OTTAWA - The federal and Ontario governments say they have not received realistic restructuring plans from General Motors Canada and Chrysler Canada, but will go ahead with up to $4 billion in interim loans to keep the companies afloat.
However, the two companies may have to consider a court supervised restructuring to streamline and cut costs more than they have already done, Industry Minister Tony Clement told a news conference Monday.
And he said General Motors (NYSE:GM) and the Canadian Auto Workers union will have to reopen their recent concession-filled agreement and agree on even more cost-cutting measures.
"Going forward the industry will undoubtedly be smaller, but if our efforts are successful it will be viable and it will support good jobs for Canadians," Clement said.
Ottawa and Ontario both agreed that current efforts by the two companies and the Canadian Auto Workers union to cut costs have not gone far enough and the union and companies need to go back to the bargaining table "to share more pain in the short run."
Clement said GM and the CAW will have to negotiate new deals on so-called legacy costs, such as pensions and health care, in addition to what has already been hammered out.
"What has become apparent over the last few months is that this is not just a temporary blip in the marketplace," the minister said, flanked by Finance Minister Jim Flaherty and Ontario Industry Minister Michael Bryant. "There is some fundamental restructuring that must take place."
The companies "have not met that goal yet, so we are giving them a little bit more time, not a lot. They know what the numbers look like. We all know where we have to get to, so a little more time to see that restructuring take place is the most prudent decision.
It certainly beats a disorderly bankruptcy, which could be one of the things that could have occurred in a matter of days if these decisions were not made by Canada, the U.S. and Ontario."
The message from the two governments is essentially the same as that delivered by U.S. President Barack Obama on Monday morning, although Canada will not be seeking the resignation of any company executives as a condition for moving forward.
The two Canadian governments, which briefed reporters on background prior to Obama's address, said they had been working in tandem with the U.S. to maintain the current 20 per cent share of North American auto production in Canada.
As a result, Canada will be anteing up roughly one-fifth the U.S. financial bailout package.
The Canadian governments say Chrysler has been told it is no longer viable as a stand-alone company and is being given 30 days to negotiate a deal with Italian automaker Fiat SpA.
The view is that Chrysler is too small a player to be globally competitive and needs Fiat's knowledge of producing smaller vehicles to survive.
General Motors's problems include a massive overhang of so-called legacy costs, including pension and health care commitments for retirees, and is being given 60 days -- to the end of May -- to rework its restructuring plans.
Earlier Monday, Obama said neither General Motors nor Chrysler has proposed sweeping enough changes to justify further large federal bailouts.
Obama also raised the possibility of a controlled bankruptcy to help either or both "restructure quickly and emerge stronger" -- uttering the term that industry and union officials have warned repeatedly could lead to the collapse of an entire domestic industry.
The Canadian and Ontario governments say the General Motors plan makes far too rosy assumptions about how many vehicles will be sold during the current recession and about how many of those will be GM vehicles.
They also say both companies have to do more to bring costs under control, saying they will need to get more concessions from workers, bring down pension benefits, management costs, consolidate dealerships and renegotiate deals with suppliers.
Meanwhile, the governments are prepared to lend GM about $3 billion and Chrysler $1 billion to stay in business until they present restructuring plans acceptable to the governments.
The first instalment of $250 million is expected to be loaned to Chrysler by the end of the day, with another $500 million to follow in early April and the remainder by May 1. The schedule of loans to GM is still being worked out.
Ottawa and Ontario, which are contributing two-thirds and one-third respectively, say they will be paid a minimum of five per cent interest on the three-year loans.
The governments are placing other conditions, including that none of the money be used for executive compensation or to pay back taxes owing.
As well, senior executives with the companies will not be entitled to bonuses or performance allowances stemming from 2008, receive any salary increases between 2008 to 2009, or golden parachutes if they leave the firms.
They also made clear that the auto workers must put more water in their wine and that the deal the Canadian Auto Workers negotiated with GM did not save the company enough money.
They added if the companies do not present acceptable restructuring plans in the designated time, the loans are recallable.
Even with the conditions, the governments noted that the loans are not risk free, and if the companies meet their new deadlines, further public financing will be forthcoming.
GM has asked for about $7 billion in additional long-term funding and Chrysler about $4 billion.
