OTTAWA (Reuters) - General Motors of Canada’s bid for government aid is being closely reviewed after auditors for the U.S. parent said they doubted the company’s ability to survive outside bankruptcy, Canadian officials said on Thursday.
The government said it also welcomed news that the Canadian Auto Workers union will begin exploratory discussions with GM Canada to find cost savings that will help the company qualify for government loans from Canada and the United States.
GM Canada, which is eligible for loans of up to C$3 billion ($2.3 billion) under a Canadian aid package, submitted a detailed proposal to Ottawa last month.
In Detroit, parent General Motors Corp said on Thursday its auditors had raised “substantial doubt” about its ability to survive outside of bankruptcy if it fails to stem its losses and stop burning through cash.
“Of course it’s a concern,” Canadian Finance Minister Jim Flaherty told a news conference in Washington after meeting with White House economic aide Larry Summers on the issue of aid to the auto sector. “It’s a serious situation. That’s why we’ve created a major stimulus package in the Canadian economy. This is not business as usual.”
Flaherty later told the Canadian Broadcasting Corp the auto companies have to demonstrate “that they’re going to survive over time because, after all, the governments have to be accountable to their taxpayers for the use of their money.”
Industry Minister Tony Clement, who also met with Summers, said the auditors’ warning demonstrated the need for Canada to review GM’s plans “very closely and make sure they make sense from a Canadian perspective”.
Ottawa is working closely with the U.S. government on how to help the auto sector, which is tightly integrated in the two countries.
Canadian Auto Workers President Ken Lewenza said the union -- which represents about 33,000 workers in the auto industry -- aims to first reach an agreement with GM, and then with the Canadian arms of Chrysler and Ford Motor Co, by the end of March.
He said the CAW would be able to find significant savings for the companies that would give Canadian plants a competitive advantage over factories in the United States, without lowering wages. He would not speculate on how.
GM’s plan submitted to Ottawa last month 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.
Labor agreements reached in May froze wages and shifted more health care costs to workers, and CAW head Lewenza warned he expected negotiating to be tough.
“We shouldn’t kid anybody,” he told reporters. “Collective bargaining is about power and today we do not have a lot of power, other than the fact that we have a legal three-year collective agreement that was ratified last May with about C$300 million worth of cost savings for each one of the companies.”
“I take it as a good piece of news today that CAW and GM are sitting down,” Clement told Reuters, adding that the government, company and union all had to be part of the solution.
Asked about Lewenza’s statement that wages and benefits did not need to be cut, Clement said: “We have to be cost-competitive with North American automakers, both domestic and foreign, and so we’re waiting for the plan that will get us to that point, and then we’ll leave it to CAW and the (auto) assemblers to get us to that plan.”
Reporting by David Ljunggren, Randall Palmer, John McCrank and Allan Dowd. editing by Rob Wilson