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Chrysler employees assemble cars at the assembly plant in Brampton, Ont. The Canadian units of the Detroit Three and the Candian Auto Workers begin new contract negotiations Tuesday.Kevin Van Paassen/The Globe and Mail

The table is set for difficult, intense labour talks when the Canadian Auto Workers union sits down across from the three big North American auto makers this week for the opening rounds of new contract negotiations.

The current deals between the CAW and the three car companies expire in September. To come up with new ones acceptable to both sides will likely require an intense debate over productivity in Canadian plants, labour costs, job security and wages.

The companies have made it clear they can't stomach any boost to their fixed costs, including hourly wages. They claim Canada's high labour rates are making it tough for plants here to compete with those in the United States and elsewhere, especially with a high Canadian dollar. If Canada is to attract more automotive investments, these costs must come in to line, they say.

Senior automotive executives have been hammering home that message. Chrysler Group chief executive officer Sergio Marchionne insisted late last year that wage rates in the Canadian auto sector are uncompetitive, and General Motors Co. chairman Dan Akerson recently described Canada as "the most expensive place to build a car in the world right now."

For its part, the union is underlining the fact that it made major concessions three years ago to help the companies when they were struggling during the financial crisis, and they want that to be recognized.

"The companies have been incredible aggressive" in their early statements about what they expect, said CAW president Ken Lewenza. That is very frustrating for the union, which made "significant sacrifices" in 2008 and 2009, he said. The CAW agreed to reopen contracts and gave up vacation time, cost-of-living payments, and other benefits, so Chrysler and GM would qualify for government bailouts.

Mr. Lewenza noted that all three companies have been performing well lately, and he said it would be unfortunate if they forced the union to strike. "My message to the big three is, there is a little momentum [and they are] turning around and making profits. Don't get overzealous because a work stoppage will stop that momentum."

The bottom line is that "there is a sense of confidence being built back into the corporations," he said, and with uncertainty in the economy "it would be a disaster if we were forced into a strike or the corporations locked us out."

Still, the union is not expecting to turn back the clock and regain all it gave up in concessions. "It is important for us to make tiny progress," Mr. Lewenza said.

But the union is also adamant that it will not accept a two-tier pay scheme, like that agreed to by U.S. unions, where new workers get paid much less. That would not make any sense in Canada in any event, Mr. Lewenza said, because there are so many auto workers on layoff waiting for a recall.

The talks will formally begin in Toronto on Tuesday, when the CAW negotiators meet the full negotiating teams at General Motors of Canada Ltd. and Chrysler Canada Inc. for the first time, and all sides make opening statements setting up initial positions. The first meeting between the CAW and Ford Motor Co. of Canada Ltd.'s team will take place on Wednesday morning. Further talks are scheduled for the last week of August. Some time in September, the union will decide which company will be the target of a strike, if it comes to that.

Anil Verma, a professor of industrial relations at the University of Toronto's Rotman School of Management, said the union has a lot of leverage in the talks because the industry is in a recovery mode. But the high Canadian dollar – which is hurting Canadian manufacturers – and high labour costs, will boost the companies' bargaining positions.

He said he expects a key issue at the talks will be job security, with the union perhaps willing to trade off higher wages to get some employment guarantees. Some form of profit-sharing might also end up on the table, in lieu of wage increases, he said.

Prof. Verma noted that automotive contract talks tend to cast a shadow far beyond the auto business, because they often "set a benchmark of sorts that a lot of other industries look at."