News: No need for wage cuts, CAW says

J. Sturgeon | Financial Post | 03. 06. 2009

Auditors of General Motors Corp. say North America's largest automaker may be forced to seek bankruptcy protection as it fights for financial survival, raising the odds that workers in Canada will be compelled to accept reduced wages and substantial clawbacks to legacy benefits.

If the Canadian Auto Workers union does not agree to concessions, it could spell the end of GM manufacturing in Canada, experts say.

The auditors' warning, filed in GM's annual report last week but acknowledged by the company yesterday, also raised concern among federal and provincial lawmakers over the "sustainability" of the U. S. automaker -- and the billions in Canadian taxpayer-backed loans being extended to it.

Part of GM's path toward returning to profitability lies in labour-cost reductions both in Canada and the United States. Union officials for the CAW began yesterday the unenviable task of renegotiating a collective bargaining agreement for the roughly 10,000 workers the automaker employs here.

"The auto workers are in a desperate situation going in," said Dennis DesRosiers, a senior Canadian auto analyst and president of DesRosiers Automotive Consultants Inc. in Richmond Hill.

CAW officials said they have reviewed a tentative agreement that union workers in the United States have reached with the company and plan to amend the Canadian union's terms to maintain the same level of investment and production that GM dedicates to Canada now, which is about 20% of North American operations.

GM's mounting losses, a negative net worth and massive cash-burn rate may mean the Canadian union will have to absorb heavy concessions in the coming days just to keep the automaker in Canada, Mr. DesRosiers said.

"[The CAW would] be fortunate to get a term sheet that says, 'Here's what it is going to take for us to stay in Canada, take it or leave it.' "

Ken Lewenza, the CAW president, told reporters in Toronto yesterday the terms reached between GM and the United Auto Workers, the U. S. union, did not cut wages or "core" benefits. There is no reason why the CAW could not draft a similar agreement, he said. "We believe we can maintain our existing wage and benefits package."

New bargaining agreements with workers in Canada and the United States may be for naught, though, if North American lawmakers lose faith in GM's ability to revive its fortunes. Yesterday, the grim auditor assessment created fresh uncertainty among lawmakers whether taxpayer money should go toward a company that may well fail anyway.

Ontario's minister responsible for the auto sector acknowledged there is the possibility that money from the province may not be forthcoming.

"If it is not a viable company, we will not make a deal," said Michael Bryant, Ontario's Economic Development Minister, which is partnering with Ottawa in providing potential financial aid to the Detroit automakers. "If it is a company that doesn't have a profitable future, haven't addressed their legacy costs, don't have a business plan that makes sense to us, we will not make that investment -- because it would be a bad investment."

Speaking from Washington where he is consulting with U. S. officials, Jim Flaherty, the federal Minister of Finance, reiterated in a television interview that "viable" plans must be demonstrated by GM and Chrysler if loan support is to remain in place. That includes potential wage concessions and benefit clawbacks, the Minister said.

"There are the costs of labour, the overall costs of benefit packages -- are they competitive between the Detroit Three and the other automobile companies in Canada?" Mr. Flaherty said. "Those are some of the variables that need to be looked at in order to come to some sensible determination on the sustain-ability of these enterprises."

GM reported a US$30.9-billion loss in its 2008 annual report, which also contained an auditor assessment that stated "substantial doubt" existed that the automaker could make good on certain looming debt payments, forcing it into bankruptcy protection.

GM said yesterday it has received waivers from its lenders to have loan recalls deferred.

A spokesperson for GM told The Wall Street Journal GM's main concern at present was attaining the lender waivers, which will buy more time for the company to restructure.

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