February 21, 2009 / 1:45 AM / 8 years ago

GM and Chrysler ask for up to C$10 billion aid from Canada

6 Min Read

<p>A Canadian flag flies from the window of a General Motors vehicle at a car dealership in Toronto December 12, 2008.Mike Cassese</p>

TORONTO (Reuters) - The Canadian units of General Motors Corp and Chrysler are seeking as much as C$10 billion ($8 billion) in aid from the Canadian and Ontario governments as they fight to survive an industrywide crisis, officials said on Friday.

The requests represent a big increase in the amount of aid that the companies had previously said they needed. Canada had pledged C$4 billion in support at the end of last year.

The companies are reeling from the brutal downturn in the highly integrated North American auto sector and are seeking repayable loans to help them survive.

Chrysler, which submitted its plan to the governments on Friday, said the Canadian market had declined significantly since its original request in December, and it sees the market declined further.

GM's plan, outlined on its website, would require the company close no more Canadian plants at this time, and the company did not provide specific details on any further planned job cuts.

But the plan said GM Canada's workforce would shrink to 7,000 by 2010 from 20,000 in 2005 as a result of plant closures that have already been announced.

GM also called for "changes sufficient to achieve legacy cost reductions and align active worker wages and benefits to benchmark levels."

It proposed a 10 percent cut in executive salaries, and reduced pay and benefits for salaried employees.

Significantly, the plan would also keep 17 to 20 percent of GM's production in Canada over the next five years, the company said, a feature the Canadian government signaled was essential.

GM Canada refrained from providing a dollar amount on its proposal, but Tony Clement, the Canadian industry minister, said GM is asking for C$6 billion ($4.8 billion) to C$7 billion in repayable loans.

'An Existential Moment'

"This is not a grant, this is not an indication that the money goes and never comes back," Clement told reporters.

The U.S. market has been hit especially hard in recent weeks, with auto sales dropping to a 27-year low in January. Around nine out of every 10 cars built in Canada are sold in the United States.

The Canadian market had looked more resilient up until November, but sales declines have since been sharp.

"This is an existential moment for the Canadian and indeed the North American car industry and it needs everybody to come to the table," Clement said.

The minister said the money would not be used to address issues affecting GM's pension plans, which are underfunded and seen as one of the biggest threats to the company's viability.

To be implemented, the plan would require agreements by the end of March from the federal and Ontario governments, as well as the Canadian Auto Workers union.

Ken Lewenza, president of the CAW, which represents 33,000 autoworkers, said he was happy that the restructuring plans from the two companies did not contain any new bad news for union members.

However, he said the pensions of its members must be protected in any restructuring of the Canadian operations of General Motors and Chrysler.

Viability Plan

Chrysler Canada's proposals for Canada are integrated into an overall package submitted to the U.S. Treasury this week.

"Chrysler Canada's viability, as a wholly owned subsidiary of Chrysler LLC, is directly linked to that of Chrysler LLC," the company said in a letter to Ottawa and the Ontario provincial government explaining why it integrated its Canadian restructuring proposals within an overall North American plan.

But Clement said the governments needed more "Canadian-specific" details from the automaker before it could consider its request.

Chrysler said its plan calls for no Canadian plant closures, and it highlighted no additional Canadian-specific initiatives that were not already outlined in the plan submitted to Washington earlier this week.

The company said it was requesting from Canada 25 percent of its U.S. request for a bridge loan of $9 billion, in keeping with the percentage of its total manufacturing activity in Canada. That would come to about $2.25 billion, or C$2.8 billion.

Before Chrysler released its statement, Clement said the company had requested about C$1 billion. It was not immediately clear why the figures were different.

Though no large-scale layoffs were proposed by GM Canada and Chrysler on Friday, the minister said during a press conference that there would be job cuts in the short term.

"It's unfortunate, we wish it weren't the case, but it is the case," he said.

GM and Chrysler have already received a combined $17.4 billion from the U.S. Treasury, and on Tuesday they asked for nearly $22 billion more in emergency funding. That amount could increase to about $30 billion if the auto market further deteriorates. Ford Motor Co says it is in better shape and will not likely need to ask for immediate assistance.

An Obama administration task force on the struggling U.S. auto industry on Friday ordered additional analysis and initial restructuring recommendations to be presented at its next cabinet-level meeting, the U.S. Treasury said on Friday.

Led by Treasury Secretary Timothy Geithner and White House Economic Adviser Larry Summers, the panel's initial meeting reviewed recently submitted restructuring plans from Chrysler and GM.

($1=$1.25 Canadian)

Additional reporting by Jeff Hodgson, Scott Haggett; editing by Frank McGurty, Rob Wilson, Richard Chang

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