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Navistar International Corp., which received more than $60-million from the federal and Ontario governments earlier this decade to help keep open its heavy-truck plant in Chatham, Ont., laid off all the employees at the plant yesterday and warned that the operation needs to be "smaller and radically different."

The warning from plant manager Craig Holmes came after the Canadian Auto Workers union rejected a contract offer calling for a large reduction in the size of the plant's unionized work force and cuts to wages and benefits.

"We're at a crossroads right now," Mr. Holmes said in a taped message to employees, adding that the need for a smaller and different operation is the biggest hurdle to a new contract with the CAW.

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"It's a hurdle we must get over to move forward," he said.

Bob Chernecki, an assistant to CAW president Ken Lewenza, criticized Navistar for putting about 1,000 workers "in limbo" after accepting money from the two governments to keep the plant open and for building trucks for the Canadian military at a plant in Garland, Tex., instead of in Chatham.

Navistar said it is abiding by the terms of the military contract that require it to spend $274-million on parts in Canada to match what the federal government paid it for the trucks.

Conservative MP Dave Van Kesteren said he is concerned about the economic impact on his region, but he said it is up to the company and the union to come to an agreement.

"What we can do is limited as a government. The government can't get involved in negotiations," he said in an interview.

Mr. Van Kesteren said the company was the only bidder on the National Defence contract, and that the benefits for Canadian industry will be more in terms of servicing the trucks than building them.

A spokesman for Industry Minister Tony Clement said the trucks are needed for the war in Afghanistan, and building them in Texas is the quickest way to achieve that goal.

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But the opposition is accusing the government of failing to use the truck contract as leverage to bring more work to Chatham. Liberal MP and defence critic Denis Coderre said on that and other recent military contracts, Industry Canada has failed to enforce the dispositions on regional development.

"The Conservative government, on the whole, has failed to prove that the dollar-for-dollar actually occurs," he said in an interview.

Regarding Navistar, Mr. Coderre said there is no justification for the instability in Chatham.

"Somebody failed in the negotiations process along the way," he said. "Will everything really be done in Texas?"

The Chatham plant is located in the swing riding of Chatham-Kent-Essex that was Liberal under the Chrétien and Martin governments, and has been Conservative since Prime Minister Stephen Harper came to power in 2006.

The federal contract and a subsequent order from Britain for the same vehicles would have helped keep Chatham operating, said the CAW's Mr. Chernecki. Instead, "everyone is on layoff. The question is what [Navistar]is going to do. I have no idea."

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Roy Wiley, a spokesman for Navistar, would not comment on the contract negotiations, but noted that the plant's two-week summer shutdown also began yesterday.

Asked what happens when the vacation period ends, Mr. Wiley said: "Who knows? We want to talk, but we have to be productive."

Navistar received $32-million from Ontario and $30-million from Ottawa to keep the plant open in 2005 after announcing in 2002 that it would shut the plant and move the work to Mexico.

The money included $27-million from Ontario for a research and development centre to study advanced heavy-truck manufacturing.

If the plant closes, which the union fears is Navistar's ultimate plan, any breakthroughs would benefit Navistar's U.S. or Mexico plants.

Since 2005 and the reversal of the earlier decision to close the plant, employment peaked at about 1,100 people in 2007, but is down to about 100 now amid a collapse in sales of heavy-duty trucks throughout North America.

NAVISTAR (NAV-N)

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About the Authors
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

Daniel Leblanc studied political science at the University of Ottawa and journalism at Carleton University. He became a full-time reporter in 1998, first at the Ottawa Citizen and then in the Ottawa bureau of The Globe and Mail. More

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