With just a few words, U.S. President George Bush has done what the Detroit Three were unable to achieve with decades of negotiating: eliminate the iron grip the mighty United Auto Workers union has held for decades on setting labour rates in the auto industry.
Chrysler LLC, Ford Motor Co. and General Motors Corp. have been effectively ordered to make their labour rates competitive with Japanese auto makers in the United States.
In the process, Mr. Bush has cast the future of those companies' operations in Canada into the hands of the Canadian Auto Workers union, which divorced from the UAW in 1986, but now will have to find ways to match what the UAW does or risk watching about 30,000 jobs in this country vanish.
Prime Minister Stephen Harper echoed Mr. Bush's thoughts in announcing a $4-billion rescue package for Chrysler Canada Inc. and General Motors of Canada Ltd. on Saturday when he said all stakeholders will have to make sacrifices.
The CAW "would have to sign on to the same deal" as the UAW, said Sean McAlinden, an expert on automotive labour issues and chief economist of the Center for Automotive Research, an industry think tank in Ann Arbor, Mich.
The problem for the unions, Mr. McAlinden noted yesterday, will come during the GM restructuring talks, when the largest Detroit company asks holders of its debt to trade that debt for equity.
"The bondholders are going to say: 'Why should we swap debt for equity, unless we see a really rich, big union concession in Canada and the United States?' " he said.
But the key question is which labour rate will set the benchmark: Will it be the approximately $49 (U.S.) hourly costs at the Georgetown, Ky., operations of Toyota Motor Corp., or will it be the new Honda Motor Co. Ltd. plant in Indiana, where wages are about $21?
The $49 Toyota figure creates a competitive gap of about $18 an hour at unionized Canadian plants, using the CAW figure of $67 (Canadian) an hour for labour costs in this country based on the two currencies trading at par and excluding payments to retired workers.
CAW economist Jim Stanford argues that labour costs here equate to $53.60 when the dollar is trading at 80 cents (U.S.). Given the volatility of currency markets, however, and wild fluctuations in the commodity prices that propel the Canadian dollar, that advantage can be wiped out virtually overnight.
The Detroit Three will find it impossible to invest in their Canadian operations if the UAW agrees to cut labour costs and the CAW does not, said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. in Richmond Hill, Ont.
Talks with GM Canada will likely begin in early January, Chris Buckley, president of CAW local 222 in Oshawa, Ont., said yesterday.
He said he's confident the CAW can reduce costs without touching base wage rates of $35 (Canadian) an hour.
Sticking deeply in the craw of Canadian managers are the so-called SPA days, or special paid absense: two weeks off the job that have been criticized in the vocal public debate about whether to offer financial assistance to Detroit.
Even if the CAW agrees to cut costs to match new UAW labour rates, some assembly plants operated by the companies in Canada are in danger as the three auto makers slash production over the next few years to make themselves more competitive.
Detroit Three production will drop by about two million vehicles between 2008 and 2010, Michael Robinet, vice-president of global vehicle forecasts for consulting firm CSM Worldwide Inc., said in a presentation in Detroit earlier this month.
That's the equivalent of about eight assembly plants. Some of those have already been announced, such as the GM truck plant in Oshawa as well as Chrysler and Ford factories in the U.S. Midwest.
The obvious decisions about plant shutdowns have already been made.
"The facilities that are going to have to close from here on out, it's going to hurt," Mr. Robinet said yesterday.
Ottawa and Ontario offered the loans in part to ensure Canada maintains its 20-per-cent share of North American production, but as that production shrinks, the Canadian plants become vulnerable.
One of the wild cards is whether Chrysler can survive even with the $4-billion (U.S.) in loans Washington earmarked for it on Friday and the $1-billion (Canadian) Ottawa outlined the next day.
There is a widespread belief in the industry that Chrysler will be forced into bankruptcy and its assets sold off. Its minivan plant in Windsor, Ont., is viewed as a valuable asset, but there is uncertainty about whether a buyer would be interested in its Brampton, Ont., large-car facility.
FORD (F)
Close: $2.59 (U.S.), down 36¢
GENERAL MOTORS (GM)
Close: $3.52, down 97¢
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