General Motors of Canada Ltd. will use billions of dollars in government loans to reduce its yawning pension deficit under a cost-cutting labour agreement that removes a major obstacle to the troubled auto maker obtaining $6-billion in federal and provincial aid.
The tentative agreement with the Canadian Auto Workers union paves the way for Ottawa and Ontario to join Washington in massive bailout of the staggering auto giant, which is expected to submit a new restructuring plan to U.S. President Barack Obama within days.
But the deal represents an apparent about-face for the Harper government, which has long insisted federal taxpayers would not subsidize GM pensioners. Ottawa is expected to argue that only the provincial portion of the bailout can be used for the pension plan, but critics are already saying that distinction is meaningless.
Mr. Obama and Prime Minister Stephen Harper have given GM until May 31 to submit a credible restructuring plan after rejecting the company's initial effort. However, the company is still expected to seek bankruptcy protection under Chapter 11 to deal with creditors in the United States, and may seek similar court protection in Canada.
The proposed labour deal announced yesterday maintains base wages for GM Canada workers.
It also spares the pensions of existing retirees, but current workers face significant cuts to pensions and benefits, including giving up a promised $3,500 lump sum that was meant to compensate a loss of holiday time.
GM Canada will use savings generated by the union agreement and as much as $2-billion from the government loans to make a $4-billion contribution to its pension shortfall, sources said yesterday. The company will then have six years to eliminate the remaining deficit, now said to be $7-billion.
"We have preserved our wages, we have preserved and secured our pension benefits and we have protected most of our core benefits," CAW President Ken Lewenza told a news conference yesterday. "Those are important victories."
He said this contract and the one the CAW and GM signed in February deliver about $22 an hour in cost savings - including productivity gains - leaving GM Canada with a labour cost of $57 an hour, roughly equivalent to Toyota Canada Inc.
In a release, GM said the tentative agreement is a "critical step forward toward ensuring GM's future in Canada."
Ottawa and Ontario governments welcomed the tentative agreement, saying it was an important step in GM Canada's efforts to achieve a competitive cost structure that will allow it to return to profitability in the longer term.
Industry Minister Tony Clement has long argued that GM Canada's pension shortfall was a matter for the provincial government to resolve because it regulates the plan. Under the proposed deal, Ontario would contribute a third of the total Canadian restructuring package, and GM would use that provincial money to help reduce the pension shortfall.
Mr. Clement would continue to claim federal taxpayers are not subsidizing the pension plan.
That distinction is "hair splitting," said Kevin Gaudet, federal director for the Canadian Taxpayers Federation, a conservative lobby group.
"No level of government, no taxpayer should be bailing out the pension plan, or anything of the company. It's ridiculous," he said. "And their hairsplitting won't matter a whit to those taxpayers who have no pension plan."
Mr. Gaudet was particularly critical of Mr. Harper, who started his political career as a Reform Party MP and served as the head of the right-wing National Citizens Coalition in Calgary before becoming Conservative Party leader.
"Mr. Harper may left his balls out West when it comes to taking a principle stand against bailing out this industry like he used believe in," he said.
During a stop in Alberta, the Prime Minister said he was "glad in principle" that the company and union had reached a tentative agreement.
