Jun 04, 2008 - 10:20 AM

Rob Ferguson

General Motors faces up to $35 million in penalties from the Ontario government for closing its Oshawa pickup truck plant next year, a top company official says.
     
The money is “10 to 20 per cent” of a $175 million, 50-year loan that GM got from Premier Dalton McGuinty’s $500 million auto investment fund three years ago, vice-president David Paterson confirmed.
    
Given the company’s financial situation, the payment would be painful but the plant must be closed because of slumping sales in the U.S., Paterson added.
   
“The company’s losing money in Canada and it’s in a situation where we need to make a shift in our footprint,” he said, noting GM’s sales in Canada are down 20 per cent year over year.
   
The comments came after GM Canada president Arturo Elias acknowledged the auto giant could be on the hook for early loan repayments for not meeting terms requiring it to keep employment levels up.
   
Under the deal, GM was to maintain an average of 16,000 jobs in Ontario over a 10-year period ending in 2013. Sources said the loan is interest free.
   
“Potentially, there may be some repayments there but I would say that it’s very early to tell at this particular point in time,” Elias told a news conference.
   
Similar penalty provisions are in effect from a $200 federal government loan, Paterson added.
   
The impending closure of the 2,600-employee plant sparked a political firestorm at Queen’s Park yesterday over the loan plus $60 million in associated grants to two universities - including the University of Ontairo Institute of Technology - for auto research, for a total of $235 million - all part of GM’s $2.5 billion “Beacon Project” to upgrade some Canadian operations.
   
Premier Dalton McGuinty acknowledged that the job losses would likely push GM afoul of its loan agreement to maintain jobs in Ontario and said the government will “seek to enforce” penalties under the deal.
   
That didn’t satisfy the opposition parties.
   
They questioned the loan given that GM already has plans to lay off thousands of workers, including a shift at the pickup truck plant next fall and closing a Windsor transmission factory.
   
 “Any reasonable person would look at this and say, this is a really dumb deal,” said NDP Leader Howard Hampton.
   
Progressive Conservative John Tory said the plant closure, one of four in North America that GM announced yesterday, shows McGuinty isn’t doing enough to mitigate danger signs in the economy.
   
“I think the premier has grossly underestimated the threat to our economy in general, including the auto industry,” he told reporters.
   
“I haven’t heard a peep from Dalton McGuinty about anything he proposes to bring forward to take account of the fact that things are much worse than he ever said they would be.”
   
McGuinty said details of a program to retrain laid-off workers for new careers are coming soon.
   
Opposition parties accused the government of being evasive on the terms of the GM deal, with McGuinty and Economic Development and Trade Minister Sandra Pupatello revealing yesterday for the first time that the money was a loan and not a grant as previously believed.
   
Pupatello initially said it was a 30-year loan, was unsure what interest rate it carried and maintained “it’s too early to tell” whether the pending job losses at the pickup truck plant would be enough to break terms of the loan requiring GM to maintain an average staff level of 16,000.
   
“This is a government that I think is playing fast and loose with the truth all in a desperate attempt to cover up, all in a desperate attempt to cover up for their own bad policies,” said Hampton.
   
A senior government aide said Pupatello was being cautious with information for fear of giving away competitive details that could “box the government in” with other automakers seeking assistance.
   
Paterson said the early loan repayment penalty could come late next year, or take the form of foregone loan payouts from the province because GM has so far been given $139 million of the approved $175 million amount.
   
“It’s entirely in the purview of the province to protect the taxpayers’ money,” he said
   
General Motors remains thankful for the loan because it helped to fund a flexible manufacturing line at the Oshawa car plant, paving the way for the reborn Camaro coupe that begins production later this year.
   
Paterson also revealed GM is in the early planning stages to bring a front-wheel drive model car to the Oshawa car plant “within two, three or four years,” although a specific model has not been identified.
   
He added jobs from that production are unlikely to offset the loss of positions at the pickup truck plant, slated to close in mid-2009.
   
“We may move it earlier or later depending on how the market is going,” Paterson said.
   
Because of lower demand for pickup trucks due to high gas prices, the U.S. housing slump and economic slowdown, GM will soon go from a company that had a 50-50 truck-car production mix to about 60 per cent cars and 40 per cent trucks, SUVs and crossover vehicles, Paterson said.
   
The truck plant ran on three shifts and produced more than 300,000 vehicles annually until this year. It cut a shift in January and plans to reduce output again this fall before closing the operation in the second half of 2009.