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The murals on the walls of the bus station in Oshawa illustrate the importance of GM to the city.Peter Power/The Globe and Mail

For decades, the Oshawa, Ont., operations of General Motors Co. were one of the brightest jewels in the auto maker's crown, churning out some of the company's most important cars and trucks.

But amid the fiercest competition ever in the global automotive industry, fears are growing that the glory days of General Motors of Canada Ltd. are long passed as the company faces major financial challenges and uncertainty about future production.

GM Canada faces billions of dollars worth of liabilities later this decade, most of which will come due as vehicle production declines in Oshawa.

Pension costs are scheduled to soar, interest-free loans from governments will hit their repayment date and payments on a note issued to finance health care costs start kicking in as production commitments the company made to the federal and Ontario governments in 2009 expire.

The financial challenges loom as GM Canada scales back production in Oshawa starting next year with the planned closing of one of its two assembly plants. The shift of Chevrolet Camaro production out of the remaining Oshawa plant in 2015 and what many industry players see as reluctance by GM Co. to allocate new vehicles to that plant have stoked fears about the future of its operations in Canada's Motor City, which for decades have been one of the engines of the Canadian economy.

The two plants employ about 3,600 people and sustain thousands more jobs at auto parts producers nearby and throughout Ontario's manufacturing heartland.

While the payments GM Canada will face and the clouds over Oshawa are company issues, they also reflect lingering problems from the crisis of 2008-09.

Although GM Co. and the auto industry have recovered, the new reality is that auto makers are engaged in a relentless drive to cut costs in all markets around the world. That has contributed to an increasing sense of vulnerability for the industry in Canada, where the rise in the value of the Canadian dollar has sent manufacturing costs higher.

Canada's share of new automotive investment in North America fell to 5 per cent between 2010 and 2012 after years of double-digit levels.

The restructuring of GM Co. through Chapter 11 bankruptcy eliminated tens of thousands of workers and tens of billions of dollars of costs and has combined with a recovery in the U.S. vehicle market to restore the company to profitability.

But the payments coming due for GM Canada in the latter half of the decade are so onerous that Brian Rutherford, president of a salaried retirees group, Genmo Salaried Pension Organization, believes the company could be forced to file for bankruptcy protection to reduce its legacy costs.

Mr. Rutherford's deepest fear is that the end of the line for Oshawa and the rest of GM Canada's operations will come later this decade after the expiry of a commitment GM Co. made to produce 16 per cent of its North American vehicles in Canada through 2016.

He's a 31-year veteran of the company whose group is suing the auto maker for $500-million after benefits for salaried retirees were cut during the recession that helped send GM Co. into Chapter 11 bankruptcy protection in 2009.

Any suggestion that GM Canada will file for bankruptcy protection is "irresponsible speculation," GM Canada president Kevin Williams said in an e-mail response to questions.

"We are focused on building a profitable business which has long-term viability, which is in the best interest of all of GM's stakeholders, including shareholders, employees, retirees, dealers and suppliers."

Mr. Rutherford's view is not shared by others with a big stake in GM's future, such as Canadian Auto Workers president Ken Lewenza, whose union represents thousands of production and skilled trades workers at the Oshawa plants, an engine and transmission manufacturing factory in St. Catharines, Ont., and the Cami Automotive Inc. vehicle plant in Ingersoll, Ont.

"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

While one assembly plant in Oshawa, known as the consolidated plant, is scheduled to close next year, the neighbouring flexible plant appears secure until at least 2017, in part because of the production commitment made in 2009 in return for the bailout.

But whether the flexible plant will continue on the current three shifts that employ about 2,900 workers will depend on sales and whether production of Chevrolet Impala, Buick Regal and Cadillac XTS sedans will compensate for the loss of the Camaro sports car in 2015.

Several industry sources noted that the auto maker has not earmarked any vehicles for Oshawa beyond 2017 to replace Impala, Regal and XTS.

"What potentially could come into Oshawa that doesn't have a home right now or a new product coming along?" said one industry source. "When you really look at it, there's nothing you could come up with in the GM lineup that makes sense."

Another source said the Regal is not being replaced for North American markets. Regal output is scheduled to end in 2016.

The Cadillac XTS will be replaced by a vehicle called the ZTS that is scheduled to be built in Hamtramck, Mich., another industry source said.

Others believe Impala production will also be shifted to Hamtramck, where there's only one shift of production now.

The Impala is already being assembled at that plant, so increasing production at the Michigan plant would be relatively painless.

A forecast issued by Ward's Auto/Automotive Compass, shows Impala production remaining in Oshawa through 2019 and a new version of the Regal being assembled at the flexible plant beginning in 2016.

Mr. Williams said the company has no new announcements to make about products for Oshawa beyond the recent additions of the XTS and a new generation of the Impala to the flexible plant.

"Any future investments will be evaluated based on a comprehensive business case, as is the same process for evaluating all potential investments in automotive manufacturing," he said.

One factor that makes Oshawa vulnerable is that global platforms – the basic vehicle underbody – and common manufacturing systems now make it easier for GM to easily shift production among plants, said Joe Langley, principal analyst in the automotive division of consulting firm IHS Global Insight.

"The market is too globally competitive and we're even seeing potential U.S. sourcing and investment coming under pressure from Mexico, leaving Canada far from anyone's mind," Mr. Langley said.

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