Canada offers $3.29B auto bailout

December 20, 2008 5:41:33 PM PST
The Canadian national goverment and Ontario's provincial government say they've put together a bailout package for the Canadian subsidiaries of General Motors, Ford and Chrysler. Ontario Premier Dalton McGuinty says his province will provide 1.3 billion Canadian dollars ($1.07 billion U.S.), with the rest provided by Ottawa for a total of 4 billion Canadian dollars ($3.29 billion U.S.) in renewable loans payable to the Canadian subsidiaries.

The announcement follows yesterday's pledge by President George W. Bush to offer $17.4 billion in emergency loans to General Motors and Chrysler.

Prime Minister Stephen Harper says today's announcement "is not a blank check" for the industry, suggesting both the companies and their employers will have to make concessions.

The carmakers are suffering from their slowest sales in 26 years and dwindling operating cash.

Prime Minister Stephen Harper said Canada's bailout plan, the equivalent of 20 percent of the U.S. aid package, will help keep the plants afloat while the automakers restructure their businesses to retain one the country's most important sectors.

"We cannot afford, in the United States or Canada, the catastrophic short-term collapse of the Big Three automakers. The U.S. has signaled that they are not going to allow these companies to fail, and we will do our share of the North American package to see that this doesn't happen either," said Harper speaking at a news conference in Toronto.

Canada's automotive industry represents 14 percent of the country's manufacturing output, 23 percent of manufactured exports, and directly employs more than 150,000 Canadians. The country's largest industry within the manufacturing sector, it has been suffering from its slowest sales in 26 years and dwindling operating cash.

Ontario has agree to provide 1.3 billion Canadian dollars ($1.07 billion) of the total since the province alone employs about 400,000 auto sector workers - both directly and indirectly - and the industry is the mainstay of about 12 Ontario communities.

"In Ontario, we've got thousands of people and their families who rely on the auto industry to be on firm ground, so they can put food on the table and keep a roof over their heads...No state or province employs more workers, and we're not going to give that up," said Premier Dalton McGuinty, speaking alongside Harper Saturday.

The Canadian plan will provide General Motors Canada with loans of up to 3 billion Canadian dollars ($2.47 billion) and Chrysler Canada will receive up to 1 billion Canadian dollars ($823 million). The companies will get the money in three installments, with the first portion coming Dec. 29.

However, Harper and McGuinty stressed that the government will not be handing over blank checks, saying that all stakeholders will be expected to make adjustments to reduce structural costs.

"Canadian taxpayers expect their money will be used to restructure and renew the automotive industry in this country," said Harper. "They expect all stakeholders to come to the table and work together towards sustainable long-tern solutions to maintain our current production share of the North American market."

Harper's statement was applauded by Canadian Auto Workers President Ken Lewenza, who said the union was willing to work with industry to protect jobs.

"This will ensure that the Canadian industry is protected and the numerous investments governments have made over the years will continue to benefit our communities. This is a very sound decision on the part of both governments," said Lewenza, who has been lobbying the government to develop an aid package as soon as possible.

Harper also announced two additional steps the federal government will take to support the overall competitiveness of the auto industry. Automotive suppliers will have greater access to accounts receivable insurance through Export Development Canada to compensate for the reduced availability of credit. A new facility will also be created to support access to credit for consumers to improve the accessibility of car loans and dealer financing.

Similar to the U.S. auto bailout package, the Canadian aid package comes with strings attached, including a request that parts suppliers get the money they are owed, that borrowers accept limits on executive compensation, and that they provide the government with warrants for nonvoting stock.

McGuinty warned that the money will only be delivered after auto companies agree to meet conditions set by the governments.

"Those conditions include limits on executive compensations. The loans will only stay in place beyond March 31, 2009 if our governments are satisfied there are solid restructuring plans in place and under way," said McGuinty.