18 February 2009

GM bankruptcy likely, analyst warns

The following article is excerpted from the 17 February 2009 edition of the “Toronto Star”.

As the auto industry holds its breath and waits to see what General Motors and Chrysler will propose in the restructuring plans they are set to deliver to the U.S. government today, one analyst says it's likely GM will seek bankruptcy protection and Canada "won't be able to hide" from the fallout.

`Everybody wants somebody else to blink first, and that's fundamentally the problem of this particular process," said Bill Pochiluk, president of industry adviser AutomotiveCompass.

One of the people briefed on GM's plan said some parts, such as bondholder and labour agreements, probably won't be complete by the time the plan is submitted to the U.S. Treasury Department late today.

GM has been in 11th-hour negotiations with the United Auto Workers union, but has yet to reach an agreement.

Pochiluk said this may force the automaker to seek bankruptcy protection from its creditors, which could throw the auto supply chain and therefore the entire North American industry into havoc.

He added that the many auto parts companies based in southern Ontario that feed GM, Ford and Chrysler plants are at particular risk….

It's not yet clear how much GM will cut its workforce or its manufacturing capabilities, but Pochiluk said he believes its operations in Oshawa, Ont., are at particular risk. GM is already planning to shut down its truck plant in the industrial city east of Toronto this spring, costing 2,600 jobs, and has temporarily laid off the third shift at its car plant in the southern Ontario town, affecting about 700 workers.

A GM transmission plant which employs about 1,400 people in Windsor is slated for closure next year.

Other potential casualties of the restructuring are Chrysler's plant in Brampton, Ont., near Toronto, and the joint-venture GM-Suzuki CAMI plant in Ingersoll, Ont., Pochiluk said….

While the two automakers are getting access to government aid in the United States, their Canadian subsidiaries can also tap into C$4 billion in financial aid offered by the federal and Ontario governments. That amounts to about 20 per cent of the U.S. aid package, representing Canada's share of North American auto production by the companies.

In Toronto, Canadian Prime Minister Stephen Harper said he's confident that General Motors (NYSE: GM) will not pull out of Canada, where it employs about 19,000 people, mainly in southern Ontario.

The restructuring will be complex, Harper said, but added he's not worried about GM shutting down operations in Canada if the company seeks bankruptcy protection from creditors in the United States….

The automakers' Canadian subsidiaries are set to deliver their restructuring plans to the federal and Ontario governments on Friday.

Ontario Premier Dalton McGuinty refused to speculate on a possible GM bankruptcy filing, but agreed with Harper that more job cuts will be coming to the Canadian industry on top of the thousands of jobs already lost….