Identifier
Created
Classification
Origin
09TORONTO117
2009-06-02 20:24:00
UNCLASSIFIED
Consulate Toronto
Cable title:  

CANADA AND ONTARIO APPROVE GENERAL MOTORS RESTRUCTURING

Tags:  ECON EFIN ETRD EINV EIND PREL PGOV CA 
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DE RUEHON #0117/01 1532024
ZNR UUUUU ZZH
P 022024Z JUN 09
FM AMCONSUL TORONTO
TO RUEHC/SECSTATE WASHDC PRIORITY 2831
INFO RHEHAAA/THE WHITE HOUSE WASHDC PRIORITY
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHME/AMEMBASSY MEXICO 0152
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUEHNY/AMEMBASSY OSLO 0050
UNCLAS SECTION 01 OF 02 TORONTO 000117 

SIPDIS

STATE FOR EBB/TPP/MTAA (NAFZIGER)
PASS TO USTR FOR MALMROSE

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV EIND PREL PGOV CA
SUBJECT: CANADA AND ONTARIO APPROVE GENERAL MOTORS RESTRUCTURING
PLAN

REF: TORONTO 20

SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY

UNCLAS SECTION 01 OF 02 TORONTO 000117

SIPDIS

STATE FOR EBB/TPP/MTAA (NAFZIGER)
PASS TO USTR FOR MALMROSE

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV EIND PREL PGOV CA
SUBJECT: CANADA AND ONTARIO APPROVE GENERAL MOTORS RESTRUCTURING
PLAN

REF: TORONTO 20

SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY


1. (SBU) Summary: On June 1, the Ontario provincial and Canadian
federal governments (GOC) announced the terms of their support for
General Motor's (GM) restructuring plan. The GOC and Ontario
together will invest US$9.5 billion (C$10.6 billion) in GM in
exchange for an equity position in the company and a seat on its
board. GM Canada is not filing for bankruptcy protection in Canada,
and will continue operating, though interruptions are expected
during GM's Chapter 11 filings in the United States. End Summary.


2. (SBU) Following a week of round-the-clock negotiations with GM,
dealers, and bondholders that came after an intense round of
negotiations between GM and the Canadian Auto Workers union (CAW),
Ontario and the GOC released the terms of their support for GM's
restructuring plan. Together they will invest US$9.5 billion
(C$10.6 billion) in the automaker in exchange for a 12% share of the
restructured company. The two Canadian governments will also
appoint one independent director to the 13-person board of
directors. Ontario will invest C$3.5 billion in GM in exchange for
3.8% of the company; the GOC will invest C$7.1 billion for 8.2% of
the restructured company.

--------------
Conditions Met by GM in Canada
--------------


3. (SBU) Ontario and the GOC finalized their investment agreement
once three conditions were met by the company: Canada's current
share of GM's North American (including Mexico) automotive
production (roughly 16%, all in Ontario) will be maintained until
2016; Canadian labor costs were reduced to match non-unionized
competitor Toyota (an all-in rate of C$52 per hour); and commitments
to capital investment (C$2.2 billion through 2016),as well as to
research and development (C$1 billion through 2016),were made. No
employment guarantees were made. In order for GM to meet the above
labor concessions, Ontario and the GOC agreed to help GM with
pension liabilities and legacy costs, as part of their US$9.5
billion investment.

--------------
Canadian Ownership
--------------


4. (SBU) Canada's share of GM's new capital structure includes the
following:

-- Ontario/GOC will take on US$1.3 billion of GM's US$17 billion
consolidated debt;
-- Ontario/GOC will own US$400 million of GM's US$9 billion in
preferred shares; and
-- Ontario/GOC will own 11.7% of GM's common shares.
Ontario and the GOC hope to have fully divested their share of
ownership of GM by 2018.

-------------- -
GM Canada Not Filing for Bankruptcy Protection
-------------- -


5. (SBU) GM is not filing for bankruptcy protection in Canada under
the Companies' Creditors Arrangement Act (CCAA),and will continue
operating, though interruptions are expected during GM's Chapter 11
filings in the United States. GM Canada will complete its
restructuring without the use of a court-supervised process. There
is strong market demand for the Oshawa, Ontario-produced Camaro,
which began in March, and the Impala, which will remain in
production during the company's restructuring. If suppliers are
paid in advance, suppliers are expected to continue shipping parts
to the GM's Canadian plants.


6. (SBU) Comment: Ontario and the GOC have invested in GM with an
expectation that they could break even, but they are unable to
guarantee a return on taxpayers' money. Both have stressed that the
alternative is far worse, with a potential loss of tens of thousands
of jobs immediately following a GM decision to withdraw from Canada.
Prime Minister Harper told reporters on June 1 that the GM bailout
would account for the greatest part of the GOC's budget deficit.


7. (SBU) Comment, continued: There has been little political
opposition to the bailout in Canada, although polls indicate that
Canadians are skeptical about its value. The government investment

TORONTO 00000117 002 OF 002


has been depicted by some government officials as a one shot deal;
however, market analysts warn that the auto producer will likely
require more money to survive. With low expectations, all eyes will
be on GM as it struggles to rebuild.

NAY