February 21, 2009 at 1:00 am

Auto firms seek Canadian aid

GM, Chrysler make push for global help

General Motors Corp. and Chrysler LLC are seeking additional financial aid from the Canadian and Ontario governments, and GM Canada wants to create a union-run fund to reduce its health care costs in the country.

The automakers' needs were outlined in restructuring plans they submitted late Friday in the latest example of Detroit's hardest-hit automakers taking their pleas for help abroad as the global industry downturn ravages their foreign operations.

GM, which is seeking help from several governments, underscored its urgency Friday when it pushed its sporty Swedish carmaker Saab Automobile AB into bankruptcy.

In Canada, government officials had authorized $3.2 billion ($4 billion Canadian) for GM Canada and Chrysler Canada but economic conditions deteriorated further and the automakers were forced to increase their request for aid from Canada, just as they did in the United States earlier in the week. At least one-fifth of the automakers' North American production comes from their Canadian operations. To protect those jobs, the Canadian governments have said they feel an obligation to lend an amount equal to about 20 percent of the amount provided by the U.S. government. When GM and Chrysler increased their U.S. request to a combined $39 billion, the expectation was that the Canadian contribution would be adjusted accordingly, to at least $8 billion ($10 billion Canadian).

The Canadian federal government's contribution to a GM aid package alone may total between $4.8 billion ($6 billion Canadian) and $5.6 billion ($7 billion Canadian), Minister of Industry Tony Clement said in Toronto on Friday.

GM's exact loan request is dependent on the outcome of cost-cutting negotiations, especially with the Canadian Auto Workers, GM Canada spokesman David Paterson said.

The CAW is being asked to create a health care fund to be owned and run by the union, similar to a trust that will be overseen by the United Auto Workers starting next year in the United States.

CAW President Ken Lewenza said he will explore the idea as long as GM funds it.

A large percentage of health care costs in Canada are government funded, but many costs are not covered, especially for drugs, some elective procedures and upgrades such as private hospital rooms. Paterson said that after pensions, health care is GM's largest cost. GM also pays a health care tax that has been increasing about 10 percent annually, according to spokesman Stew Low.

Chrysler is not seeking a union-run health care plan in Canada. Spokesman Dave Elshoff said the automaker manages health care expenses in the United States and Canada from its Auburn Hills headquarters.

But Chrysler wants $2.25 billion in federal aid, which represents about 25 percent of its U.S. funding request of $9 billion. That's because a quarter of Chrysler's manufacturing output is in Canada, Chrysler Canada President Reid Bigland said in a letter to the government.

Neither Chrysler nor GM call for more plant closures in Canada in their restructuring plans.

Instead, five new vehicles will be built in Canada, including the Chevrolet Camaro next month in Oshawa and the Chevy Equinox at the Cami Automotive Inc. joint venture plant with Suzuki Motor Corp. in Ingersoll, Ontario.

GM also expects to shrink its total Canadian dealerships to roughly 450 to 500 from 700 through consolidation and attrition, spokesman Low said.

Detroit's automakers have been struggling for months in the face of plunging U.S. auto sales, and their foreign operations are in trouble now too, as the downturn has spread.

The most dramatic sign of the industry's desperation was GM's decision to cut Saab loose.

Saab filed for reorganization Friday in the Swedish equivalent of a Chapter 11 bankruptcy.

"Saab's filing is the first such action and is indicative of the extreme and harsh times the auto industry is undergoing due to the financial crisis, but it is not likely to be the last," said Paul Newton, an auto analyst with consulting firm IHS Global Insight.

"It is hoped that Saab may be able to reorganize ... and emerge as a going concern, but in the current climate this possibility seems remote," he said.

The United States and other governments have been responsive to the pleas of their carmakers because of the huge number of jobs the auto industry represents.

For GM, the Canadian aid is in addition to $13.4 billion in emergency loans that Washington has authorized. The automaker also is seeking $6 billion from other countries. The list includes South Korea, where GM Daewoo Automotive and Technology is based, and Germany, home of Adam Opel, which represents the core of GM's European operations.

In the latest figures available, GM said GM Europe lost $1 billion in the third quarter of 2008.

In Europe, "government aid is coming thick and fast for autos, whether it be scrapping incentives, government loan guarantees through the European Investment Bank, direct loans, such as in France, or support for financial services divisions," said John Lawson, a London-based analyst for Citi Investment Research.

"However, the range of businesses calling for government support is rising, stretching finite resources," he said in a research note Friday.

According to a report in Financial Times Deutschland, German regional and federal government officials met recently to discuss the possibility of taking a stake in Opel.

The German government has offered to provide up to $2 billion in loan guarantees for the GM subsidiary. GM is seeking more aid but Chancellor Angela Merkel said Wednesday that she wanted to see a restructuring plan for Opel. It employs 26,000 workers at four plants in Germany.

Saab has lost money during most of its 19 years as a GM affiliate.

Analysts say its viability is doubtful, citing its low sales of 92,000 vehicles in 2008, a 34 percent decline from the previous year.

Under the Swedish bankruptcy process, Saab will have a court-appointed administrator who will work with management as it drafts a reorganization plan. It must be presented to creditors within three weeks, Saab said in a statement.

Pending court approval, the reorganization will be executed over a three-month period and will require independent funding.

"We explored and will continue to explore all available options for funding and/or selling Saab and it was determined a formal reorganization would be the best way to create a truly independent entity that is ready for investment," said Jan Ake Jonsson, managing director for Saab Automobile.

GM Europe said it would arrange timely payment of Saab's suppliers. "GM is fully committed to maintaining a viable and successful local and global supplier base during the Saab reorganization," said Bo Andersson, GM group vice president for global purchasing.

GM said it hoped this gesture would encourage suppliers to support Saab's efforts to become an independent business.

You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com">ctierney@detnews.com.