Special Report

2009 Year in Review

As Chrysler Group LLC hints it may build an Alfa Romeo car in Canada, memories of the auto industry’s most tumultuous year in decades begin to fade.

But as the dust settles, it becomes shockingly clear 2009 came close to becoming a cataclysm for America’s northern neighbor. It seems Chrysler was indeed prepared to pull out of Canada if the Canadian Auto Workers union had not broken with tradition by scuttling its hallowed “pattern-bargaining” principle and accepted a litany of contract concessions.

“I think the threat was genuine,” says Jeff Watson, a Canadian Parliamentarian who was chairman of the federal government’s auto industry caucus when Chrysler and the CAW were engaged in their high-stakes brinkmanship.

It was, arguably, the most explosive moment in a year of unprecedented volatility.

Canada’s trading advantage with the U.S. dissipated further as the Loonie inched closer to parity with the greenback. And the global recession kept buyers at bay – though not with the determination American shoppers mustered to avoid new-car showrooms.

As light-vehicle deliveries in 2009 plummeted to 10.4 million in the U.S. for a 21.7% plunge compared with 2008, sales in Canada fell to 1.5 million for a 10.7% shortfall, according to Ward’s data.

And while just three brands were in positive sales territory in the U.S. – Hyundai, Kia and Subaru – 16 marques showed gains over 2008 in Canada. They were Acura, Audi, BMW, Cadillac, Ford, Hyundai, Infiniti, Jaguar, Kia, Land Rover, Lexus, Lincoln, Nissan, Porsche, Subaru and Toyota.

Similarly, production totals belied the industry’s turmoil.

Bolstered by the first full year of production at Toyota Motor Mfg. Canada Inc.’s new plant in Woodstock, Ontario ranked No.1 among North American regions in annual light-vehicle output. The province’s 1.5 million-unit total outpaced perennial second-place finisher Michigan, which recorded 1.1 million, according to Ward’s.

Notably, Toyota forecast Woodstock, by the end of 2010, would enable domestic production of Toyota RAV4 cross/utility vehicles to overtake imported units on a volume basis and account for most of the model’s sales in the North American market.

Against this backdrop, Detroit-based rivals Chrysler LLC (as it was known under then-owner Cerberus Capital Management LP) and the former General Motors Corp. were hurtling toward bankruptcy. And their Canadian subsidiaries were along for the frightful ride.

The louder the headlines about cash drain at the U.S. parents, the steeper the monthly sales declines. Then Washington stepped in with aid wrapped in a quick-rinse bankruptcy proceeding, first at Chrysler on April 30 (and with an assist from Fiat Automobiles SpA); then at GM on June 1.

Canada’s federal government and its provincial counterpart in Ontario followed suit by contributing a combined $14.6 billion to rescue the U.S. auto makers and, in turn, their Canadian operations.

But not before both governments were satisfied Chrysler and GM had undertaken new cost-cutting regimes – a demand made in part to pacify skeptical taxpayers.

“Even in the heart of automotive country there was still some real trepidation,” Watson says, noting polls were running 3:2 against the notion of using taxpayer funds to maintain an economic sector that employs, historically, 36 people – from component makers to clerks – for every 10 vehicle-assembly jobs, according to Statistics Canada.

“The success of the restructuring was that everyone had to give,” Watson adds. “It wasn’t just the taxpayer. Bondholders got pennies on the dollar. Everybody from the CEO on down to blue-collar (workers) took significant concessions. That’s the only way it could have worked in terms of mitigating the risk.”

Enter Tom LaSorda, then-president and vice chairman of Chrysler, who proposed a bleak scenario before a Parliamentary committee formed to assess the state of the industry.

The CAW argued terms of a previously negotiated GM deal would afford Chrysler an all-in hourly labor-cost reduction of about C$13 ($11) to C$62.75 ($51), according to 2009 exchange rates. But LaSorda, as well as Fiat and Chrysler’s government stakeholders, insisted on a C$19 ($13) cut to C$57 ($46.34).

Anything short of that, LaSorda warned, and Chrysler would pull its manufacturing operations out of Canada.

“The biggest scare for me in all of this came with the CAW’s opening position that there would be no concessions whatsoever,” Watson tells Ward’s. “I’ve chalked that up to negotiating or feeling they were in some sort of a negotiation. In reality, they were not.”

The CAW’s intransigence, rooted in its time-honored practice of adopting its first agreement as a pattern for those at Chrysler and Ford of Canada Ltd., prompted a warning that came in the form of an e-mail from LaSorda and then-Chairman and CEO Robert Nardelli.

The union’s position, they said, “jeopardizes the future of Chrysler and our operations in Canada.”

Some industry observers dismissed the talk as saber-rattling, but Watson concurs with analysts who noted Chrysler was “not significantly down the path of gutting the St. Louis plant.”

In late 2008, as part of another cost-cutting initiative, the auto maker chose to turn the lights out at its minivan plant in St. Louis, thereby consolidating production of the Chrysler Town & Country and Dodge Grand Caravan at its plant in Windsor, ON.

“I don’t think it would have been a significant cost with respect to retooling,” says Watson, who knows whereof he speaks. Before his election to Parliament in 2004, he worked six years as an assembler at the Windsor plant.

The Chrysler deal undercut the GM agreement, effectively setting a new pattern to be pursued by the Detroit-based auto makers that employ some 33,000 CAW members. In addition to measures such as locked-in wages and a freeze on cost-of-living-allowance, the new agreement eliminated:

  • Semi-private hospital coverage.
  • A one-time $3,500 vacation buyout negotiated in 2008.
  • Employee car-purchase and tuition-rebate programs.
  • A reduction in the maximum dispensing fee for prescriptions.

Meanwhile, the deal established a Canadian Health Care Trust (HCT), similar to the United Auto Workers’ Voluntary Employee Benefits Assn. in the U.S., as well as Fiat’s World-Class Manufacturing system – an intensely disciplined approach to vehicle assembly, marked by employee accountability.

In a year-end speech to union leaders in Toronto, CAW President Ken Lewenza was philosophical.

“We met with the government,” Lewenza said. “Initially, we blasted them. We explained that the cost of labor on an automobile is 7% of the total cost of a vehicle. No one could blame the crisis of the auto industry on the Canadian AutoWorkers union, their collective agreement, their pensions, or their benefits.

“However, we all know how politics works: This was positioning government to support the industry by being able to state that they had forced all stakeholders to make sacrifices,” added Lewenza, who was elected to a 3-year term in September after succeeding Buzz Hargrove on his sudden retirement in 2008.

The CAW bargained a second agreement with GM to match the Chrysler deal and then reached consensus on a contract with Ford, which did not accept government aid but restructured nonetheless to stay competitive. As a result, the auto maker negotiated the closure of its assembly plant in St. Thomas, ON.

Home to the Ford Crown Victoria, Mercury Grand Marquis and Lincoln Town Car, the site will close its doors in 2011 because their shared platform, dubbed Panther, no longer is competitive. The move will displace some 1,400 workers.

Watson prefers not to dwell on what might have happened if Chrysler had pulled out of Canada.

“It’s tough to conceptualize what you didn’t have to face, which would have been literally a gaping hole in economy of southern Ontario, a significant part of the engine of the Canadian economy,” he says.

But the former auto worker notes government moves to enrich Canada’s auto industry, namely its Auto Innovation Fund. Changes were made to make assistance more accessible by adjusting the investment threshold that triggers a contribution.

Linamar Corp. was a prime beneficiary, setting itself up for a $55 million assist by virtue of its $365 million initiative to design and develop powertrain components for advanced, fuel-efficient engines and transmissions.

Says Watson: “You can never scrimp on innovation and productivity. As everybody in the world competes for that automotive manufacturing, and they can do the assembly part cheaper than us, productivity and innovation have to continue to be the business case, going forward.”

But nothing matters if vehicles don’t sell. And Canada can lay claim to some of the hottest-sellers on the market in the Chevrolet Camaro sports coupe and the Chevrolet Equinox/GMC Terrain CUVs assembled in Ontario at GM plants in Oshawa and Ingersoll, respectively.

Meanwhile, the Ingersoll site – known as CAMI Automotive Inc. – became the sole property of GM last year when former joint-venture partner Suzuki Motor Corp. sold its stake to the Detroit-based auto maker.

Surveying the industry landscape, Watson says: “The only thing that will guarantee some success, moving forward, is going to be product – and consumer response to that product.”