TORONTO (Reuters) - General Motors Corp is a step closer to securing billions of dollars in emergency loans in Canada after striking a tentative cost savings deal with the Canadian Auto Workers union.
If ratified, the deal with GM Canada will lead to savings of “several dollars an hour on the active labor side and substantial cost reductions on the legacy liabilities,” Jim Stanford, an economist for the CAW, said on Monday.
“We are confident that this agreement preserves an investment advantage in Canadian plants and that’s what we committed to do, and now the government should come through with its financial assistance,” he said. The weaker Canadian dollar lowers costs as well, he added.
The agreement, reached early on Sunday, would freeze wages, transfer more healthcare costs to employees, cut paid time off, and eliminate cost of living adjustments for retirees and suspend them for active workers. It would also divert employee bonuses to cover legacy costs such as retiree healthcare benefits, and reduce expenses for union-sponsored programs.
The deal should help GM Canada qualify for up to C$7 billion ($5.4 billion) in requested loans from the governments of Canada and the province of Ontario, said Charlotte Yates a labor expert at McMaster University in Hamilton, Ontario.
“It must be enough, because GM has said it’s enough for them to go forward, and... (GM) is the one that has the information and actually is in control here,” Yates said.
Tony Faria, an auto analyst at the University of Windsor, agreed that the deal should be enough to allow GM to qualify for the loans, but said it could have been better.
“I don’t think either the federal government, or the Ontario government wants to push GM and Chrysler over the brink, but I‘m not sure they got all the savings they could have and should have gotten out of these concessions.”
He said GM was in a position where it could have demanded the union take over retiree healthcare costs, pension plan contributions be shifted to employees, and definitions for skilled workers be made more flexible.
Federal Finance Minister Jim Flaherty called the tentative deal “good news” in the House of Commons on Monday.
“But this is a major challenge, not only with respect to General Motors but with respect to Chrysler and Ford as well, dealing as we must with assumptions concerning a reasonable quantum of auto sales, about legacy costs and about labor costs.”
Currently, the total cost of compensation for GM Canada workers is around C$70 ($54) an hour, which includes an average base wage of about C$34 an hour, as well as the cost of pension contributions and benefits, paid time off, and taxes.
Stanford said that hourly all-in labor costs for U.S. GM employees are somewhere in the low $60s, but that figure is set to go down as the company negotiates a new deal with United Auto Workers in order to qualify for government aid there.
GM and Chrysler have already received a combined $17.4 billion from Washington, and have sought another $22 billion in emergency funding.
GM Canada’s 10,000 active workers, in plants in Oshawa, St Catharines, Windsor, and Woodstock, Ontario, will vote on the deal on Tuesday and Wednesday.
The CAW is expected to begin talks with the Canadian arms of Chrysler and Ford Motor Co within the next few days. The union said it would seek to follow its traditional bargaining pattern, in which it reaches a deal with one company and then makes the same arrangements with the others.
Chrysler is seeking as much as C$3 billion in loans in Canada. The company had no comment on the negotiations.
Ford is not seeking any government assistance in Canada at this time. A spokeswoman said Ford expects to be a part of any improvements made to the GM Canada contract, but said it is waiting to see the details of the agreement.
A spokesman for GM Canada was not immediately available for comment.
Editing by Rob Wilson