Automodular: GM demanding it cut prices 50 per cent at Oshawa plant

Automodular: GM demanding it cut prices 50 per cent at Oshawa plant

AJAX, Ont. — General Motors is reportedly demanding that sub-assembly contractor Automodular Corp. cut its prices in half at GM’s Oshawa, Ont., car plant or risk losing its contract.

Automodular (TSX:AM) said Tuesday it was "evaluating its options" after receiving written notice from GM.

The Ajax, Ont.,-based company, which sub-assembles components and modules used in the manufacturing of cars and trucks, said GM has demanded "an approximately 50 per cent reduction in the price of its services" at the Oshawa assembly plant.

Otherwise, it risks "losing the business as early as August, 2010."

Loss of the business would expose Automodular to an after-tax loss of approximately $7 million in the current year, the company said.

GM Canada, whose parent company recently emerged from bankruptcy protection in the United States, has been looking to cut costs after one of the biggest downturns in the industry’s history.

The face of the North American auto industry has been changing for years, but the pace of that change accelerated dramatically over the last 18 months with the global financial crisis and recession.

GM and Chrysler both filed for U.S. bankruptcy protection last spring, and managed to survive with the help of tens of billions of dollars in U.S., Canadian and Ontario government loans.

GM Canada pared back its Canadian operations to deal with the new market reality, closing a truck plant in Oshawa, with the loss of about 2,600 jobs. The company also plans to shut down a transmission plant in the southwestern Ontario city of Windsor, affecting another 1,400 jobs.

An although the company has begun rehiring some laid off workers recently, it has also moved to close more than 200 of its 700 GM dealerships in Canada.

Word of the Automodular price squeeze at the Oshawa plant was disclosed on the same day the company reported a return to profitability in the fourth quarter with earnings of $2.1 million or eight cents a share.

That compared with loss of $10.3 million or 40 cents a share in 2008, which included a $9.4 million write-off of goodwill and an $800,000 charge relating to the reversal of US-based future tax assets where realization of those assets was uncertain.

Revenue for the quarter was $22.8 million, up from $16.4 million in the year-ago period.

Full-year net earnings were $2.7 million or 11 cents a share compared with a net loss of $6.9 million or 27 cents per share in 2009,

Sales revenue for the year was $75.3 million, down from $82.9 million in 2008.

Automodular also noted that it suffered no production down time in the most recent quarter at operations in either Oshawa or Oakville, Ont., compared with substantial down time earlier in the year as both GM and Ford attempted to rebalance inventory levels and reduce costs in response to reduced consumer demand for automobiles.

Automodular is a supplier of sub-assembly, sequencing, and transportation services to three original equipment manufacturing plants in Ontario and Ohio. The company has four operating facilities and employs approximately 650 people.

It shares were up one cent at 50 cents Tuesday on the Toronto Stock Exchange.

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