- The Washington Times - Tuesday, April 28, 2009

TORONTO — In ice hockey, getting knocked down means getting up on very thin blades. Now Chrysler and General Motors Canada are wobbling on theirs as the Canadian and Ontario governments work with Washington to ensure that when the battered face of the U.S. auto industry emerges, Canada is still in the game.

With 20 percent of North American auto production and 80 percent of that production destined for the crippled U.S. market, it’s no surprise Canada’s American-based auto sector is down on the ice.

Indeed, the clock is ticking for Chrysler Canada. After advancing the company bridge loans of $800 million and rejecting its earlier restructuring plan, Canadian governments have given Chrysler until the end of the week to come up with an acceptable plan or face bankruptcy.

“On April 30, everything has to be in place - not a deal to be voted on, a secured plan. That’s the condition for more money,” said Pema Lhalungpa, a spokesman for Canadian Industry Minister Tony Clement.

Canada’s auto sector is the country’s largest manufacturing base, with 900,000 jobs directly and indirectly tied to it.

But even though the Canadian and American governments have rushed to the aid of Chrysler and GM - offering warranty backup programs, dealer loan guarantees and billions of dollars in direct financial assistance - the two companies have been rapidly shedding jobs, closing and idling plants.

As a result, Canada’s unionized auto sector is being flushed “down the toilet,” said Jim Stafford, chief economist for the Canadian Auto Workers (CAW).

Canadian automakers are expected to lose $2.4 billion by next year as auto sales plunge an additional 15 percent and 15,000 more auto-related jobs are lost, according to the Conference Board of Canada.

But those job losses are just a fraction of the 60,000 parts and assembly jobs lost since 1999, when Canada started sliding from the world’s fourth-largest auto manufacturer to 10th place.

GM and Chrysler Canada are also entangled in legal brawls with parts suppliers. In one case, Chrysler temporarily shut down two Ontario assembly lines, filed a lawsuit against a supplier and hired more expensive union labor to make the parts instead.

This trend worries David Adams, president of the Association of International Automobile Manufacturers of Canada. A bankruptcy tug of war among GM, Chrysler and their Canadian suppliers could destroy Canada’s automotive manufacturing base, he warned.

If GM, Chrysler or a major supplier fails, the shock would be felt “throughout the automotive community,” Mr. Adams noted. “Our industry is highly integrated, and suppliers serve many manufacturers in Canada and the U.S.”

The smallest of the three major U.S.-based automakers cleared two major hurdles on Sunday in its quest for survival, agreeing on a concession agreement with negotiators for the United Auto Workers and winning ratification of its cost-cutting deal with the Canadian Auto Workers.

That leaves two obstacles standing between Chrysler and up to $6 billion in additional loans from the U.S. government: A partnership deal with Italy’s Fiat Group SpA and an agreement to swap equity for debt with banks and hedge funds that hold $6.9 billion in secured Chrysler loans.

Last month, Chrysler Canada President Tom LaSorda threatened to close down Canadian operations unless Chrysler’s demands for union concessions, a doubling of the government’s $800 million aid package and settlement of a $800 million tax bill were met.

Not only were his demands rejected, but Canadian car buyers reacted to Chrysler’s threat by knocking its sales down 30 percent.

Dennis DesRosiers, president of DesRosiers Automotive Consultants, said the industry’s crisis is the result of shortsightedness by consumers, automakers and unions alike.

In the past 10 years, “North Americans borrowed money on their houses and bought 15 [million] to 20 million more vehicles than they needed. Now that inventory has to be cleaned out, and the industry has to shrink,” he said.

The CAW used the past 10 years to bargain away Canada’s health care cost advantage over American workers for benefits including “10 spa days a year, six weeks’ vacation, legal bills paid for divorces and house sales, and not a penny contributed towards their pension fund,” Mr. DesRosiers added.

Despite the troubles at GM and Chrysler, non-North American manufacturers are posting record sales in Canada and now account for more than half of all Canadian auto sales.

The restructuring of the global auto industry could take 10 years to settle, Mr. DesRosiers said, but “140 million Americans drove to work today, and they will drive to work tomorrow. Consumers will not give up their vehicles.”

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