GM General Motors Company

By Gautham Nagesh and Paul Vieira 

Canadian auto workers kick off contract negotiations with Detroit's Big Three Wednesday, with union officials aiming to preserve jobs in one of the country's bedrock manufacturing industries even as a disproportionate amount of auto investment heads to Mexico.

Negotiators for Unifor, Canada's largest private-sector union, are most focused on securing future product commitments, but at least one U.S. car company is unlikely to make those commitments before the contract expires in mid-September, according to a person familiar with negotiations. The union, representing 20,000 auto workers in these talks, plans to strike if demands aren't met.

Negotiations commence a year after the United Auto Workers secured raises and healthy bonuses for U.S. factory workers employed by General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV.

Unifor workers have seen two modest cost-of-living adjustments since 2007 and don't have profit-sharing agreements. Unifor President Jerry Dias says the main thing the union needs is a guarantee that each company will keep building in Canada.

U.S. auto makers are expected to push for a more variable compensation model in the talks, such as profit-sharing, according to people familiar with the strategies. Detroit has significantly revamped its cost structure by offering UAW workers profit-sharing arrangements resulting in payouts as high as $11,000.

Mr. Dias said the union will push for regular wage increases instead of bonuses, but says that discussion is meaningless if there is no future work. The union is willing to strike the auto makers if no progress is made.

"I'm dead serious that if we don't have product [commitments] in this set of negotiations, we're not going to have an auto industry in the long term," Mr. Dias said in an interview. "If you lose major assembly or engine plants, you lose the supply base that goes with it."

A GM car factory in Oshawa, Ontario, and a Fiat Chrysler sedan plant in nearby Brampton are focal points in negotiations. Together, those plants represent one-fifth of Canadian vehicle assembly, according to external estimates.

Mr. Dias argues the Canadian auto parts sector's 71,000 workers could be hit if those plants close.

GM, however, isn't prepared to make a firm product commitment to Oshawa, where at least one of the two assembly lines is expected to close next year, according to a person familiar with the company's strategy. The larger line at Oshawa only has products scheduled until 2018.

GM negotiators view this round of talks as a first hurdle, this person said. The company is likely to wait for a labor deal before deciding Oshawa's future.

Canada's production volumes are in the spotlight as North American light-production roars back to pre-financial-crisis levels amid record sales. A disproportionate amount of the billions invested in North American car factories since then has gone to plants in the U.S. and Mexico, which attracted tens of billions in factory commitments in recent years due to low wages and trade deals.

Excluding currency conversion, Unifor's auto workers make a maximum $34 an hour wage and benefits can push total compensation to $65 an hour, according to Ann Arbor, Mich.-based Center for Automotive Research, or CAR. That is $5 an hour more than GM's UAW workers make, and the rate is the auto sector's second-highest in the world behind Western Europe.

Factoring in exchange rates, Canadian auto workers are paid $46 an hour in total compensation. Auto makers have said currency fluctuations don't play a role in long-term sourcing decisions.

Canada's auto industry employment has fallen 27% since before the recession as much of the work has shifted to Mexico or lower-cost factories in the U.S. South, but motor vehicles and parts are a major component in the economy. Statistics Canada estimates 19% of Canadian sales abroad come from automobiles and components needed to make them.

Canadian production and capacity utilization rates remain high. But the nation's overall automotive trade balance within the North American Free Trade Agreement region has been roughly halved from prerecession levels.

"What they have now is a shadow of what they once had, and now they're fighting to keep what they have," Kristin Dziczek, an auto analyst with CAR, said.

Demands for flexible compensation could be a sticking point, since union officials like Mr. Dias have long preferred steady raises to profit-sharing.

Jim Wheeler, a 50-year-old union representative in Oshawa, said signing bonuses and profit-sharing may, however, appeal to younger workers who have seen only 54 cents in total cost-of-living increases since 2008. Unifor employees received a series of lump sum payouts since 2012 that equal $9,000.

"That's why we vote on these things," Mr. Wheeler said, underscoring his belief that workers overall prefer regular raises.

Christina Rogers and David-George Cosh contributed to this article.

Write to Gautham Nagesh at gautham.nagesh@wsj.com and Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

August 10, 2016 05:44 ET (09:44 GMT)

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