Tom Lasorda, Chrysler’s president and vice-chairman, states, "We have to close the gap. As a corporation with manufacturing operations in multiple jurisdictions, we cannot afford to manufacture products in jurisdictions that are not competitive."
Mr. Lasorda, who delivered his comments before Canada's House of Commons industry committee on Wednesday, warned that if Canada and its workers do not deliver big concessions it will leave the country according to the Montreal Gazette. This would result in the loss of thousands of Canadian jobs. The comments are made perhaps more ironic by the fact that Chrysler recently passed fellow struggling automaker GM to become Canada's top seller.
Chrysler wants a $2.3B USD loan from Canada's federal government as a concession. It says the government must additionally drop a tax dispute and that the Canadian autoworkers must accept pay cuts. If its terms are not met, it says, it can't be profitable and all Chrysler's Canadian manufacturing plants will have to close.
According to Chrysler, it feels that its Windsor and Toronto plants would be sufficient collateral for the massive loan. It says it is willing to accept as high as 6 percent interest and will actively work to repay it.
Chrysler is also struggling with the Canadian Auto Workers (CAW) over wages and benefits. Canadians, like those in the U.S., have high expectations on their standard of living. They expect, in exchange for hard work a good income, medical care, and a pension. However, according to Chrysler, these expectations are not realistic in the modern economy and concessions must be made.
Chryslers claims that its average cost per Canadian plant worker including benefits, retirement, income, etc. was $75 (USD) an hour in Canada. This figure is $20 more than in the U.S. and much higher than in countries with low labor costs like India and China. In the U.S., auto factory workers typically make approximately the same, with benefits and retirement factored in, as a professional engineer with several years of experience.
The Canadian government says that these figures may be made up, though, as senior executives from Ford, Toyota, and Honda, as well as the Canadian Auto Workers union released contradictory estimates on Chrysler's cost per employee. In total, 9,400 people are employed at Chrysler manufacturing facilities in Canada, with another 26,000 employed and dealerships and Canadian distribution networks.
GM recently signed a deal with CAW which agreed to some cuts in wages and benefits, but offered more moderate cuts than Chrysler wants. In the past, if one automaker brokered a deal, typically the others in the Big Three signed it as well. Chrysler is refusing to agree to a similar deal. Says Mr. Lasorda, "It’s unacceptable to us, and we have to break that pattern."
Chrysler's situation is also rather unique as it’s in serious tax trouble. The Canada Revenue Agency -- Canada's IRS equivalent -- says Chrysler owes hundreds of millions in back taxes. It is has taken a $500M USD lien on Chrysler’s Brampton factory and says that it won't deliver the $300M USD it owes the state in tax refunds. Mr. Lasorda said that repaying the taxes would take six years, and delivered a thinly veiled threat that if Canada doesn't back off the tax issue, his company will leave.
The loans Chrysler is seeking still pale in comparison to the $7.7B USD that GM wants from the Canadian government. Toyota, Honda and Ford have also expressed concern about the economic downturn, but have not yet asked the Canadian government for loans. All of the companies complained that the credit market is virtually gone, making leasing cars impossible. According to Chrysler, two years ago half of all its cars and trucks acquired by Canadian consumers were acquired by lease. Chrysler Canada has now closed its leasing business for lack of loans, losing even more money on top slumping sales.
Chrysler's rival GM is facing a similar situation in the U.S. It recently spun off its largest European brand, Opel, and is asking for billions from the U.S. government in new loans. GM says that if doesn't get the loans, it will be forced to liquidate, closing its US plants.
In the U.S., Chrysler recently paired with Fiat, virtually giving away a 35 percent stake in its company in exchange for the support.