January 20, 2009 - Automotive Parts Manufacturers Association, Toronto CA

Parts makers warn of collapse if auto talks stall

Suppliers could hit the wall if Chrysler and GM don't speed the pace of loan negotiations with the Ontario and federal governments

Parts makers warn of collapse if auto talks stall

Suppliers could hit the wall if Chrysler and GM don't speed the pace of loan negotiations with the Ontario and federal governments

Some auto parts makers could collapse if the negotiations between Ottawa, Ontario and two Detroit-based auto makers on $4-billion in loans aren't concluded soon, the head of the Automotive Parts Manufacturers Association (APMA) said yesterday.

Canadian suppliers could hit the wall this month or next, Gerry Fedchun said yesterday after hearing federal Industry Minister Tony Clement urge Chrysler Canada Inc. and General Motors of Canada Ltd. to pick up the pace of negotiations for the loans the federal government announced last month it is willing to provide the two auto makers.

In the governments' Dec. 20 announcement offering money to Chrysler and GM, they said suppliers needed to be paid in a timely manner, Mr. Fedchun said. "If it doesn't flow fast enough, some [parts] companies will go down."

He said that since he asked the two governments for emergency funding for the parts sector in November, 2007, the outlook has become even more dire amid production cutbacks by the companies that buy their parts from Canadian suppliers. "The whole industry's been shut down for inventory adjustment in January, so there's going to be no cash flow at all until the end of February," he said. "It's going to be two months without any money."

Some companies that supply commodities to parts makers are demanding cash on delivery because of the woes in the sector, one industry source said yesterday.

The APMA has urged Ottawa to provide about $1-billion to parts makers in next week's budget and he thinks Ottawa will come through, but he said small and medium-sized parts companies remain in trouble.

Mr. Clement told an audience in Toronto yesterday that he's disappointed that the governments and Chrysler and GM have not been able to reach a deal on terms of the loans yet.

"One would have thought that we would have been at the conclusion of this phase by now," he said, pointing to a "drop-dead date" of Feb. 20 for the companies to submit restructuring plans to Ottawa. "It's time to get a move on."

Ottawa and Ontario have agreed to provide $3-billion to GM and $1-billion to Chrysler.

"We don't need to draw on the funds immediately," GM spokesman Stew Low said yesterday. But he added that the auto maker is going to need help from the Canadian Auto Workers union before it receives any money. The company also needs to talk to bondholders and other stakeholders so that it knows it can meet the terms of the loans, Mr. Low said.

One of the terms is that the Canadian companies make their labour costs competitive with those of Japan-based auto makers in the United States.

Mr. Clement indicated yesterday that Canada's traditional advantage of a low dollar will not be factored into that equation. The car companies and the CAW need to negotiate "something reasonable that is flexible enough that if our dollar changes direction one way or the other we can still remain competitive."

CAW economist Jim Stanford said he believes Canadian labour costs are competitive when the higher productivity of CAW plants is factored in. He said the union will not agree to cut its hourly labour costs to the $49 (U.S.) level of the Toyota Motor Corp. plant in Kentucky, for example.

Ontario Premier Dalton McGuinty said yesterday that he is anxious to conclude the discussions with the auto companies, but he also said it is important to take the time necessary to arrive at the right decisions.

"We want to move as quickly as we can to lend support to the sector, but not so quickly that we don't get it right," he told reporters yesterday.

Asked whether he shares Mr. Clement's view that GM and Chrysler should slash labour costs in Canada to U.S. levels in order to tap the $4-billion bailout fund, Mr. McGuinty said: "I'm not sure what's going to happen south of the border ... but the industry itself is going to have to bring something to table and so will the workers. And on the basis of any conversations I've had with representatives of the CAW, they are there. They understand that."

Original Story - Globe and Mail