Tony Wong
Rob Ferguson
Star Reporters

Hundreds of General Motors Canada head office staff may be laid off over the next several months as part of a massive restructuring effort to get the automotive giant back to profitability. The company said yesterday it plans to reduce salaried worker costs by 20 per cent, further slash truck production and eliminate its quarterly dividend.

In an address to employees in Detroit, chief executive Rick Wagoner said the auto-maker would also offer buyout and early retirement packages and freeze base pay for salaried employees through 2009.

The goal to save $15 billion (U.S.) in costs worldwide by the end of 2009 will impact on Canada, said spokesperson Stew Low. "We think in the end there will be some reductions in administrative staff, however, they will be reasonably small in comparison to our other actions," said Low. "The numbers could be in the hundreds or even less. We don't have a figure yet, but the initial thinking is that this may be modest."

Workers in areas such as finance, purchasing, corporate affairs and marketing will be affected in the latest restructuring round, he says.

Ontario's economic development and trade minister said she was "relieved" to hear the province will escape serious damage in GM's latest plans to make fewer pickup trucks and restructure operations.

Although the automaker is doubling planned cuts in pickup truck production to 300,000 vehicles, there will be "no acceleration" of the closing of its Oshawa truck plant in mid-2009, said Sandra Pupatello from a trade trip in England.

In Cornwall, Premier Dalton McGuinty said he hopes GM "comes to a landing sooner rather than later" because every lost auto assembly job means another seven lost in the parts sector.

He said the auto industry is in a challenging time but is here to stay, with North Americans buying 15 million new vehicles annually. "The issue is do we want to stay in the game or not?" he told The Canadian Press. "People are going to keep buying cars, they're just going to buy different cars. They're looking for more fuel-efficient cars, more environmentally friendly cars."

GM's latest cuts – which further hurt Ontario's auto sector by reducing demand for parts made here – show a need for urgent government action to shore up a slumping economy, said opposition parties.

Progressive Conservative Leader John Tory called for a summer economic statement from Finance Minister Dwight Duncan with new measures such as cuts in taxes and red tape to help businesses.

GM vice-president David Paterson said no date has yet been set for the pickup truck plant closing next year pending further talks with the Canadian Auto Workers union.

He confirmed there will be no new production cuts in Canada despite yesterday's announcement, although "relatively minor" layoffs are expected for perhaps 100 or 200 of the 2,500 salaried staff here.

Those numbers will depend on how much can be found in "operational savings" in areas like marketing and advertising.

GM Canada may not get hit as hard this time as it has been "ahead of the curve" in announcing cuts, including the closing of a Windsor transmission plant in 2010 and a truck plant in 2009, says Low.

The Windsor closing affects 1,200 workers, Oshawa's 2,600.

The announced closing of the Oshawa truck plant, just two weeks after a collective agreement with the Canadian Auto Workers said it would keep the plant open until 2011, was controversial.

"It seems like every week we have a new restructuring plan," says CAW economist Jim Stanford. "The issue remains that you can't dig your way out of a hole by constantly cutting back, downsizing and closing plants."

Stanford says the announcement means a harder fight for the union to keep the Oshawa plant open.

"As far as we are concerned that contract is still binding.

"We're still negotiating with GM and they are contractually obliged to continue operations there," says Stanford.

GM said yesterday it expects a significant second quarter loss because of declining market conditions.

Since Wagoner became chief executive in June 2000, GM has cut its U.S. salaried workforce to 32,000 from 44,000.

GM shares are down 87 per cent during Wagoner's tenure and the stock has been the worst performer within the Dow Jones industrial average during the last 12 months.

"At first blush, these would be positive steps for liquidity, but we would view them as absolute necessities given the current market conditions," says Gregg Lemos Stein, a credit analyst at Standard & Poor's.

Merrill Lynch analysts said GM needs to raise about $15 billion and bankruptcy is "not impossible" if deteriorating sales continue."The restructuring is setting up General Motors to be a leaner, more profitable company as we work through this soft U.S. market," said Low.

"We are taking the hard medicine and the deep cuts now and putting a plan in place to prepare if the market worsens."

With files from The Star's wire services
*******************************************************

Bankruptcy would be risky
business for any automaker

Automakers risk scaring off customers,
many analysts say

Christine Tierney, Eric Morath and Bryce G. Hoffman / The Detroit News

Detroit's automakers have entered a new and darker chapter in their history, with bankruptcy suddenly looming as a possibility because of the severity of the auto market downturn.

General Motors Corp., Ford Motor Co. and privately held Chrysler LLC are going through cash at a faster rate than they generate it, and investors worry that one or more of the companies could run short, perhaps before the end of next year.
But most debt analysts say that unlike auto parts suppliers, which have used bankruptcy as a tool to reorganize their businesses, automakers are unlikely to consider filing for bankruptcy before exhausting every other option.
"It's clear that the risks and challenges are much greater than the benefits of filing," said Gregg Lemos Stein at the debt-rating agency Standard & Poor's.
The biggest risk would be the publicity surrounding a bankruptcy filing that might scare off car buyers.

"If you've heard that an auto manufacturer has gone bankrupt, would you buy a brand new car for which you would need parts and servicing for three to five years?" asked Tony Clary, industry manager for automotive at Euler Hermes, a credit insurer that is part of Germany's Allianz insurance group.

"If a supplier files for bankruptcy, the general public wouldn't even know that. So it doesn't have the same implication." For an automaker, however, bankruptcy "would be very much a last resort, and something that would only be considered when there's absolutely no alternative available," Clary said.

Normally, the purpose of filing for bankruptcy -- corporations usually file under Chapter 11 of the U.S. bankruptcy code to keep the business running -- is to obtain some relief by reducing debt payments and to step up the pace of change at the company.

"Dana Corp. was able to accomplish things in bankruptcy that took an extended strike to accomplish at American Axle, which wasn't in bankruptcy," said Lemos Stein at S&P.

But it's not clear that a bankruptcy filing would make it easier for managers to get better deals from the United Auto Workers than they have, or to break out of agreements with dealers that are governed by state law.

Delphi is one example

Bankruptcy should be the option of last resort for the automakers, said James Mallak, an auto restructuring expert with Alvarez & Marsal in Detroit. "Once you get in there, look at Delphi (Corp.), there is no guarantee that you'll get out," said Mallak, who was chief financial officer at Tower Automotive during that supplier's bankruptcy. Delphi, the former GM subsidiary based in Troy, has had a long and fractious bankruptcy.

"That's especially true in today's financing market. They can do restructuring with the plants and with the labor contract outside of bankruptcy," Mallak said.
Changes in bankruptcy laws also would make it harder for automakers to control the outcome under a Chapter 11 filing, said Mark Oline, managing director of the credit service Fitch Ratings.

"I don't think bankruptcy would really be a strategic tool for any of them, given the changes in the bankruptcy laws," Oline said. "Management has lost a lot of control over a bankruptcy. The new laws make it a very, very complex process."
But all the speculation is unlikely to go away, given today's economic environment in which banks are unwilling to lend, investors are feeling skittish and consumers are putting off nonessential spending.

This year, U.S. auto sales are likely to sink to their lowest level in more than a decade. Brokerage house Merrill Lynch estimates next year could be even worse, with sales sliding to 14 million cars and trucks, putting the industry's recovery efforts at risk.

GM swats speculation

In less than a year, GM has gone from being the U.S. automaker furthest along the recovery track to the subject of bankruptcy concerns. Its stock tumbled last week to the lowest level in more than 50 years after a Merrill Lynch research note said bankruptcy was no longer out of the question.
A report issued by analyst Shelly Lombard at Gimme Credit puts the likelihood for bankruptcy at GM at 25 percent.

Chairman and CEO Rick Wagoner moved to quell the bankruptcy speculation Thursday, telling reporters during a trip to Texas that GM had "no thoughts whatsoever" of filing for bankruptcy.

In April, GM said it had adequate liquidity through 2008, with $24 billion in cash at the end of the first quarter and access to a further $7 billion of credit.
Most analysts say they don't believe GM will run out of money this year. But at the rate the automaker is burning cash -- estimated at billion to $1.5 billion a month -- they say it may need to raise as $1 much $10 billion during the next 12 months to allay concerns about its cash position.

This is a poor borrowing climate, but JPMorgan analyst Himanshu Patel says GM's profitable overseas operations could be pledged for between $8 billion and $11 billion in secured bank loans.

GM also could ask the United Auto Workers if it could delay its 2010 contribution to the voluntary employees' beneficiary association, a GM-funded, UAW-managed health care trust.

"We believe GM will pursue every option to avoid filing Chapter 11, since a bankruptcy would probably scare away car buyers, delaying a turnaround," Gimme Credit's Lombard wrote in a report.

Loans leave Ford with cash

For Ford, bankruptcy would spell the end of the Ford family's control of the company founded by Henry Ford in 1903.

Henry Ford's descendants control the company through their exclusive ownership of super-voting Class B shares. Those shares represent only 3.3 percent of the company's stock but wield 40 percent of the voting power and all but guarantee the family control, regardless of how many shares Kirk Kerkorian or any other investor amasses.

But all shares would be equally obliterated by a bankruptcy, and it is unlikely any judge would allow a reorganized Ford to reissue special shares to the family.
Compounding matters is the fact that Ford has mortgaged all of its U.S. assets -- including the Blue Oval itself -- to finance its restructuring. If it defaults on those loans, there will be little left of the Dearborn automaker.

For these reasons, analysts agree that Ford would never willingly file for bankruptcy protection. And at least for now, they say, Ford has enough cash on hand to make it through to 2010, when the full benefits of its new contract with the UAW are realized.
Ford has $40.6 billion in cash and available credit, and it has brands, such as Sweden's Volvo Cars, that it can sell if the situation grows more desperate.

"With its cash on hand and other resources, Ford is in the best position of any of the Detroit automakers," said Oline at Fitch Ratings. But, he added, "They will take a look at all non-core assets and any opportunities to improve their liquidity."

Chrysler's outlook worsens

Owned by Cerberus Capital Management L.P., Chrysler is the most likely of Detroit's automakers to tap the bankruptcy option, several analysts say.
The privately held Auburn Hills automaker, sold last year by Daimler AG, is the most vulnerable to a downturn in the U.S. market and consumers' percent shift away from trucks to more fuel-efficient cars. Last month, 75 of the vehicles Chrysler sold were trucks or SUVs.

Unlike its cross-town rivals, Chrysler has limited foreign operations to compensate for losses at home. North America accounts for 94 percent of global sales. Of the American automakers, Chrysler faces the highest liquidity risk, JPMorgan's Patel wrote in a report to investors this month.

Chrysler's "capital raising options seem limited to us given a lack of high-value unencumbered assets, and its owners are probably not highly motivated to inject new equity," he wrote. Without public shareholders, Cerberus could move Chrysler quickly into bankruptcy, said Steven Davidoff, a corporate law professor at Wayne State University who studies Cerberus. If GM or Ford were to file, its stockholders equity would most likely be wiped out. Cerberus, however, could put up a financing package and maintain control of the company, if that's what it sought to do.

"The biggest difference is as a private company they can make decisions quickly," he said. "In bankruptcy they could renegotiate or terminate contracts with the UAW, dealers and suppliers."

On the downside, entering bankruptcy could make it even more difficult to obtain financing, and Cerberus would have less control of the automaker and more public scrutiny, Davidoff said. A filing, however, would not affect Cerberus' other investments.

****************************************

Democracy: Too Important
to Leave to the Members?

Sam Gindin

Earlier this summer, it looked like the Canadian Auto Workers (CAW) union was about to experience something truly unusual in its history – a contested campaign for national president. The last contest for the union's top Canadian officer was in 1960, a quarter of a century before the formation of the CAW and a year when Tommy Douglas was Premier of Saskatchewan and John F. Kennedy was running for President of the United States.

A transition in leadership was coming: CAW President Buzz Hargrove would turn 65, the agreed mandatory retirement age for union staff and officials, in March 2009. His handpicked successor was Ken Lewenza who, like Hargrove, came out of Chrysler's Windsor Assembly Plant. The succession also included anointing Peter Kennedy, the current Assistant to Secretary-Treasurer Jim O'Neil, to move up when O'Neil retired in August 2009. As Hargrove contemplated exactly when and how he would announce the timing of his retirement, two very credible candidates, both assistants to Hargrove, had declared their intent to run: Hemi Mitic against Lewenza and Carol Phillips against Kennedy.

The possibility of a break with tradition and an actual election did not come out of nowhere. During relatively good times, the absence of contested elections was commented on, but passively accepted. Now, with crises piling up in one sector in manufacturing after another in Canada (the state of the auto industry being the most publicized), a good number of CAW activists were increasingly frustrated and restless. It was in that context that rumors of an election began to circulate and the contesting candidates surfaced.

This was an opportunity that the union leadership should have jumped at. After years of growing demoralization inside the union, an election could have been a catalyst for union renewal, opening a space for membership participation in the crucial questions facing the union, and developing the candidates' own thinking. How could the union's dismal record in organizing new members be reversed? What changes in union priorities would an organizational drive imply and what commitments from the locals did it demand? The union's formal policy against concessions was contradicted by the reality on the ground. What was needed to return the union to its slogan that 'fighting back makes a difference'? International solidarity between unions is often discussed, but what could it concretely mean? The environment had emerged as a central issue that would transform everything about how we produce and live. Where did the candidates stand on the insecurities and opportunities this implies? The regional and sectoral composition of the CAW's membership base is today radically different than when the CAW was formed, but the union's structures have remained the same. What do the candidates have to say about how to take advantage of this potential, and what do the locals themselves want to put on the agenda in terms of structural change?

It was an opportunity as well to raise the issue of the CAW's relative separation from the rest of the labour movement (notably its continued absence from Ontario Federation of Labour), at the same time that the CAW drifted closer to the corporate and political elite (symbolized by the joint dinner with Canada's business and political elites in the middle of a CAW Bargaining Convention). Who are the union's friends and who are its enemies? Where do the candidates stand on union support for the Liberals? Can the union really expect to address the crisis in manufacturing jobs, the restructuring of private services, the commercialization of social services, or reverse free trade without rebuilding ties to the rest of the Canadian working class and mobilizing working class communities beyond its own?

A contested election might have reminded people why unions remain so important and brought more members into the active life of the union. That opportunity, in terms of the contest for the CAW presidency, was thrown aside. The union leadership seemed more concerned with ensuring executive control over the presidential succession and especially determined not to open debates it could not control and risk commitments that might hold future leaders accountable. In a phrase that may come to define his legacy, Hargrove expressed his impatience with an open electoral contest for the leadership of one of Canada's largest and most storied working class organizations in these terms: “We're not a political party, we're a union” (Globe and Mail, July 7, 2008).

Managing the Transition

Hargrove quickly moved to prevent such an open contest by calling a meeting of the National Executive Board (NEB) and of the appointed staff for July 8th to “put this thing to bed.” The NEB's endorsement of Hargrove's choices could be taken for granted. Though formally elected by union delegates, the NEB had never, a few secondary issues aside, demonstrated any collective autonomy from the CAW President. Nor did anyone expect this might change now.

The staff, however, was another matter. The majority of the CAW staff are experienced and skilled former elected local officials, with a history as activists and leaders in their own right. Though they cannot vote in any official union body, they have traditionally had the right freely to cast votes within the union's ‘administration caucus,’ a political body that ensures that all who attend it will support the administration at union convention, but which meets before conventions to decide what resolutions and candidates for office the administration will endorse.[1] The caucus system came out of the early right-left splits in the union in the 1940s. Such an organized opposition within the CAW had disappeared, but the administration caucus has continued as a form of control over what takes place at union conventions. Even as the CAW broke away from the UAW and its culture, it retained the essentials of the UAW's leadership-controlled caucus system.

Mitic's intention was to run within the caucus, which would have allowed staff members to vote for him there. He was thus intending to use one aspect of caucus tradition to challenge another, i.e. to open the possibility of a free caucus choice among the candidates (who all came from previous leadership team, even if Hargrove had pre-selected his favourites). But Hargrove brought the staff together not for a collective discussion among people with a wealth of experience as local leaders and activists, but as his employees. It was not their opinions he was interested in, but getting the staff in line well before they joined local activists possibly to challenge his candidate at the pre-Convention caucus meeting.

Because a rebellion was brewing, with the staff reflecting the wider dissension in the union, Hargrove was pushed into a further tactical step. On the morning of the scheduled meetings, the CAW President suddenly announced that he would retire by mid-September and a convention to choose his successor would be held before then. Virtually no union meetings are scheduled during the summer. Since workers would be at home or on vacation for much of July and August, any campaigning was essentially foreclosed.

Hargrove argued that the hurried timing was to avoid the ‘divisiveness’ of a ten-month campaign. Leaving aside that democracy functions because of differences, no explanation was given for why a shorter but more sensible period (such as one running to late-October) was also excluded. To some it looked as if the timing was not so much about union solidarity as with guaranteeing the victory of his candidate (the longer Hargrove stayed, the more of a liability he seemed to be to Lewenza's candidacy), and limiting any debate over the union's direction. Democracy was apparently too important to leave to the members.

The morning of the NEB meeting, Hargrove met with key board members from Quebec whose position was critical and who had pledged their support to Mitic. Coming out of that meeting they surprisingly switched their support to Lewenza. That loss was amplified because it potentially weakened the resolve of others both at the Board and on staff. Moreover, Hargrove presented Mitic with a catch-22: if he participated in the Board decision, he would have to abide by their vote (which was a foregone conclusion); if he refused, he would be understood to have left the administration caucus. Since Mitic was committed to running within the caucus and because he saw his support unraveling, he stepped down and joined NEB member Earle McCurdy from Newfoundland in calling for a review of ‘the process.’

Hargrove had won. At the staff meeting that followed, Hargrove made it clear that the staff, which could not vote at the convention itself, had a vote in the administration caucus – but only in line with what the NEB (i.e. the President) recommended. This meant not only that the approximately 150 staff had no say in the choice of CAW President, but that local delegates who participated in the caucus effectively faced an out-going President with multiple votes in his pocket. Though he had laid down the law that the staff had no right to vote independently, and though there was, in any case, no longer any alternative candidate for President, Hargrove insisted on a show of hands to endorse the NEB's recommendation. The point of the vote was, of course, purely formal and symbolic: it merely allowed it to be claimed that a consensus had been reached, so that those who didn't know what was really going on might think all this indicated the depth of the union's democratic process.

Carol Phillips remains in the race for Secretary-Treasurer in August 2009, having declared that she will run outside the administration caucus. Phillips is a talented, progressive and respected candidate and though the demographic changes in the CAW might suggest that a woman should be supported for one of the top two positions, Phillips is running on her merits and not as an 'affirmative action' candidate. The CAW structures guarantee that this will be an uphill battle. The new President will have some ten months to establish his authority and consolidate support for his caucus running mate, Kennedy. The staff will only be allowed to work for Kennedy. And though the Convention vote will be by secret ballot, a good many delegates will be hesitant to leave the administration caucus even if they want to support Phillips, and having participated in the caucus they are likely to abide by caucus discipline. A critical test for her candidacy – one posed by the early defeat of Mitic – will therefore be whether any locals rebel against this.

Union Democracy

The question of union democracy involves more than voting for leaders: it is about empowering the members to collectively effect change. It's therefore about both process and the kind of union that is being built. That is why the depth of union democracy and the degree of struggle often seem so closely linked.

When unions are fighting the status quo, a degree of democracy is virtually inevitable because it is essential. At those moments, workers receive information and analysis that counters what they get elsewhere. Educationals come alive. Workers develop their ability to articulate their cause and strategize. The capacity to organize in the workplace and community is deepened. The confidence that emerges from active participation spills over into other dimensions of workers' lives and sometimes raises larger questions about democracy in society. These can be powerful and revealing: if we're a democracy, why do corporations and financiers have so much power over our lives?

In contrast, when unions are only adapting to the status quo, democracy suffers because, from the leadership's perspective, democracy may represent a problem rather than an asset. If the leadership is arguing for concessions, it is repeating the arguments of the corporations, not giving workers an independent perspective. If bargaining is reduced to making deals with companies, the members become a nuisance. Educationals on past struggles become counterproductive. Collective Agreements are rushed through without a real chance for consideration. Workers who vote against concessions are told to vote again ‘until they get it right.’ Actions that go against union principles cannot be justified, so they must simply be rammed through without reasoned debate. In this context, prospects of an election raising questions about how the union functions, as well as leadership accountability, are seen as a threat, not an opportunity.

As convoluted as the events around the CAW 'almost-election' were, it did highlight what has long been true but shrugged off: there is something broken in the union's internal democratic process. It is telling that, a day after the NEB and staff meetings and before the administration caucus had met, never mind before the Convention itself, Ken Lewenza was already referred to as the new CAW President, thus foregoing even the formality of union democracy.

The much-needed debate inside the CAW should not be limited to how to fix the administration caucus. The problems go much deeper and involve issues central to all unions. What unions face today is rooted in the way North American unions organized themselves in much better economic times than for workers than the present. Not having understood that period to be an interlude, a break before the pressures of capitalism renewed attacks on the working class, unions did not prepare for what lay ahead. Workers are now suffering for that lack of understanding and preparation. While corporations have become more radical and aggressive, the labour movement has become more cautious and defensive. The most important question for the labour movement is to come to grips with those past failures and the need to become as radical as the other side. If we don't develop a vision that fundamentally questions the anti-social logic of capitalism, and build the collective capacities that can challenge corporate power, things won't just stay the same: they are likely get worse.

The real issue of Lewenza's leadership is not, as some commentators have emphasized, his relative lack of experience outside auto and southern Ontario. This may be a concern, but Lewenza is bright and energetic enough to learn how to move from being a local auto president to leading the largest private sector union in the country. Rather, the issue is whether Lewenza, as the candidate for continuity in the CAW leadership, will address the accumulated set of problems and challenges that the union confronts. To do so, the union will need to make adjustments in its current strategies and structures, and address internal democracy to mobilize the input of its staff, elected local leaders, and activists.

It would be a tragedy for all of Canadian labour if, in the face of the intimidating challenges confronting the CAW, the next CAW President circled the wagons, silenced dissenters, and just continued on without reassessing the union's direction and current limits. Any creative leadership has to allow for innovations, and encourage departures from past practices. Whether this happens will not, of course, depend on Lewenza alone. Democracy always has to be fought for and local leaders and activists have a responsibility – now, perhaps more than at any time in recent CAW memory – to insist that they and their members have an impact on the outcome.

Sam Gindin is the Packer Visiting Professor in Social Justice at York University.

*********************************************

Ford to cut jobs abroad
as U.S. sales fall 14%

Jul 15, 2008 04:30 AM