Ottawa to GM: Cut costs or be cut off

The federal and Ontario governments have ordered the Canadian Auto Workers to make further cuts in labour costs at General Motors of Canada Ltd. - including addressing the deficit in the company's pension funds - or they will cut off financial support, leaving few options but liquidation.

The government ultimatum was made at a meeting with the company and the union on Wednesday and sets up what will be a fierce battle over how to repair a pension mess that the CAW insisted yesterday cannot be fixed at the bargaining table.

GM Canada's pension plans had a shortfall of $4.5-billion as of the most recent public information in November, 2007, but that has almost certainly ballooned to $6-billion or more based on declines in stock markets last year.

"If we don't get a deal, the governments will provide no financial support and GM Canada will be liquidated," CAW president Ken Lewenza told reporters yesterday. "This is an unbelievable situation."

The governments set a deadline of May 15 for a labour agreement.

Government officials asked GM Canada during the meeting to redo its restructuring plan, based on what was achieved in the Chrysler LLC agreement with the CAW, said an Ontario government source familiar with the talks. GM has been asked to achieve the Toyota Motor Corp. benchmark of $49 an hour for all-in labour costs, he said.

Mr. Lewenza spoke on a day when General Motors Corp. GM-N reported a first-quarter loss of $6-billion (U.S.), three weeks before a June 1 deadline set by Washington, Ottawa and Ontario for the company and its Canadian unit to come up with acceptable restructuring plans.

"Everyone seems to believe this will involve a Chapter 11 restructuring in the United States and probably a [Companies' Creditors Arrangement Act] filing in Canada," he said. "We don't know for sure, but it seems likely."

In the United States, GM must also reach a cost-cutting agreement with the United Auto Workers union and scores of debt holders to avoid bankruptcy protection.

However, sources say the company could secure U.S. government assistance to remain in operation, even through bankruptcy protection, but be forced to shutter its Canadian facilities if it can't reach an acceptable deal here.

The pension issue will be turned over to a committee of representatives from the union, the company and the two governments, though Ottawa has insisted that the Ontario government is responsible for GM Canada's pension issue.

The solution will likely involve concessions by existing CAW workers at GM, who will be forced to accept pension payments lower than those received by current retirees. In addition, a solution to the shortfall would also likely require financial contributions by government and the company itself.

Pension benefits for the company's 25,000 retirees are sacred, Mr. Lewenza said.

"Over our dead body will the CAW throw 25,000 retirees overboard," he vowed.

The union and GM had reached an agreement just two months ago that both parties claimed made the Canadian operations competitive with Japanese-owned rivals.

But federal Industry Minister Tony Clement said that deal did not provide enough savings to make GM viable in the long run and ordered the two sides back to the table.

Ontario Premier Dalton McGuinty said yesterday that the governments want auto workers to agree to make concessions with GM Canada that are similar to those they made with Chrysler Canada. "I would ask folks to keep in mind what happened in the case of Chrysler," he told reporters.

But the two auto makers are in dramatically different situations, CAW officials said, pointing to the gaping pension hole at GM and its higher ratio of retirees to active workers. The ratio is about five retirees per active worker at GM, compared with about 1.5 to one at Chrysler Canada.

The pension deficit at Chrysler Canada was settled by the union agreeing to give the company 10 years to make up its pension shortfall, compared with the current requirement of five years.

That can't be done at GM Canada because it is still operating under Ontario legislation passed in the early 1990s that allowed it to contribute to the province's pension benefits guarantee fund instead of making annual payments to keep GM's plans solvent.

Mr. McGuinty warned, however, that his government "cannot come to the table on behalf of Canadian taxpayers unless there are significant contributions made by everybody else."

The Canadian governments could be asked to take equity in General Motors, even though they did not enter the bailout talks looking to become shareholders of an auto company, Mr. McGuinty said.

GM Canada has not said publicly how much financial help it is seeking from the two governments, which lent it $500-million (Canadian) this week.

The latest GM request to the U.S. government is for as much as $30-billion (U.S.). A Canadian contribution would be $6-billion based on the commitment made by Mr. McGuinty and Prime Minister Stephen Harper in December that Canada would provide 20 per cent of the money the beleaguered auto makers need in return for a commitment that the companies maintain 20 per cent of production here.