Chrysler Canada and the Canadian Auto Workers union are closer to agreement on a concessionary contract than previous reports have suggested, Ward’s learns.

A source close to the talks, which began officially today in Toronto, indicates the divide on labor cost reduction may be no greater than C$5.75 ($4.67) per hour.

Another source said last week the CAW’s deal with General Motors of Canada Ltd., which the union considered to be a template for this week’s talks, left an C$11.75 ($9.55) gap when its provisions were applied to Chrysler.

Against this backdrop, Chrysler is preparing a contingency plan to pull its manufacturing operations out of Canada if it does not get concessions on labor costs.

Chrysler is seeking the concessions, which must be in place by March 31, to comply with terms of emergency government financing in the U.S. and Canada. The troubled auto maker is seeking $9 billion in the U.S. and up to C$3 billion ($2.4 billion) in Canada.

Until now, Chrysler and the CAW have been exchanging data that reflect their respective positions on the labor-cost gap. One discrepancy hinged on Chrysler’s existing labor cost, which includes wages and benefits paid to active workers and benefits paid to retirees and the surviving spouses of deceased retirees.

Chrysler has pegged this cost at C$76 ($61.79) per hour, but the CAW insists it is closer to C$70 ($56.91), the source says.

Meanwhile, the GM deal features concessions such as a base-wage freeze, the suspension of cost-of-living adjustments and reduced time off. When these provisions are applied, the CAW believes its all-in labor cost to Chrysler falls to C$62.75 ($51).

Contrasted with Chrysler’s C$57 ($46.34) all-in, per-hour labor-cost bogey – the level reportedly enjoyed by Toyota Motor Mfg. Canada – it leaves a C$5.75 ($4.67) differential.

And Chrysler may not be firm in its demand for a reduction to C$57. A second informed source suggests the auto maker would be content with something “in the neighborhood” of that target.

The serious tone of the talks is not surprising, considering the dire economic climate that has sparked record sales declines around the globe.

“What we’re in is a period where survival is the dominant factor,” says David Cole, chairman of the Michigan-based Center for Automotive Research.

Cole tells Ward’s the pattern-type bargaining the CAW tried by first striking a deal with GM is a relic of the past. He expects the union may “customize” agreements to suit each auto maker.

“That’s just the nature of the beast right now – survive at any cost,” Cole says, adding Chrysler’s threatened pullout from Canada is plausible if the auto maker’s management team is unable to ensure its competitive position.

Ken Lewenza, CAW president, is optimistic an agreement can be reached with Chrysler.

“The CAW fully expects to get the process back on track and work towards reaching an agreement with Chrysler that will secure jobs here in Canada,” Lewenza says in a statement.

The union represents about 8,000 Chrysler workers, most of whom are employed at the auto maker’s assembly plants in Windsor, ON, and Brampton, ON.

emayne@wardsauto.com