s goal of maintaining high levels of employment in Canada? (After all, they are attaching conditions to the auto bail out: the bail out loans will be subject to certain production guarantees etc.) What will our government do?

If they do nothing about the auto industry, hundreds of manufacturing jobs will be lost. If they do nothing about the oil merger, hundreds of energy jobs will be lost. Corporate efficiency is a tough game. It seems that efficiency means running lean and mean: maximum corporate output for minimum labour cost. Isn’t that how the Japanese and German car companies operate? If our government bails out the American car companies, they will be promoting corporate IN-efficiency. Maybe we are asking the wrong question. Maybe the government shouldn’t DO anything. Maybe it’s more important for them to NOT DO.

Ken Norquay, CMT
Chief Investment Strategist
CastleMoore Inc

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