The tentative deal between the Canadian Auto Workers union and General Motors that freezes wages and pensions will reduce labour costs but won't guarantee that the struggling automaker stays in business, according to an industry analyst.
On Sunday, the CAW and GM negotiated a tentative deal that would freeze base wages and pension levels, extend the union's existing contract to 2012 instead of 2011 and require autoworkers to pay a health premium, among other concessions.
The deal is expected to be ratified in a vote later this week and is contingent on GM securing the more than $30 billion in loans it is seeking from the U.S., Canadian and Ontario governments.
Auto industry expert and Trent University professor Dimitry Anastakis said that the automaker needs billions in aid to stay afloat, and the union concessions will only save the company millions.
"The cost of labour, even though it is a huge issue in terms of the public perception, is not a huge amount of the cost of the actual vehicle. It's maybe 10, 12, 15 per cent of the cost of a vehicle," Anastakis told Canada AM on Monday. "So even if they cut their wages, cut their costs by three or four or five per cent, that's not going to make or break the difference."
Last week, GM admitted that auditors expressed "substantial doubt" about the company's ability to keep operating and it fell to third place in the Canadian market in February sales.
The company can only hope that car sales pick up over the next few months, Anastakis said.
What's most significant, he said, is that the deal marks a "paradigm shift" in the CAW's negotiating tactics. The union has backed away from its long-time resistance to making concessions.
However, the union knows that bailout loans are contingent on concessions being made by all stakeholders, including the unions.
"I think our workers will feel a sense of relief because the last four or five months we've had this dark cloud over our heads based on insecurity," CAW president Ken Lewenza told Canada AM.
"But it's far from over. The government still has to provide the loans... They said that all stakeholders must make a contribution. So the job now of auto workers is done. It's up to the government to provide the loans for General Motors so it can now get back on its feet and move forward."
