CAW makes key concessions to Chrysler

Chrysler LLC nailed down a key piece of its survival plan in Canada yesterday, but the critical issue of a tax dispute with the federal government still hangs over the troubled auto maker.

The Canadian Auto Workers union agreed to make ground-breaking concessions to Chrysler Canada Inc. after a week of tense, multi-party negotiations that involved the federal and Ontario governments and Italian auto maker Fiat SpA, would-be saviour of Chrysler LLC.

The union said the deal will save $240-million a year and that Chrysler had agreed the cuts amounted to the $19 an hour in savings it was seeking. The union gave up a series of benefits it had previously enjoyed, but preserved its base wages and pensions.

The union endured "the most tortuous and unfair process anyone can imagine," CAW president Ken Lewenza said at a news conference last night. Mr. Lewenza blasted governments and auto makers for "ganging up" on auto workers.

"At the end of the day, the savings are there, and Chrysler agreed they are," a chastened Mr. Lewenza said. "Most importantly, we are living to fight another day."

But the deal won't, on its own, keep the Canadian unit out of bankruptcy protection.

And the tax dispute between Chrysler Canada and the Canada Revenue Agency over taxes dating back to the days when the company was part of DaimlerChrysler AG is also a sticking point in any Canadian deal to provide Chrysler Canada with more money.

Chrysler LLC co-vice-chairman Tom LaSorda said last month the auto maker would shut its operations here if it didn't get a union deal that reduced costs and a letter from Ottawa saying Chrysler wouldn't have to put up any more cash collateral in the tax dispute.

There has been "work on that front" a federal official said, but Canada Revenue would not provide such a blanket assurance.

"It depends on the kind of letter that Mr. LaSorda needs," the official said, when asked if Chrysler's demand had been met.

One source familiar with the auto discussions said federal government and Chrysler officials are "at the table" trying to negotiate a resolution to the long standing tax dispute.

But the CAW deal does meet a key demand of the two governments, which are keeping the company alive with a loan of $1-billion. The Canadian governments now require that Chrysler LLC complete a strategic alliance with Italian auto maker Fiat SpA before offering additional loans aimed at financing the company's move to profitability.

The union surrendered major concessions on benefits, including many - such as cutting Christmas bonuses - that were given up in a GM deal six weeks ago. In addition, the employee car purchase plan and the tuition rebate process were cut, effective January 2010, as was semi-private hospital coverage. Paid breaks were reduced to 40 minutes a day. The third shift at the Windsor assembly plant will be eliminated in August.

He called on American auto negotiators to get a deal done and "suck up your greed and make a deal to avoid going into Chapter 11 [bankruptcy]."

The Chrysler agreement will put pressure on General Motors of Canada Ltd. and its CAW workers to renegotiate a deal they signed last month. Six weeks ago, GM and the union trumpeted a deal that will shave about $7 an hour off its labour costs.

But the federal government concluded that agreement did not cut labour costs deeply enough to ensure GM Canada's long-term competitiveness, and ordered the company to present a new plan with greater reductions in labour costs.

With heavy pressure from the Obama administration, Chrysler and the United Auto Workers in the United States are reportedly close to a deal that would pave the way for an orderly bankruptcy filing there.

Mr. Lewenza said the new deal will be guaranteed if Chrysler LLC files for bankruptcy or merges with Fiat.

"So the Canadian plants will survive, even if Chapter 11 is inevitable," he said. "We will work with Fiat if, in fact, the merger becomes a reality, which we hope it does."

Federal and Ontario officials said they are increasingly hopeful that Chrysler could avoid a bankruptcy filing in Canada, even if the parent company seeks court-protection to deal with U.S. creditors.

With a report from Josh Wingrove in Toronto