April 25, 2009 / 1:12 AM / 9 years ago

Chrysler, Canadian union reach cost-cutting deal

TORONTO (Reuters) - Chrysler LLC and the Canadian Auto Workers union on Friday reached a tentative agreement on a new labor contract intended to cut costs and keep the struggling automaker from bankruptcy, the union said.

The deal, which will be put to CAW-represented workers for ratification this weekend, is one of several agreements that Chrysler needs to reach by next week to win new U.S. government aid and avoid liquidation.

“We were told by Chrysler that they still didn’t have entire deals done to avoid a bankruptcy filing. We urge all the stakeholders in the United States to make equal sacrifices,” CAW President Ken Lewenza told reporters.

Chrysler, which has been kept operating since the start of the year with $4 billion in U.S. government loans, has until the end of this month to clinch an alliance with Italy’s Fiat SpA and win concessions from its bank creditors and major unions or face a cutoff of its government funding.

The tentative contract for Canadian autoworkers with the No. 3 U.S. automaker would leave hourly base pay intact but cut a range of benefits, including an annual Christmas bonus, and add flexibility to work rules that would make it easier for Chrysler to hire temporary workers.

Chrysler will also cut the third production shift at its Windsor, Ontario minivan plant.

Taken together, the contract changes will save Chrysler an estimated C$240 million in annual labor costs, Lewenza said.

In addition, the leadership of the Canadian union agreed to work with Chrysler to create a trust fund to pay for retiree health care modeled on a similar fund that the United Auto Workers union approved for Chrysler’s U.S. workers in 2007.

Chrysler still owes over $10 billion to the UAW for that trust fund and is seeking concessions from the U.S. union that would allow it to pay stock, rather than cash, into the fund in a restructured company.

Talks on that issue between the UAW and Chrysler have been slow-moving and Lewenza urged other Chrysler stakeholders to make the concessions needed to keep the automaker from bankruptcy.

“Without the CAW’s concessions, we were told by governments and Chrysler that Chrysler’s Canadian operations would go straight to liquidation,” Lewenza said.

Reporting by John McCrank and Soyoung Kim in Detroit; writing by Kevin Krolicki, editing by Leslie Gevirtz, Richard Chang

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