General Motors of Canada announced Thursday that it is cutting 1,200 production jobs at its Oshawa, Ont., truck plant by eliminating the third shift.

Sales of its pickups — produced in Oshawa and at four other North American plants — have fallen sharply, the company said in July.

GM wants to keep all five plants operating at full capacity, spokesman Stu Low told CBC News.

Oshawa is the only plant with a third shift, so it will lose those jobs to balance production among the facilities, Low said.

"That's what this announcement is really all about," he said. Low also said the company is trying to control inventory to match market demand.

Federal Finance Minister Jim Flaherty said he was alerted to the cuts on Wednesday and expressed his sympathy to the workers affected.

"It's a concern because people are going to lose their jobs and I know a lot of those people," he said Thursday.

"The reality is the sales for General Motors of Canada Ltd. have actually been good this year. The American market has been weak on the auto side and the Canadian market has been stronger, so this is regrettable."

Flaherty, who placed some of the blame on the high Canadian dollar, noted that while job losses have been high in the Canadian manufacturing sector, particularly in Ontario and Quebec, many people who lose their jobs are finding other employment.

"That's why the unemployment rate has remained relatively low," he said, noting that the Canadian unemployment rate is lower than it's been in a generation.

Decline in U.S. housing market cited as cause

Canadian auto analyst Dennis DesRosiers said the problem is the decline in the U.S. housing market, where house prices and new home starts are falling.

"The construction trades are getting hammered because of this and it is these small companies that buy pickups," he commented in an e-mail.

DesRosiers said the cuts will be temporary — maybe a few years — because the trades will return to the market and start buying again.

The Oshawa plant produces Silverado, Silverado SS, GMC Sierra and Sierra Denali pickups, the GM website says. Most of the trucks are sold in the U.S.

The Canadian Auto Workers union said in a release that "several hundred other jobs will be immediately lost in the region, as companies which supply GM (with parts, seats and components) also scale back employment."

GM said in early August that it sold more than 59,200 Chevrolet Silverado and GMC Sierra full-size pickup trucks in the U.S. in July "in a very challenging industry environment."

The company said American sales were 66,583 Silverados and 22,947 Sierras in July 2006.

Union caught off-guard

The shift will be cut on Jan. 1, the union said. It said it will try to negotiate buyouts with GM so that many of the affected workers can take voluntary early retirement.

"GM is not contractually obligated to provide these packages, since this is a volume-related decision. But we will press the company hard to provide these incentives," the union said.

The cuts appear to have caught the CAW by surprise.

"We did not see this coming," said Peter Kennedy with CAW Local 222, which represents the GM workers in Oshawa.

"There was no indication at all we were going to lose the third shift."

Buzz Hargrove, the CAW national president, said the news is devastating to the union membership and Oshawa, where GM is a major employer.

The truck-plant cut means about 4,000 GM jobs will be lost in the city next year, he said. GM said in 2006 that the No. 2 car plant, with nearly 3,000 workers, will close in 2008.

During a press conference, Hargrove returned to the CAW's persistent complaint that imports are causing the problems plaguing North American automakers.

He also blamed the federal government for its lack of support, which Flaherty later dismissed as untrue.

DesRosiers, president of DesRosiers Automotive Consultants Inc., dismissed those ideas as the cause of the industry problems. "Since 1960, we have gone through seven of these downturns and emerged each and every time stronger not weaker. This one will be no different," he wrote.

Big auto companies have been investing between $3 billion and $4 billion a year in Canada every year for the past decade, he said, and that bodes well for the future of the auto sector, despite the GM cutback.

With files from the Canadian Press