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Closing Oshawa line could breach GM bailout conditions

Newly built cars sit in a shipping lot near GM's assembly plant in Oshawa, Ont. General Motors says it expects to close one of the two lines at the plant by June 1, 2013.

Reuters

General Motors of Canada Ltd. is in danger of breaking a production commitment it made to the federal and Ontario governments in 2009 in return for more than $10-billion in taxpayer financing that helped bail out the auto maker and its parent company.

As part of that deal, GM promised that its Canadian factories would build 16 per cent of the vehicles General Motors Co. assembles in North America through the end of 2016.

Canadian production has been above that target since 2009, but the closing of an assembly line in Oshawa, Ont., known as the "consolidated line," will cut output here by more than 200,000 vehicles annually beginning in 2014. Meanwhile, U.S. production will expand starting this fall when GM reopens a plant in Spring Hill, Tenn.

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But GM says it intends to meet its 16-per-cent commitment.

Workers on two Oshawa lines and GM's Cami Automotive Inc. plant in Ingersoll, Ont., assembled more than 21 per cent of the vehicles the company made in North America last year and in the first five months of 2012. But if output from the consolidated line is excluded, Canada's share of North American production drops to just 13 per cent.

The future of Oshawa and whether GM will earmark new vehicles for the site will be a critical issue in contract negotiations this summer between the Canadian Auto Workers and the company. At stake are about 2,000 jobs the CAW is hoping to preserve in Oshawa by convincing GM to reverse its decision to close the consolidated line and the potential of adding several hundred more with a third shift on the neighbouring flexible line.

Those issues are "going to be No. 1 on my agenda," said Chris Buckley, president of CAW local 222 in Oshawa and chairman of the union's GM bargaining committee. "We need additional products. We need these jobs. I'm very nervous that our footprint is going to be the smallest in our history and that doesn't make me feel too comfortable."

It's not clear what consequences GM would face, if any, if it fails to meet the 16-per-cent threshold. Neither GM Canada spokeswoman Faye Roberts nor Industry Canada spokesman Michel Cimpaye would reveal if GM would be subject to penalties or if the government has other levers to ensure the company meets the production target.

The flexible line in Oshawa is more up to date, turns out such newer models as the Chevrolet Camaro and Buick Regal and is capable of producing vehicles on more than one platform, or basic underbody. The consolidated line assembles the older Chevrolet Impala and does final assembly of Chevrolet Equinox crossovers. GM will begin shutting down that line later this year and production will cease entirely next June.

A third shift on the flexible line would help offset the closing of the consolidated line, but would not compensate entirely for that and the addition to U.S. production with the reopening of the Spring Hill plant.

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There are no plans to add a third shift to the flexible line, but the addition of the Cadillac XTS earlier this year and the next generation of the Chevrolet Impala in 2013 may create the need for increased production, Ms. Roberts said.

"GM is committed to meeting its production targets as agreed to during the 2009 restructuring," she said.

The company has met other commitments, she pointed out, including producing five new or redesigned vehicles in Canada; starting hybrid production with the Buick Regal eAssist on the flexible line in Oshawa; and adding the production of transmissions to a factory in St. Catharines, Ont.

The agreement with the governments contains what she called "flexibility mechanisms," which recognize that vehicle production and sales are subject to economic cycles. She would not elaborate.

One key variable on whether GM will meet the Canadian production target in 2014-2016 is what happens in Spring Hill, which will begin making the Chevrolet Equinox this fall. Right now, the main factory for those vehicles is the Cami plant in Ingersoll, which is at maximum production on three shifts plus overtime. The consolidated line in Oshawa also produced 59,000 Equinox models last year.

An agreement between GM and the United Auto Workers union calls for an investment of more than $400-million (U.S.) in that plant, production of two mid-sized vehicles and the creation of 1,700 jobs. The plant was closed during the company's restructuring and Chapter 11 bankruptcy proceedings in 2009.

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Spring Hill will need to produce 100,000 vehicles annually to generate a profit, said one industry source. "You can't cover your overhead if you're not doing at least 100,000."

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Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

Parliamentary reporter

Steven Chase has covered federal politics in Ottawa for The Globe since mid-2001, arriving there a few months before 9/11. He previously worked in the paper's Vancouver and Calgary bureaus. Prior to that, he reported on Alberta politics for the Calgary Herald and the Calgary Sun, and on national issues for Alberta Report. More

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