Canada, Ontario Agree on Conditional Auto Aid Plan

TORONTO/OTTAWA (Reuters) – The governments of Canada and province of Ontario agreed Friday to provide aid to the struggling auto sector that could be worth C$3.5 billion ($2.8 billion) in an effort to stave off a massive loss of jobs at car plants and parts manufacturers.

The package, the amount of which is based on Canada’s proportional share of North American car and truck production, is conditional on the U.S. government first providing a rescue package for the Detroit Three, federal Industry Minister Tony Clement said at a media briefing in Toronto.

He said he expects the U.S. administration to approve a package “very soon,” after the Senate rejected a $14 billion proposal late Thursday, deepening uncertainty for the sector.

“Any action by the federal and provincial governments to support the auto sector as it restructures must be equally integrated with action taken by the United States,” Clement said. “The federal and Ontario governments are prepared to move quickly if and when the Americans approve a support package.”

On Friday, the White House said it might dip into the $700 billion U.S. bank recovery fund to stave off an auto industry collapse.

Unlike in the United States, there is little legislative resistance to a Canadian bailout of the auto industry, even though it goes against the grain of the Conservative government.

Ontario is the base of production operations for General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz), Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) and Chrysler [CBS.UL] in Canada, and the U.S. automakers and their parts suppliers employ hundreds of thousands of workers.

In a statement late Friday, Ford of Canada said that rather than an immediate loan, it had asked the government for a stand-by line of credit to use should the financial situation worsen.

Local mayors in such Ontario cities as Windsor, Oshawa and St. Thomas have waged a campaign to convince governments to pony up aid for the industry, saying their communities would be devastated without it.

“We can be proud of our past, we can be proud of our productive capacity here and our workers, but we also have to have an understanding that we’re in what I call an existential moment,” Clement said.

“Is this industry going to exist in any capacity two years from now, five years from now?”

The announcement came after Canadian Auto Workers President Ken Lewenza urged Prime Minister Stephen Harper to proactively announce a Canadian package, which could then put pressure on the United States.

“We’re pleading, in particular with Mr Harper, to move and move swiftly in support of the Canadian auto industry and in support of our existing facilities,” he told a union news conference in Toronto.

It was uncertain what concessions the CAW might make. A dispute over concessions from the United Auto Workers was one reason an aid package failed in the U.S. Senate.

Lewenza said “we’re part of the solution” but he said the problem was not unionized labor.

“UAW members and CAW members cannot be scapegoats as a result of this global financial crisis. The reality is, we could work for nothing and it wouldn’t improve the global financial crisis we’re experiencing,” he said.

Clement said he had a frank discussion with Lewenza this week and said that even if Canada’s industry was among the most productive in the world it also needed to be competitive. He said, without giving details, the signal from Lewenza was that he was prepared to work with the management and government.

An aide, speaking on condition of anonymity, said the industry minister was looking at requests not only from the Big Three but also from auto parts makers such as Linamar (LNR.TO: Quote, Profile, Research, Stock Buzz) and Magna International (MGa.TO: Quote, Profile, Research, Stock Buzz).

There have been reports the Canadian sector is looking for C$6 billion in loans, loan guarantees and lines of credit.

($1=$1.24 Canadian)

By John McCrank and Randall Palmer
(Additional reporting by Jeffrey Jones in Toronto; Editing by Frank McGurty and Lincln Feast)