Chrysler Canada cannot afford GM-CAW deal: source

Fri Mar 13, 2009 9:10pm EDT
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By John McCrank

TORONTO (Reuters) - Chrysler cannot afford the same labor agreement General Motors signed with the Canadian Auto Workers union and if the deal cannot be sweetened, it would be more cost effective for Chrysler to pull out of Canada, a source with direct knowledge of the situation said on Friday.

The CAW said the GM agreement, ratified Wednesday, shaves several dollars an hour off labor costs for active employees and significantly reduces the costs for retirees.

Chrysler said it needs to cut C$20 an hour from a total C$76 an hour in labor costs if it wants to stay viable in Canada. Estimates are that the CAW-GM deal offers slightly over C$7 an hour in savings.

"The pattern cannot be met," said the source, who asked not to be named because of the sensitivity of the situation.

"If Canada says we don't want to be competitive, OK, fine, the costs that (Chrysler) would incur in today's current labor agreement versus the one negotiated with the UAW would put a penalty that's huge, in the hundreds of millions of dollars... so, for a few hundred million, it's easy to move the product," the source said.

A deal in the United States between Ford and the United Autoworkers union brings total labor costs down to $55 an hour, and to $50 an hour by 2011, in line with those of foreign automakers with U.S. plants.

Chrysler has applied for emergency loans to the governments of Canada and the province of Ontario. It has also appealed to the U.S. government for aid, as the recession has led to a brutal downturn in the auto sector, with North American sales at their lowest levels in decades.

The company has received $4 billion in emergency funding from the U.S. Treasury and has requested up to an additional $5 billion more. It requested $3.2 billion in Canada, but the Canadian government has yet to say whether or not the financing will be approved.   Continued...

<p>Workers load newly manufactured Chrysler 300's and Magnums onto trucks at the DaimlerChrysler Assembly plant in Brampton, February 14, 2007. REUTERS/J.P. Moczulski</p>