TORONTO - The possibility of General Motors acquiring Chrysler raises the spectre of "further significant downsizing" in Canada and a car assembly plant in Brampton, Ont., could be the first to go if there's a merger, says Canadian Auto Workers president Ken Lewenza.
A deal for General Motors Corp. (NYSE:GM) to buy Chrysler LLC from New York private equity firm Cerberus Capital Management LP could come soon as both companies struggle to deal with declining auto sales.
The two companies' products overlap significantly in some areas -- including sport utility vehicles, pickup trucks and crossover vehicles -- and this will likely lead to substantial consolidation should there be a deal, said TD Bank economist Derek Burleton.
"Given the current challenges and the pressures on the companies, there certainly would be a real thrust to secure cost savings, so that will obviously be a risk to further significant downsizing and to the Ontario economy," said Burleton.
Lewenza said some Canadian plants -- including Chrysler's minivan plant in Windsor, Ont. -- would likely survive a merger because they provide a unique service. But others -- such as the Brampton plant -- probably wouldn't be so lucky.
"The Brampton assembly plant has multiple products comparable to what GM has in their product portfolio today," Lewenza said in an interview. "This would be a real challenge for us."
Lewenza added that the potential of an acquisition or merger between the two companies is just one more uncertainty facing the Canadian auto industry, which has been beset by a slowing economy, high gas prices and, until recently, parity between the Canadian and U.S. dollars.
"We feel incredibly insecure under the existing economic climate that's facing the auto industry. So to add to that insecurity, the potential of General Motors taking over Chrysler and the clear duplication of products is of real concern to us," he said.
Burleton said concessions on wages and benefits by the U.S.-based United Auto Workers is going to make it difficult to convince North American automakers to continue producing vehicles in Canada.
Anthony Faria, an auto industry specialist at the University of Windsor, estimates that Canadian employees of the so-called Detroit Three -- Chrysler, Ford (NYSE:F) and GM -- are costing their employers about $25 more an hour than their U.S. counterparts.
But Lewenza said the CAW will not bend on wages or benefits.
"There's no information whatsoever that the wages of auto workers are going to impact or reflect the improvements of market conditions," he said.
The UAW has agreed to a two-tier wage system as well as a diversion of health-care benefits to a trust fund managed by the union, but Lewenza said these concessions have so far had no impact on the CAW's competitive stance.
"They're shrinking faster than potential hiring, so they're not going to get to that particular issue (of two-tier wages)," said Lewenza.
"As for the health-care benefits diversion, the money being diverted starts in 2011, so there's no immediate reason to think that's going to create us a concern."
A marriage of the two auto giants would create a firm with about 36 per cent of the auto market and plants across North America. In Canada, the two companies employ about 30,000 people -- 20,000 at GM and 10,000 at Chrysler -- and have assembly and parts plants across southern Ontario.
GM operates car and truck plants at Oshawa, components factories in St. Catharines and a transmission plant in Windsor. Chrysler Canada has a car assembly plant northwest of Toronto, minivan operations in Windsor and parts operations elsewhere.
Both companies have been restructuring their North American operations and cutting jobs to deal with a decline in their markets. In Canada, GM plans to close a truck plant in Oshawa next September and a Windsor transmission plant in 2010. Chrysler is cutting jobs at its plants as well but is keeping them open.
In an unrelated development Monday, Chrysler confirmed it will lay off workers on one shift at its Windsor, Ont., minivan assembly plant on a rotating basis over the next three weeks.
