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Federal government will not bail out GM's pension plan: Clement

TORONTO - Although Ottawa has agreed to give billions in loans to General Motors Canada if the company comes up with a suitable restructuring plan by June 1, that money won't go towards the automaker's underfunded pension plan, Industry Minister Tony Clement says.

TORONTO - Although Ottawa has agreed to give billions in loans to General Motors Canada if the company comes up with a suitable restructuring plan by June 1, that money won't go towards the automaker's underfunded pension plan, Industry Minister Tony Clement says.

Clement insisted Monday that any money lent from the federal government to the struggling company will not go towards topping up GM Canada's pension shortfall, which is approximately $7 billion.

He implied that the pension plan will be the responsibility of the Ontario government, which has also agreed to provide emergency funding contingent on an acceptable restructuring plan.

"The fact of the matter is, we're each taking a role and responsibility in the areas where we have those roles and responsibilities. That's what a true partnership can be about," Clement told reporters after an infrastructure announcement in Toronto.

"I want to commend Ontario for taking the lead role in negotiating some of the aspects of the CAW agreement when it pertained to pensions. I think that was a very positive thing Ontario did - they recognized their role and responsibility and they acted it," he added.

In a tentative labour agreement reached between GM and the Canadian Auto Workers union last week, the company agreed that it would give up its special status under Ontario law - a status that has allowed it to underfund its pension plan since the 1990s - and begin topping it up immediately.

Ontario said there won't be an agreement on who will be responsible for covering the plan's shortfall - the company, provincial taxpayers or federal taxpayers - until a final restructuring plan is presented on June 1.

Ontario Premier Dalton McGuinty said previously that the province has no plans to bail out GM pensioners. He warned in April that the province's pension guarantee fund isn't big enough to cover the automaker's retirees if the company goes under and the best way to protect workers is to keep the company afloat.

The province's auto strategy is in flux after Economic Development Minister Michael Bryant quit Monday to head up a new Toronto business agency. McGuinty will take over the file.

One important aspect of GM's restructuring plan is the new labour agreement, which was voted on by CAW members Sunday and Monday. Results of the vote are expected Monday evening.

Besides forcing the company to eliminate the $7-billion deficit in its pension plan, the CAW agreement freezes workers' pension benefits until 2015 and slashes labour costs by $15 to $16 an hour through cuts to benefits.

The union has also agreed to negotiate a health-care trust, which it will administer to cover retirees' benefits.

Now that GM has wrapped up negotiations - its third set in a year - with unions in both Canada and the U.S., the company will turn its attention to completing its restructuring plan to present to governments in Canada and the U.S. by next Monday.

GM Canada's parent company, General Motors Corp. (NYSE:GM), has so far been unable to reach an agreement with its bondholders, and it is widely assumed the company will be forced to file for bankruptcy protection in the U.S. in order to work out a solution with the holdouts.

But Tony Faria, co-director of the automotive research centre at the University of Windsor, said he expects GM Canada will avoid the same fate.

This would leave the company in the same position as rival Chrysler, which filed for bankruptcy protection in the U.S. but not in Canada late last month.

This decision didn't protect Chrysler's Canadian operations, however. When the company decided to shut down its U.S. plants for 30 to 60 days while it restructured, many of its parts suppliers shut down their operations in response. This in turn forced Chrysler Canada, which relies on many of the same suppliers as its U.S. counterpart, to shut down its plants a few days later.

Faria said this decision could actually hurt sales, as wary consumers respond negatively to a company that has both filed for bankruptcy protection and shut down all North American production, and GM will likely want to avoid it as a result.

"Suppliers now recognize that they don't necessarily have to worry about getting paid while GM is in bankruptcy because Chrysler is taking care of suppliers while it's in bankruptcy, so they don't have to stop shipments of parts to any of the plants," he said.

"Besides that, GM has already announced a rotating shutdown of plants over the summer months anyhow."

GM has said its assembly plants in southern Ontario, including a car plant in Oshawa and a joint-venture plant with Suzuki in Ingersoll, won't be affected by the nine-week rotating shutdown. However, it's likely its parts plants in St. Catharines and Windsor will be forced to close temporarily due to a lack of demand for their products.

GM has already cut its Canadian workforce heavily, with the recent closure of a pickup truck plant in Oshawa eliminating 2,600 jobs. It now employs about 7,500 hourly workers in Canada, and plans a shutdown next year of a transmission plant in Windsor which employs 1,400.

 
 
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