GM-UAW deal puts pressure on Canadian counterparts

OTTAWA and TORONTO -- General Motors of Canada Ltd. finds itself isolated from its American parent after the Detroit-based auto maker concluded a cost-cutting deal with its United Auto Workers union, increasing the likelihood of a U.S. government bailout.

Still locked in negotiations with the Canadian Auto Workers union, GM Canada needs an agreement in order to be part of the parent company's plan that will be forwarded to U.S. President Barack Obama in the coming days.

Without an agreement, GM Canada would face almost certain liquidation, CAW president Ken Lewenza said in an interview late yesterday.

Mr. Lewenza said the U.S. deal puts enormous pressure on all parties to reach an agreement quickly.

"We need to be on the good side of the ledger," he said in an interview late yesterday.

With federal and provincial officials prodding them along, company and union negotiators have been making

"tiny steps" toward a deal, he said. The largest sticking point remains the company's need to reduce a pension shortfall that, sources have said, totals more than $7-billion.

But Mr. Lewenza said that, if all parties - including governments - were prepared to compromise on their principles, a deal could come together quickly.

"If everybody just gives a little bit, it'll get done," he said. "It's got to be done by the end of the weekend" due to the pressure from the parent company in the United States.

The U.S. and Canadian governments have given GM until May 31 to submit a fundamental restructuring plan in order to receive roughly $30-billion (U.S.) in loans in the States and $7-billion in Canada. The two governments had rejected an earlier GM cost-saving plan as insufficient and ordered the company to return to the bargaining table in both countries to seek greater concessions from its unions.

The UAW did not release details of the deal and did not mention issues such as plant closings or auto production out of the United States. The union has agreed with Chrysler to accept 55 per cent of the auto maker's stock instead of about $6-billion (U.S.) of $10.6-billion the company owes a retiree health care trust. GM, in turn, had been bargaining to give the union some 39 per cent of its stock instead of $10-billion of $20-billion it owes the trust.

Mr. Lewenza said that, as soon as the UAW deal was announced yesterday, he had a call from a senior federal official, urging him not to allow Canada to be left out of the company's restructuring plans.

In Washington for meetings with U.S. officials, Industry Minister Tony Clement said Ottawa would not provide domestic parts suppliers with loans to help them cope with the sharp decline in auto sales and production. The Automotive Parts Manufacturers of Canada had asked for $4-billion in loans to help members survive the downturn. "We're not going down that road," he told Bloomberg News. He said Ottawa has instead demanded that Chrysler LLC and General Motors pay their suppliers in a timely fashion as a condition of financial assistance to those companies.

Association president Gary Fedchun said yesterday that the sector needs to prove its case to the federal government by stressing that it needs the loans to address a very short-term liquidity crisis until production resumes, likely this fall. "This is a very fast-changing environment," he said. "From the production side, it is getting worse quickly."

Mr. Lewenza said he still expects GM to file for Chapter 11 bankruptcy protection in the United States, as well as similar court protection under the Companies' Creditors Arrangement Act (CCAA) here.

While the health issues was the toughest challenge in the UAW talks, GM Canada's yawning pension liability has been the stumbling block here. Mr. Lewenza said current retirees are protected by law from having their pensions reduced, but he added that there would be no such guarantees if the company was liquidated.

The federal government has insisted it will not provide financial assistance to help underwrite GM pensions. The Ontario government initially said it does not have the money to subsidize the plan, but provincial Finance Minister Dwight Duncan indicated last week that it could provide some additional support to help close the GM pension shortfall. However, he did not indicate whether that would be in addition to its commitment to provide one-third of the federal-provincial loan package that GM Canada has requested.