Chrysler LLC has warned the Canadian government and the Canadian Auto Workers (CAW) union that it will close its assembly operations north of the border unless it gets $2.3 billion in loans from Ottawa, a 25% reduction in labor costs and a waiver on more than $1 billion in taxes owed.
Chrysler president Thomas LaSorda, himself Canadian born, told a top Parliamentary committee Wednesday night that unless the Canada capitulates, he will move operations to the U.S. and Mexico, a position that has not only infuriated the CAW, but also triggered a public backlash against the teetering automaker. "I'm truly shocked," says analyst Dennis DesRosiers of Richmond Hill, Ont.-based DesRosiers Automotive Consultants. "LaSorda said things I thought I would never hear from an auto executive." The privately owned automaker has not shown the same flash of bravado and temper in dealing with Congress and the United Autoworkers (UAW) at home. (See pictures of Detroit's decline.)
Chrysler's demand that the CAW slash labor costs by 25% caught the industry by surprise because it breaks with the time-honored tradition of pattern bargaining — in which an agreement by one of the automakers with the union sets the pattern for the others. Earlier this week the CAW gave up a special annual bonus and agreed to a reduction in paid time off in reaching a deal with General Motors. But that deal was criticized by some in the industry as insufficient. Indeed, Ford Motor Co. said Friday it will also reject the GM-CAW deal for not cutting costs enough. (See portraits of GM autoworkers.)
Chrysler may be trying to push the CAW's wage costs below that of the UAW's. Chrysler's hourly compensation for its Canadian work force, including non-wage benefits such as paid time off, is about $58 (C$75) compared with $55 in the U.S . The Detroit Three have extensive operations in Canada because under the Auto Pact signed in the 1960s, they agreed to make 60% of the cars sold to Canadians in their country. In exchange, tariffs were removed from vehicle imports..
The CAW plans to play hardball. "I'm incredibly frustrated," says CAW president Ken Lewenza, adding that his union will not play by a new set of improvised rules. He also challenged LaSorda's assertion that Chrysler's operations in southern Ontario are uncompetitive. "They've always been very profitable, even in the toughest times," says Lewenza. Chrysler recently closed a minivan plant in St. Louis, and last week killed a third shift at its minivan plant in Windsor, Ont., throwing 1,200 people out of work. This suggests that even while minivan sales are sagging with the economy, the company is earning more money making this family vehicle in Canada than in the U.S. (See the most important cars of all time.)
In addition to demanding $2.3 billion in loans from Ottawa, Chrysler also wants the Canada Revenue Agency, that nation's tax collector, to stop hounding the automaker for more than $1 billion in taxes mistakenly paid to the U.S. years ago. The Canadian government only recently uncovered the error, and has since placed a lien against Chrysler's Brampton, Ont. plant and withheld $235.5 million in tax rebates
Despite LaSorda's tough talk, questions are being raised about whether the Windsor native, whose father was a CAW representative at one of the plants he's threatening to close, might be playing the biggest bluff of his career. It seems hard to imagine Chrysler turning its back on the billions it has invested in Canada, and more than 9,000 employees. That LaSorda is even discussing it, though, is a measure of how desperate the times are for automakers. "I'm hoping it's a bluff," says the CAW's Lewenza, "but I've seen this company mothball plants and walk away before."