TORONTO - Union leaders entered into extraordinary labour talks with General Motors of Canada on Thursday as a prospect "too devastating" to contemplate loomed -- that the renowned auto giant would have to seek bankruptcy protection if it can't execute a major restructuring.

General Motors Corp. (NYSE:GM) filed an annual report with the U.S. Securities and Exchange Commission revealing that auditors have raised "substantial doubt" about its ability to continue operations.

But Canadian Auto Workers president Ken Lewenza said it is "too devastating" to think about the prospect of GM filing for bankruptcy protection and the union will go ahead with negotiations as planned with the goal of ratifying a new contract by March 15.

"We believe the quicker we get this behind us, the quicker General Motors gets its loans, the quicker the terms and conditions of the loan are done, we can turn the page and get the company back on track without the negativity that's associated with this restructuring," Lewenza told a press conference.

Lewenza said the economy may be in a recession, but the Canadian auto industry is in a depression that has only been exacerbated in recent days by the announcement that Chrysler will eliminate the third shift at its minivan plant in Windsor, Ont. -- the last auto assembly plant in Canada to employ a third shift -- costing 1,200 jobs.

U.S. Steel, which counts the auto industry among its most important customers, also announced this week that it will shut down its Hamilton operations and most of its Lake Erie Steel operations, costing 1,500 jobs.

These cuts are an indication that "the bleeding is not going to stop," Lewenza said.

He added that it's impossible to guarantee jobs in the current economic climate, but one of the conditions of the union's negotiations with GM will be that the automaker must maintain its proportional manufacturing footprint in Canada -- estimated to be about 20 per cent of its U.S. manufacturing capacity.

"This isn't about power, this isn't about flexing muscles. This is about both sides sitting down (Thursday) afternoon and coming up with an agreement that maintains the Canadian investment advantage that will allow us to continue to have jobs here in Canada," Lewenza said.

GM employs just over 10,000 CAW members at an assembly complex and two parts plants in Southern Ontario. The average GM blue-collar employee makes $34 an hour.

Federal Finance Minister Jim Flaherty said the government also is seeking guarantees.

"If taxpayer money is going to be invested, lots of taxpayer money is going to be invested, in one or more of these enterprises, then there should be some assurance that this is not going to be a waste of taxpayer money, that it will result in a sustainable industry in Canada," Flaherty said in Washington, where he was meeting with U.S. officials to discuss the auto bailout.

Ontario Economic Development Minister Michael Bryant added that the Ontario and federal governments are willing to provide emergency loans to GM and Chrysler to protect the Canadian industry.

"Because of the impact of a bankruptcy filing on the suppliers and on consumers' behaviour, the effort here is to try and achieve the restructuring outside of bankruptcy. That continues to be our goal," Bryant said.

The Canadian and Ontario governments have attached conditions to the money, including that the companies get their labour costs down.

The CAW has committed itself to staying cost competitive with United Auto Workers plants in the United States, although Lewenza said he doesn't expect to make any concessions on wages or benefits.

GM Canada has said previously that it's in discussions with the federal and Ontario governments and the CAW about setting up a health-care plan similar to a union-owned and directed system for GM workers in the United States.

The company has also said reducing pension costs will be an important part of the automaker's discussions with the CAW, as will wage reductions.

But Lewenza said the CAW's objective is to maintain existing pension rates and health-care benefits for its retirees, and the union has already provided $900 million in concessions to GM, Ford and Chrysler by agreeing to a three-year wage freeze last spring that expires in 2011.

There is widespread disagreement about the true hourly cost of a CAW employee to the Detroit Three automakers. Some analysts argue that their all-in cost, including benefits, wages and pensions, is substantially higher than their counterparts in the U.S., while the CAW says it's lower, particularly when the productivity of Canadian plants and the exchange rate are factored in.

Bill Pochiluk of industry adviser AutomotiveCompass said it's likely the CAW will have little wiggle room in its negotiations with the struggling carmaker.

"Certainly there is a suspicion amongst all cynics and all stakeholders that GM is painting the worst possible scenario to cut the best possible deal with its stakeholders," Pochiluk said.

"I'm not saying they're making anything up, I'm saying that they are painting a draconian picture which for the most part is true to get everybody to the party quickly."

Lewenza said he will treat any agreement with GM as the "pattern" that will be applied to negotiations with Chrysler and Ford, which he hopes to have completed by the end of March.

"If we can't get an agreement with General Motors, we'll move across to one of the other companies," he added.

GM and Chrysler have asked the U.S., Canadian and Ontario governments for billions of dollars in aid to stay afloat amid slumping sales.

On Feb. 17, GM submitted a restructuring plan to the U.S. Treasury Department that included laying off 47,000 workers worldwide by the end of the year.

The 47,000 jobs to be cut around the world include about 4,000 that will be cut in Canada over the next year -- 2,600 at a truck plant in Oshawa, Ont., that will shut down this spring, and about 1,400 jobs with the closure of a transmission plant in Windsor next year.

In another piece of bad news for Canada's manufacturing sector, Komatsu America Corp., a Japanese heavy equipment maker, said Thursday it plans to close a plant in Candiac, Que., cutting 245 jobs.