Auto crisis ripples through dealerships

One dealer pointed out, however, that if he is forced to shut down and let his 60 employees go, legacy costs will be between $700,000 and $800,000. "Who is going to pay that?" the dealer asked.

The Globe and Mail
May 16, 2009

Auto crisis ripples through dealerships
GM to shutter 310 Canadian outlets, while 1,100 in United States will close their doors
Greg Keenan and Karen Howlett

The auto industry crisis is spreading well beyond the Ontario and midwestern U.S. manufacturing centres to smaller communities throughout North America, as two of the biggest car makers slash their vast dealer networks.

General Motors of Canada Ltd. is poised to cut almost half its Canadian dealerships, while its parent GM yesterday notified 1,100 of its U.S. dealers that their services are no longer needed.

Traditionally, downturns in the auto sector directly hit assembly centres such as Oshawa and Windsor, Ont., and Detroit. While dealers have seen their sales shrink, they now face closings and thousands of job losses.

Marc Comeau, GM Canada's vice-president of sales and marketing, told Canadian dealers yesterday that their number will be reduced to 395 from 705 and those who are being cut will be informed during the new few weeks, according to dealers who listened to a closed-circuit broadcast.

GM's plans came one day after Chrysler Corp. said it would lose 789 of its dealers by early June.

Mr. Comeau reiterated GM Canada's position that it will seek protection under the Companies' Creditors Arrangement Act if agreements with stakeholders that meet government conditions for further financial assistance are not reached by June 1, dealers said.

One of the key requirements the federal and Ontario governments have imposed on the company is a new contract with the Canadian Auto Workers union that slashes hourly labour costs and addresses a massive pension shortfall of about $7-billion.

Negotiations on that contract continued last night ahead of a midnight deadline set by the government, but the two sides were not even close to a deal late yesterday afternoon.

"We're pushing them to get off their overzealous approach," CAW president Ken Lewenza said.

That overzealousness included more health care cuts than the union gave Chrysler Canada Inc. and cuts in pension benefits for future retirees, Mr. Lewenza said.

Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty urged the company and the union to come to an agreement.

"The participation of the taxpayers of Canada is dependent upon all of the stakeholders making the difficult decisions necessary to ensure the viability of the company," Mr. Harper told reporters in Toronto.

The thorny issue of reducing GM Canada's pension shortfall is being examined by a committee composed of representatives of the union, the company and the Ontario and federal governments.

The committee had not arrived at a solution as of late yesterday, Mr. Lewenza said.

The Ontario government is still considering providing financial help to resolve the pension issue.

Finance Minister Dwight Duncan said a portion of the money the province lends to GM Canada could be used to address the shortfall in the funds. The province will not, however, assume the entire burden, he said.

"The order of magnitude of the GM pension shortfall is something that the Government of Ontario cannot pick up on its own," he said.

It would cost $3.5-billion just to address the shortfall covered by the province's Pension Benefits Guarantee Fund, Mr. Duncan said. The fund covers only a portion of the monthly payments up to the first $1,000.

Mr. Comeau said GM Canada plans to pay all the money it owes dealerships, said sources who listened to the broadcast.

One dealer pointed out, however, that if he is forced to shut down and let his 60 employees go, legacy costs will be between $700,000 and $800,000.

"Who is going to pay that?" the dealer asked.

GM Canada spokesman Stew Low said the auto maker has spoken with all its Canadian dealers in recent weeks.

"Our objective in the next few weeks is to achieve solutions that will best serve our current and future customers while also recognizing some of the unique aspects of our Canadian dealer network," Mr. Low said.

U.S. dealers who sell less than 35 cars a year were among those notified in the first round of cuts.

With files from reporter Jeff Gray

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