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General Motors of Canada Ltd. is slashing 1,200 jobs this January at a truck plant in Oshawa, Ont. Analysts say it's proof that problems with the U.S. economy are travelling north across the border.

"We're not immune. Canada has its place in the global economy," Finance Minister Jim Flaherty said Thursday.

Liberal finance critic John McCallum said the job cuts do not bode well for working Canadians across the country.

"All the economists are telling me the risk of economic weakness is rising," he told Â鶹ӰÊÓ. "The possibility of a recession is rising, and that's why it's ever more important that this government takes action and shows economic competence."

GM Canada will axe one shift of production of the Chevrolet Silverado and GMC Sierra pickup trucks. Spokesperson Stew Low said the layoffs were part of the company's plan to keep its inventory in line with production.

"The Oshawa plant is the only one that's currently running on three shifts, and given that we want to tightly control inventories to market demand and we want to ensure that all plants are running at or near 100 per cent capacity, that's the rationale behind removing the third shift at Oshawa," Low told The Canadian Press.

"It's part of an overall plan. It's something that, frankly, we don't take lightly -- we don't really want to do -- but it's the right way to run the business.''

Low said the layoffs are permanent and will be effective as of Jan. 1, 2008.

Sales of the GMC Sierra dropped nearly 28 per cent in July, while Chevrolet Silverado sales dropped 26 per cent.

The reduction, from three shifts down to only two, is the first cut to output since the early 1990s.

The declining sales are being blamed in part on the U.S. housing slump.

"The U.S. auto sector has been slowing down all year and part of that is the credit crunch in the United States and the housing crisis," automotive analyst Dennis DesRosier told CTV's Canada AM Thursday.

About 85 per cent of the trucks assembled at the Oshawa plant, which employs more than 3,000 workers, are sent to the U.S. market.

GM, Ford Motor Co. and Chrysler LLC, all rely on supplying construction trade workers with vehicles as a major source of profit.

Ripple effect

The GM cuts are also expected to have a ripple effect on businesses that supply the plant.

"When the vehicle assembly plants go down, the real jobs are in the parts facilities, said DesRosier.

He said the 1,200 jobs to be cut at GM could eventually result in as many as 4,000 jobs lost.

"The parts jobs aren't necessarily in Canada but nonetheless it's just a harbinger of very difficult times for automotive," said DesRosier.

Oshawa Mayor John Gray remained optimistic about the economic health of the region, saying the area has been through hard times before.

"We've been down this road before. The community is always resilient and we'll bounce back," Gray told Â鶹ӰÊÓnet on Thursday.

Gray said Oshawa has been quietly working to diversify its economic base through regionalized health care and the opening of a new university in the area.

"One can never downplay the effects the automotive industry has and of course the high-paying jobs, you can't just go out and replace them right away. But, there is some good news on the horizon for Oshawa," Gray said.

CAW

Canadian Auto Workers president Buzz Hargrove said he was "shocked" by the news, which he heard Wednesday in a meeting with GM officials.

"This is horrible news for our members, our families, Oshawa and Durham region," Hargrove told Â鶹ӰÊÓnet on Thursday.

Hargrove said Prime Minister Stephen Harper has refused to meet with him to help work on the issue.

"Our problem is the level of imports that are coming in from Asia... from countries that refuse to allow us to build here and sell there," said Hargrove. "They have 25 per cent of our market."

CAW is planning to meet with GM officials and is vowing to keep up the pressure on both levels of government to find a solution.

"I think that GM, Ford and Chrysler are going to continue to downsize, they're all going to be smaller if our government doesn't wake up,'' Hargrove told CP.

"It's frustrating as hell as we just watch it go down and down and we have no strategy to respond to it.''

GM is already restructuring two car plants next to the Oshawa truck plant.

One of those plants is expected to close as the company builds a single, state-of-the-art facility that will be capable of building as many as 500,000 vehicles.

Last year, GM confirmed that the Camaro will be built at the new plant but the Canadian Auto Workers union is pushing for more vehicles to be added.

In February, Chrysler announced they were chopping 13,000 jobs across North America, including 2,000 in Southern Ontario, as part of a strategy to cut the struggling automaker's costs.

With a report from CTV's John Vennavally-Rao and files from The Canadian Press