March 16, 2009 / 12:41 PM / in 9 years

Chrysler Canada cannot afford GM-CAW deal: source

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.

<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>

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.

General Motors of Canada has also requested loans in Canada and the United States.

In order to help both companies qualify for the aid, the CAW agreed to reopen the three-year collective agreements reached with them, as well as Ford Canada, last May.

Ford is not seeking government aid, but it too said the CAW-GM deal was too weak.

At current exchange rates, Chrysler’s total Canadian labor compensation would be around $59.38 an hour, based on the C$76 figure, and would be around $42.97 an hour at C$55 -- well below UAW compensation and that of the foreign automakers in the United States.

But Chrysler has said a deal based on the exchange rate would make bad business sense, because the rate always fluctuates. In November of 2007, the Canadian dollar rose to a record high of $1.10 versus the greenback, but then quickly fell to more historically normal levels.

In labor talks, the company counts one Canadian dollar for one U.S. dollar.

Total labor costs include base wages, payroll taxes, paid time off, pension costs, and union-sponsored programs, among other items.

Chrysler is not looking to cut employees’ wages, the source said, saying it had presented the CAW with a list of areas where it could make cuts to achieve the target, largely based on the UAW deal.

Some of those areas include giving up tuition reimbursement, foregoing childcare payments, lowering maximum vacation time to five weeks from six, and bringing active and retired workers’ shares of the costs for healthcare coverage into line with those of UAW members, which are around two and three times higher, respectively.

Chrysler makes large sedans in its Brampton, Ontario, plant, which could be moved to U.S. plants with more capacity. Its Windsor plant makes minivans, production of which could be moved to its recently mothballed plant in St. Louis.

($1=$1.28 Canadian)

Reporting by John McCrank; Editing by Gary Hill

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