April 27, 2009 / 4:02 PM / 8 years ago

GM set to drastically reduce Canadian footprint

5 Min Read

<p>General Motors auto workers prepare rows of the new Chevrolet Camaro for delivery, at the company's Oshawa Ontario facility April 8, 2009.Fred Thornhill</p>

TORONTO (Reuters) - General Motors Corp laid out plans on Monday to drastically reduce its footprint in Canada and said it expects to soon have access to short-term Canadian bridge loans of up to C$3 billion ($2.5 billion).

GM said it expects to reduce its hourly Canadian workforce to 4,400 by 2014 from 10,300 in 2008, mostly through previously announced plant closures, as part of its plan to return to viability.

"The population is going shrink dramatically," said Chris Buckley, president of Canadian Auto Workers union Local 222 in Oshawa, Ontario, where a GM truck plant is due to be shuttered and about 2,600 workers laid off on May 14.

"This crisis, going into the future, is going to be devastating as far as job losses in Canada," Buckley said.

GM said on Monday that it would be forced to file for bankruptcy protection if it failed to cut $27 billion in bond debt by about 90 percent and if other changes it has announced were to falter.

Those changes, mostly in the United States, included closing plants, slashing jobs, and dropping the Pontiac brand.

The changes "will also enhance the viability of our highly integrated Canadian operations as we complete our discussions with the Ontario and federal governments on GM Canada's restructuring plans," Arturo Elias, president of GM Canada, said in a statement.

GM said it was close to completing a short-term bridge loan agreement with Canada and the province of Ontario.

The company has until May 30 to gain concessions from all its stakeholders and put together a viability plan the U.S. and Canadian governments find acceptable in order to qualify for long-term government aid.

GM Canada reached a concession deal with the CAW on March 11 that it said would generate significant savings. However, Ottawa said the deal, which the union planned to use as a pattern for bargaining with other automakers, did not go far enough.

"Our government broke the pattern agreement," said Buckley. "They now have a huge gun at our heads to go back in and pull out additional costs (at GM)."

Industry Minister Tony Clement told Parliament on Monday that GM must "restructure itself in a severe and quick way in order to ensure that it can survive."

Facing the prospect of a bankruptcy at Chrysler, the CAW ratified a deal with that company on Sunday that will cut labor costs by about C$19 an hour.

Clement called the agreement was a step in the right direction, adding Chrysler was now less likely to go into liquidation and that its potential strategic partner, Fiat SpA, sees the deal as cost-competitive.

The CAW has said it would "do the responsible thing" and offer GM the same savings.

GM said labor costs for its active Canadian workers would drop by 50 percent to $500 million by 2010 from $1 billion in 2008, based on the Chrysler deal and the earlier concessions.

It said its Canadian labor costs would remain at the $500 million level into 2014 due to the elimination of most cost-of-living increases bargained in the March agreement.

Dealerships Cut by Nearly Half

GM also announced it would be cutting about 300 dealerships across Canada.

"The numbers are pretty stark ... that's close to half of the entire GM dealer base," said Michael Hatch, chief economist at the Canadian Automobile Dealers Association.

Hatch said GM dealers employ about 33,000 to 34,000 people across the country, so depending on which dealerships go and which stay, 12,000 to 15,000 jobs are potentially at risk.

Clement said GM was recognizing reality in that "they're over-dealered and they're producing too many cars for the market to absorb."

Typically, GM dealerships are divided into three main brand networks: Pontiac, Buick; Chevrolet, Cadillac; and Saturn, Saab.

GM has also cut its salaried workers' wages by 10 percent.

As for capacity cuts in Canada, GM said it would complete the closures already announced, but announced no new closures.

Operations to be shuttered, all in Ontario, include the Oshawa truck plant, the Windsor transmission plant for 2010, and the completion of the wind-down of its Ontario Street building at its St. Catharines operations.

St. Catharines also builds engines for Pontiacs and could see further downsizing, said Buckley.

($1=$1.21 Canadian)

Additional reporting by Randall Palmer; editing by Rob Wilson

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