“I don’t think GM is going to exit Canada,” Mr. Lewenza said in an interview. “I can only tell you what the company has told me: They’ve made a significant investment in Oshawa in excess of $1-billion four or five years ago and have not got the return on that investment. They see that plant as being around for a while just to get the return on the investment.”
Steve Rodgers, president of the Automotive Parts Manufacturers Association of Canada, said his organization is worried “to some extent” about the future of Oshawa.
“I still don’t think it’s a major concern in the short term, but over the longer term it represents some worries and concerns,” Mr. Rodgers said.
GM Canada went to great lengths in 2009 to avoid seeking protection under the Companies Creditors Arrangement Act amid a pension deficit that was as deep as the $4.7-billion shortfall its salaried and unionized funds posted in its most recent fiscal period, according to a valuation made on Sept. 1, 2012.
Another possible scenario is that the company will ask the federal and Ontario governments for help again – perhaps in return for a commitment of new vehicles and job promises in Oshawa.
In the early 1990s, changes in regulations helped GM Canada avoid a pension crisis and the governments intervened with financial help for the funds in 2009.
The looming pension bill
The auto maker’s financial costs will rise beginning in late 2014 when it makes the first of five annual payments on an $800-million note that finances a trust fund set up to pay for health care costs for unionized retirees. Those payments amount to $1.28-billion over the five-year period.
In addition, $220-million in interest-free loans that the federal and Quebec governments gave the company for a now-closed plant in Ste-Thérèse, Que., come due on April 1, 2017.
But by far the biggest bill on the horizon is for pensions.
The funds are paid for at the moment through a combination of $200-million in annual company contributions and drawing down amounts from what is known as a prior year’s credit balance. The credit balance was created by a $4-billion deposit to the pension funds in 2009 from the federal and Ontario government’s $10.8-billion contribution to the bailout of General Motors Co.
The credit balance is effectively a bank account from which GM Canada was allowed to draw for five years to finance its annual pension payments, thus avoiding hefty annual cash contributions.
But that $4-billion is dwindling and will fall to zero or a small amount – depending on the return on assets in the fund – by September, 2014, when the five year-agreement expires.
At that point, the auto maker will have to start shovelling its own cash into the funds annually.
The 2014 payment will exceed $800-million, a valuation filed with the Financial Services Commission of Ontario shows. Amounts in subsequent years through 2018 are expected to be nearly as high, depending on changes in the solvency deficiency and the effect of interest rates. If interest rates increase, that deficiency will fall and reduce the company’s cash costs.
“There are costs associated with operating any business which might include debt repayment, pension or other benefits funding which must be accounted for in regular business planning,” said Mr. Williams of GM Canada. “GM is no different from other businesses in this regard.”
GM will meet its obligations, he said, and will work with its partners to reduce costs and improve competitiveness. GM Canada does not disclose its financial results.
Court actions by the group led by Mr. Rutherford and two other lawsuits represent another wild card totalling $1.5-billion that could turn up to further weaken GM Canada’s hand. In addition to the salaried retirees’ $500-million claim, car dealers terminated in 2009 have launched a class-action suit for $750-million and Buick-GMC dealers are suing for $250-million.
The company is stoutly defending all three lawsuits.
GM’s flexible-plant production