OTTAWA - The head of Chrysler issued a grim threat to Canadian lawmakers Wednesday night, warning the struggling automaker may shut down its plants in Canada if it doesn't get significant labour concessions and government aid.
"Chrysler LLC cannot afford to manufacture products in a jurisdiction that is uncompetitive, relative to other jurisdictions," president Tom LaSorda told a Parliamentary committee.
Chrysler's labour costs in Canada work out to about 20 dollars an hour more than automakers like Toyota and Honda, LaSorda told the committee.
"Currently Chrysler CAW (Canadian Auto Workers) are not competitive," he said.
The automaker also asked for roughly US $2.3 billion dollars from the Canadian and Ontario governments and demanded relief in a tax dispute with Ottawa.
"Failure to satisfactorily resolve these three factors will place our Canadian manufacturing operations at a significant disadvantage relative to our manufacturing operations in North America and may very well impair our ability to continue to produce," Lasorda said.
The tax issue involves Canadian tax assessments from the 1990s that Chrysler Canada should have earned greater profits than reported in Canada, the automaker said in a brief submitted to the Parliamentary committee.
Chrysler is challenging the assessments, but in the meantime has had to pay a security and wants an assurance from Canadian tax collectors that it won't have to pay any more while the dispute is being resolved.
Analysts say the troubled automaker is teetering on the brink of bankruptcy and labour costs are only a small part of its problems.
Joe D'Cruz, a professor at the University of Toronto's Rotman School of Management, said Chrysler can't expect to regain financial health just by winning wage or other concessions from its workers.
"I don't think we should expect to solve this problem on the backs of the workforce," D'Cruz said.
"It's a management problem, and that's where we've got to look, we've got to ask serious questions about whether the existing management is appropriate for the task ahead."
Chrysler LLC and its Canadian subsidiary have been hit particularly hard by the slump in auto sales. Chrysler's Canadian sales were down 27 per cent in February compared with a year earlier, and the company has asked for $1 billion in emergency loans from the Ontario and federal governments -- an amount that could balloon once the company's restructuring plan is complete.
General Motors Canada, which has also asked for billions in government aid amid slumping sales, reached a new agreement with the Canadian Auto Workers union last weekend, providing labour cost concessions. Workers approved the deal in voting on Tuesday and Wednesday.
The contract freezes wages until 2012 and suspends cost-of-living adjustments for both wages and pensions. It also reduces paid time off by 40 hours a year, scraps an annual $1,700 bonus and cuts company contributions to union-sponsored programs by a third.
Under the agreement, CAW members will also contribute $30 a month to their health benefits.
However, the agreement does virtually nothing to address health and pension costs -- the so-called legacy costs that both Chrysler and GM say are growing at an unsustainable pace due to an increasing number of retired or laid-off workers, said Tony Faria, an auto expert at the University of Windsor.
"CAW workers do not contribute to their own pensions and I'm not sure that there's another industry in the country where workers don't make a contribution to their own pensions," Faria said.
"I thought we would see that appear in the concession deal (with GM)."
Because the CAW follows pattern bargaining with the Canadian branches of the Detroit Three -- Chrysler, GM and Ford -- it's unlikely Chrysler will be able to negotiate a better deal, he added.
However, D'Cruz said wages only account for seven per cent of the company's costs, and Chrysler has much bigger issues to deal with if it hopes to become financially viable again.
Both GM and Chrysler need to significantly cut their operations and brands and improve consumer perception, and even that may not be enough, he said.
"My sense for Chrysler is that the situation is much more desperate and even if they give up a number of brands they'll still not be in good shape," D'Cruz said. "So for Chrysler, I think bankruptcy is still looming heavy."
Chrysler has examined several alternatives to help it stay afloat, including an alliance with Fiat and a merger with GM.
Chrysler said in its initial restructuring plan filed with the U.S. and Canadian governments last month that a merger with GM would be the best alternative for the industry but GM has since taken that option "off the table."
The Fiat option, under which the Italian automaker would take a 35 per cent stake in Chrysler, providing access to its small-car platforms and fuel-efficient engines, is still under consideration. However, the alliance won't solve Chrysler's immediate problems because Fiat has said it won't invest any cash in the struggling company.
D'Cruz said that if neither option works out and Chrysler does declare bankruptcy, it's likely the company's minivans and the Jeep brand will be bought up by another company. This is good news for the company's minivan plant in Windsor, Ont., but means the future of Chrysler's car plant in Brampton, Ont., remains "a big question mark."
Chrysler is owned 80.1 per cent by Cerberus Capital Management LLP, which acquired its stake for $7.4 billion in 2007 as Germany's Daimler AG dissolved a "merger of equals" made in 1998 between Daimler-Benz and Chrysler Corp.
Daimler still owns about a fifth of Chrysler LLC, which is a privately held company.
In Canada, Chrysler employs about 10,000 hourly workers at assembly plants in Windsor and Brampton and a casting plant in Toronto.
Both GM and Chrysler need to submit their finalized restructuring plans, including labour agreements, to the Ontario and federal governments by the end of March to receive billions of dollars in emergency loans.
Ford Canada will also renegotiate its contract with the CAW, although the company has said it doesn't need financial assistance from the government. Instead, Ford has asked for incentives to bring consumers back to the showroom floor.
All three companies have been hit hard by declining sales and are struggling to remain viable in the weak economy.
(With files from Kristine Owram
