TORONTO - Automodular Corp. plans to close its plant in Oshawa, Ont., putting 100 people out of work, after General Motors of Canada Ltd. cancelled its contracts with the supplier of auto parts and assembly line services.
GM's decision to award Automodular's contracts to an American supplier followed a written demand last month telling the supplier to cut its prices in half or risk losing the business, Automodular president and CEO Michael Blair said Wednesday.
"Everybody can cut their prices if they want to, but there's an economic limit," Blair said. "We didn't."
After an earlier trading halt, shares in the company (TSX:AM) fell 10 cents or 25 per cent to close at 30 cents on the Toronto Stock Exchange.
The job cuts by Automodular reflect the increasing financial pressure on Canadian auto parts companies, who face demands from their automaker customers for lower costs as car assemblers such as GM, Ford and Chrysler drive down their operating costs to remain competitive in an industry that came near collapse during last year's recession.
In addition, the rising Canadian dollar makes it more attractive for GM and other carmakers operating in Canada to buy parts and services from American suppliers.
Automodular, based in Ajax, Ont., said it intends to sue GM Canada for $20 million for cancelling the agreement in the middle of the contract, Blair said.
But GM Canada spokesman Tony LaRocca said the contract included a provision that Automodular needed to remain competitive, which the supplier did not meet.
"With this particular supplier we've been working for the better part of the last two years to try and help them understand that they're not cost competitive and to try and improve upon that," LaRocca said. "But even after all of that they remain very uncompetitive, so it's brought us to this point of resourcing the business."
Troy, Mich.-based Inteva Products, which acquired some business from GM Corp's former Delphi parts unit, will take over the contracts, LaRocca said.
The cancelled contracts -- to supply parts and services for the assembly of the Camaro muscle car at GM's Oshawa plant -- account for about 20 per cent of Automodular's overall business, Blair said. The company will continue to supply GM's plant in Lordstown, Ohio as well as Ford Canada's plant in Oakville, Ont. Its Oshawa operations will shut down on Sept. 21.
The loss of the contracts will result in an after-tax loss of $7 million this year, Automodular said.
GM Canada has been cutting its Canadian operations since before the global recession battered the company and the auto industry as a whole. Last year, the company closed a truck plant in Oshawa, putting about 2,600 people out of work, and it will close a transmission plant in Windsor, Ont., this year, affecting another 1,400 jobs.
GM has also moved to close about one-third of its Canadian dealerships as part of a massive restructuring that saw it file for bankruptcy protection in the U.S. and struggle through the economic downturn with the help of billions of dollars in aid from the U.S., Canadian and Ontario governments.
However, the automaker builds some of its most popular vehicles at its Canadian operations and it has been rehiring hundreds of workers in recent months to meet growing demand.
In October, the company said it would add a third shift at its CAMI plant in Ingersoll, Ont., re-hiring about 350 workers. Then, late last year, GM said it would invest another $90 million to increase capacity at CAMI, resulting in the recall of another 280 workers.
And in November the company said it would add a second shift in Oshawa in 2011 to support production of the new Buick Regal and Camaro convertible, bringing back 700 workers.
Finally, GM said it would recall more than 700 workers -- 600 at its Oshawa plant and another 100 at CAMI -- to meet growing demand for its Chevrolet Equinox and GMC Terrain crossovers.
Automodular returned to profitability in its most recent quarter, earning of $2.1 million or eight cents a share compared with a loss of $10.3 million or 40 cents a share in the fourth quarter of 2008. Revenue for the quarter was $22.8 million, up from $16.4 million in the year-ago period.
The company currently has four plants and employs about 650 people.
