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The Big Three auto makers "have been throwing the UAW contract at us for 10 years,' in an attempt to get Canadian workers to switch from annual wage increases to profit-based pay, said Ken Lewenza, president of the CAW, seen here in January, 2011.Kevin Van Paassen/The Globe and Mail

Years ago the Big Three Detroit auto makers were able to grant generous wage and benefit increases to their hourly employees knowing that the costs easily could be passed on to North American car buyers. Competition from abroad was very limited. And employees at their Canadian branch plants could expect wage and benefit packages to match their U.S. counterparts.

Now it is a different world. Long gone are also the days of the Canadian dollar being worth 20 to 30 per cent less than the U.S. dollar, so the presence of Big Three plants in Canada is no longer guaranteed. Auto workers south of the border have made big sacrifices as part of the government-backed bailout of their industry. So where are we today?

Tonight at 11:59 p.m. ET, if the Canadian Auto Workers union does not manage a contract settlement with any or all of the Detroit Three, the CAW has indicated there will be a strike by some or all of its approximately 20,000 members -- 4,500 at Ford, 8,000 at GM and 8,000 at Chrysler. Essentially, the issue is that the American auto union, the United Auto Workers, settled earlier for a contract with the companies making labour costs lower in the U.S. than in Canada. The Detroit Three want concessions from the CAW to bring Canadian costs in line with their American counterparts. The CAW is reluctant to give up past gains, and now argues that since the firms have returned to profitability, the workers should not have to make concessions beyond those they made when Chrysler and General Motors went into Chapter 11 bankruptcy during the industry's 2008-2009 financial crisis, and should even get some of those cost concessions rescinded.

In the U.S., the UAW is participating in profit-sharing with the firms. In contrast, the CAW wants higher wages and benefits, but not profit-sharing. The companies prefer profit-sharing since the amount paid in bonuses depends upon how well they do financially rather than them being stuck with a fixed hourly payout. In addition, in the U.S., the UAW has agreed that newly hired workers can be paid substantially less permanently compared to workers already on the payroll. In the expiring agreement in Canada, the companies could hire new workers at about $24 per hour, roughly 70 per cent of that paid to existing workers. The new hires could be paid less for a period of six years. As a concession, the union has now proposed to increase the period to 10 years, but rejects permanently lower wages for workers joining the companies. The companies want to be in a position after a number of years, when existing workers retire, to have only lower paid workers, thereby enormously increasing their competitiveness with production outside of Canada and the U.S. There are also questions about workers contributing to pensions and moving from defined benefit pensions to defined contributions pensions as well as the current right of CAW workers to retire after 30 years regardless of age with a full pension.

To achieve labour peace, in addition, the CAW has indicated that it wants commitments from the firms to make hefty investments in Canadian plants so as to maintain assembly production in Canada. Currently, there are about 2,000 Ford workers on lay-off and when the GM Oshawa consolidated auto assembly closes next year after getting a reprieve from its 2008 announced closing, there will be over 2,000 GM workers unemployed. The closure follows the shutdown of a GM truck plant in Oshawa and a transmission factory in Windsor.

The companies clearly do not want a strike and that favours reaching a contract settlement with the CAW. Canadian plants assemble Chrysler's minivans and large cars. Ford produces its Edge and Flex SUVs in Oakville. GM produces a range of Chevrolet and Buick vehicles as well as the Cadillac XTS. Some of these vehicles are key components of the respective companies' vehicle line up. Being unable to supply these cars to the market because of a strike would substantially hurt their profits. Moreover, given the integrated nature of North American production by the Detroit Three, it is likely that supply chain interruptions could stop assembly of other vehicles in the U.S. and even Mexico.

It seems to me that, ultimately, either the CAW will make the concessions to allow Canadian plants to become cost competitive with their U.S. counterparts or if they fail to do so, there will be a further attrition of vehicle assembly in Canada. Either way, some current CAW workers will get less. I suggest that making concessions today is the better alternative compared to further plant closings in Canada (already the Detroit Three have eliminated about a third of assembly jobs in Canada during the last decade) or loss of new investment that instead finds its way to the southern U.S. or Mexico, accelerating an existing trend of growing production in these areas.

Bernard M. Wolf is Professor of Economics and international Business, Schulich School of Business, York University