TORONTO/OTTAWA (Reuters) - Canada said on Monday plans set out by the Canadian units of General Motors Corp and Chrysler don't go far enough to make them viable, but it offered C$4 billion ($3.2 billion) in bridge loans to tide the automakers over while they restructure.
The governments of Canada and the province of Ontario said they would provide Chrysler with C$1 billion, advancing C$250 million right away. It will distribute another C$500 million in early April and the remainder as of May 1.
Very clearly, if the money had not been forwarded today, (Chrysler) would not have been able to meet payroll today or tomorrow, Tony Clement, Canada's industry minister, told reporters in Ottawa.
So we were faced with this choice of a disorderly bankruptcy ... we felt now was the time to announce this.
GM is eligible for up to C$3 billion in bridge loans and the government said it hoped to close that deal very soon.
Ottawa and Ontario first announced the short-term financing in December but neither company has drawn on it.
Canada will provide no further financing unless acceptable plans are produced. If they aren't, the government would have the option of calling the loans.
The plans submitted by General Motors and Chrysler to the government of Canada do not go far enough to ensure the long-term viability of these companies, Clement said.
In addition to proving their viability, the companies will have to commit to maintaining 20 percent of their North American production in Canada.
On Monday, Washington demanded tough new restructuring plans at GM and Chrysler and forced out GM's chief executive.
Clement said the Canadian and U.S. governments were working closely on the file. He said Ottawa endorsed plans arrived at jointly with the United States under which Chrysler would have until the end of April to come up with a viability plan that must include a link-up with Italy's Fiat SpA.
Chrysler will also have to find a compromise with the Canadian Auto Workers union on cutting labor costs, while Canada says a deal that the union already cut with GM does not go far enough.
The union recently agreed to reopen the three-year contract deals it reached with the companies last May to help GM and Chrysler qualify for government aid.
Earlier this month, the CAW reached a deal with GM that the company said will eliminate nearly C$1 billion of costs related to its retired workers from its books, on top of cutting active labor costs by more than C$7 an hour.
Chrysler has said it needs a better deal from the union, or it could be forced to pull its operations out of Canada.
Clement said the GM-CAW deal falls short of what's required.
The Canadian government is expecting General Motors and the CAW to continue their discussions, particularly on the issue of legacy costs where it has become apparent there wasn't as much progress as we would have liked to have seen, he said, referring to costs related to retiree benefits
But CAW President Ken Lewenza dismissed the idea of reopening the contract with GM to address legacy costs, saying there was nothing the union could do even if it wanted to.
You can't do it in bargaining, and nor will we, he said at a press conference in Toronto.
I mean, at the end of the day, it's not legal to say to pensioners that you're not entitled to the pension benefits that you left on.
Lewenza said the union would be willing to sit down with the federal and provincial governments, and the companies, to look at the possibility of setting up a plan similar to what the United Auto Workers union and the companies have agreed.
In the United States, GM and Chrysler have obligations to a retiree healthcare trust, known as a Voluntary Employee Beneficiary Association, and are pushing the UAW to allow them to pay the union in stock rather than cash for half of the remaining obligations.
That is proving to be a major issue preventing tentative concession deals between the UAW and the companies.
GM has until the end the May to present its plan.
If the companies fail to prove they are viable, bankruptcy is an option, Clement said.
While we believe in the long-term viability of these companies, I agree with (U.S.) President (Barack) Obama that we must also consider the possibility of court-supervised restructuring, he said.
(Reporting by John McCrank in Toronto, and Randall Palmer and Louise Egan in Ottawa; Editing by Frank McGurty)