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TORONTO (Reuters) - The Canadian Auto Workers union must accept concessions of C$19 an hour to enable Chrysler to seal an alliance with Fiat SpA, or Canada may have no choice but to cut the automaker's lifeline, the industry minister said on Thursday.
Chrysler has until the end of the month to close a deal with the Italian carmaker as a condition set by the U.S. and Canadian governments to qualify for long-term aid.
Further concessions by the CAW are one of the big stumbling blocks in the Chrysler-Fiat talks, Fiat's chief executive said on Wednesday. Both Chrysler and Fiat have said the CAW must agree to lower labor costs by C$19 ($15.70) an hour, or more than 20 percent, to make a deal happen.
"There has to be a CAW-Chrysler deal in the next two weeks -- the clock is ticking -- in order to allow for Fiat to continue with its partnership with Chrysler," Industry Minister Tony Clement told reporters on Thursday.
"I don't think it is in the interest of the Canadian public to have continued funding to a company if there is no deal with their union and if there is no outside investment, no outside partner in the case of Fiat."
Talks between the company and the union are due to restart on Monday. The CAW said talks were put on hold in early April as Chrysler and Fiat worked out details on a possible partnership.
Ken Lewenza, the president of the CAW, told Reuters on Thursday the labor issues were insignificant compared to the difficulties Chrysler was having in the United States in getting bondholders to make concessions. He said the company also has to deal with issues surrounding the 19 percent share still owned by Germany's Daimler AG and debt associated with the stake.
"All of a sudden, a few million dollars in Canada could make or break the deal? That's absolutely ridiculous," said Lewenza. "This is a government that's, quite frankly, using this global economic crisis to scapegoat workers."
The CAW has offered the company the same deal it struck with General Motors Corp last month. GM said the deal would permanently eliminate nearly C$1 billion in costs related to retired workers. It will also cut around C$7 an hour from the labor costs of its active workers.
Chrysler is currently surviving on C$1 billion in short-term loans from Ottawa and the province of Ontario, and $4 billion from Washington.
The company has requested an additional C$3 billion in Canada and would be eligible for at least $6 billion in extra U.S. funding if it is able to present a restructuring plan the governments find acceptable.
Without the union concessions and a Chrysler-Fiat partnership, Clement said the government may have to call in its loans.
"With April 30 looming very closely on the horizon, the CAW has to do its part," said Clement.
"This is not an easy thing, but ... if there's no deal in place, there will not be long-term funding arrangements with the government of Canada, and in fact we have the right to call our loans."
Tony Faria, an auto sector analyst at the University of Windsor, said Canada calling its loans would most likely push Chrysler into bankruptcy protection, which would give it time to repay its creditors.
"But Chrysler would then have to somehow work out financing which may be exceedingly difficult ... the end result of that could well be that Chrysler does not emerge from bankruptcy and that leads into a liquidation."
Clement said he understood Fiat's demand that the union cut costs by up to C$19 an hour.
"We expect that the CAW has to recognize that in order for Chrysler to survive in this country that Chrysler has to be competitive with the rest of the Canadian market, which includes Toyota and Honda," he said.
Chrysler, along with GM and Ford Motor Co, have manufactured vehicles in Canada for much longer than Toyota Motor Co and Honda Motor and therefore have much higher costs related to retired workers.
Chrysler declined to comment on Thursday. In a release late Wednesday, it said all options were on the table, but that still hoped to reach a deal by the end of the month that the government deems viable.
The company has about 9,400 employees in Canada, 8,000 of whom are represented by the CAW at plants in Windsor, Brampton, and Toronto, Ontario.
Reporting by John McCrank