The Ontario government is morally wrong, ethically wrong and possibly even acting illegally by saying the province's pension plan safety net might not cover auto workers' pensions if General Motors goes bankrupt, says the president of the Canadian Auto Workers' (CAW) union.

Ken Lewenza told reporters the best way to protect workers' pensions is to keep the auto manufacturers in business.

In order to bring the message home, he also announced plans for a "massive" rally right outside the Ontario legislature on April 24.

He was responding to comments by Premier Dalton McGuinty that Ontario's pension plan safety net isn't large enough to cover auto workers' pensions if General Motors goes bankrupt.

Ken Lewenza

Ontario Finance Minister Dwight Duncan says the government isn't turning its back on pensioners and will work to ensure people are protected. He says he will work with unions, companies and the federal government to address pension shortfalls.

The war of words over pension-fund stability momentarily stole headlines from the automakers' struggles.

Chrysler has been surviving on a US$4-billion U.S. government lifeline with a mandate to reach a definitive deal with Italian automaker Fiat by May 1 and win concessions from creditors and unions Industry observers agree the Fiat deal would be good for Chrysler, but the question now is if they can come to an agreement in time to meet the deadline.

Chrysler's chief executive says the proposed alliance with Fiat would provide a "major competitive advantage" that could preserve or create 5,000 jobs, as the industry struggles to find ways to cope with plummeting sales numbers.

The technology that Fiat would contribute is worth about US$8 billion, "equal to or greater than the total amount of loans we have requested from the U.S. government," Bob Nardelli wrote in an email to Chrysler employees.

"Even more importantly, Chrysler would save three to five years in development time, giving us a major competitive advantage," he said.

The Detroit-based Chrysler was the Canadian market leader among its North American counterparts in February with sales of 11,923 cars and trucks, a drop of 27 percent compared with February 2008.

In comparison, sales at GM Canada plunged 56.7 percent for February, dropping sharply to 11,381 vehicles from the 26,309 units during the same month a year ago. One analyst commented it was the first time since 1949 that General Motors had not been the Canadian market leader.

Japanese manufacturers didn't fare that much better. Toyota was down 26 percent at 9,421 while Honda tumbled 43 percent to 6,912. Both of those companies, like the Detroit Three, have major assembly operations in Ontario. There were some surprises, however. South Korea's Hyundai reported sales were up 30 percent from a year ago to 6,912 and Germany's Mercedes Benz increased its volume by 19 percent compared with a year ago to 1,419 vehicles.

Nissan Canada slipped a relatively modest 12 percent to 4,288 units.

Mark Grimm, president of Nissan Canada

Timing was everything when the Japanese manufacturer, traditionally known for its Pathfinder and other sport-utility vehicles, decided to make the switch several years ago to more fuel-efficient offerings, company president Mark Grimm said in an interview.

"It really started at the end of 2006 for us with the Nissan Sentra. The company has always been strong in the sport-utility segment, but we shifted product focus to the more fuel-efficient vehicles and cut back on our production then," Grimm said.

"It turned out to be a smart move."

Later, Grimm declined through a spokesperson to comment on the possibility of Nissan merging with another automaker. He said those discussions happen "at the CEO level in Japan" and are highly confidential.

Labour competitiveness with foreign manufacturers is a key condition Chrysler will have to meet in order to enter into the deal with Fiat, Nardelli said in his memo.

Fiat's conditions are the same as those that Chrysler needs to meet in order to receive government loans in both the U.S. and Canada.

Nardelli said in the email that Chrysler must financially restructure, match Japanese automakers in hourly wages and convert part of its payments into a union-run trust for retiree health care into equity.

"The concessions we're seeking for our Canadian operations are in line with those requested by the U.S. Treasury for Chrysler overall, and also are consistent with what Chrysler requires to be competitive in this challenging environment," he added.

The company's president, Tom LaSorda, said that the automaker could shut down its plants in Canada - putting about 10,000 people out of work - if it doesn't get significant labour concessions and about US$2.3 billion in aid from Ottawa and Ontario.

Those labour costs, especially large employee pension plans, are causing the difference in financial results between the Detroit Three and their foreign competitors, Dean Mullett, national leader of Pricewaterhouse- Coopers' auto and industrial products practice, told Business Edge.

"That's the problem that has been in the making for at least a few years now," he said during an interview from Toronto. "The legacy costs of being in business for a longer period of time are really causing problems for the larger players. There's a number of different factors all coming together to create this situation, but this is certainly a big one.”

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LaSorda said Chrysler will have to save approximately $20 per hour per employee - about 25 percent of the average Chrysler employee's all-in costs - in order to close the labour-cost gap between it and foreign automakers such as Honda and Toyota.

The federal and provincial governments have been working to reach an agreement with General Motors' and Chrysler's Canadian branches after the struggling companies asked for an aid package to help them survive the economic downturn and slumping sales.

CAW has also said it will work to bring down labour costs at the two automakers, but Lewenza said that his members will "absolutely not" concede more to Chrysler than they did to General Motors in early March.

The contract with GM freezes wages until 2012 and suspends cost-of-living adjustments for both wages and pensions. It also reduces paid time off by 40 hours a year, scraps an annual $1,700 bonus and cuts company contributions to union-sponsored programs by one-third. Under the agreement, CAW members will also contribute $30 a month to their health benefits.

Estimates are that the deal offers just over $7 per hour in savings.

LaSorda has described the GM deal as "unacceptable" for Chrysler Canada, which builds minivans in two Ontario cities for sale in Canada and for export to the United States.

Mullett said that pattern bargaining usually works, but "this is not a usual situation we're in right now with the economy. There is no legal precedent that I'm aware of where the other manufacturers have to follow the first deal."

Meanwhile, industry watchers were busy talking about the potential Fiat and Chrysler deal. Sources say Chrysler LLC was discussing giving Fiat a 35-percent stake in Chrysler in exchange for access to Fiat's small engines and small-car underpinnings.

But Nardelli said Chrysler can be viable even without Fiat or another partner. "We were asked by the (U.S. auto industry) task force whether Chrysler is viable without a global alliance partner. Our answer is absolutely yes ... even with a conservative forecast of U.S. auto industry sales trends," Nardelli wrote.

He added that Chrysler has already done much of the inventory reduction and restructuring necessary to make the company viable again, and it plans to launch 24 products over the next two years, including electric and range-extended vehicles.

He said that even under "modest" forecasts for sales and pricing, Chrysler should be able to pay off its debt in four years.

- with files from The Canadian Press (David Hatton can be reached at hatton@businessedge.ca)