Canada Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty announced that the Government of Canada and the Government of Ontario would provide up to C$4 billion (US$3.3 billion) in loans payable to General Motors of Canada Limited (up to C$3 billion) and Chrysler Canada Inc. (up to C$1 billion) through Export Development Canada (EDC).
GM will receive C$0.8 billion on closing (29 December); C$1.2 billion on 30 January 2009; and C$1.0 billion on 27 February 2009. Chrysler will receive C$0.4 billion on closing (29 December); C$0.4 billion on 30 January; and C$0.2 billion on 27 February.
Access to loans will require a lien be put on Chrysler Canada’s unencumbered Canadian assets. In the case of General Motors of Canada, access to loans will require that the governments of Canada and Ontario be granted senior status for the demand loans to the extent permitted by law under existing agreements. In exchange, the governments through EDC will receive warrants for non-voting common shares equal to 20% of the loans made to the parent companies of Chrysler and General Motors’ Canadian operations.
Earlier in December, Canada indicated that it would provide proportional funds to automakers contingent on a US package. (Earlier post.)
There will be conditions to the financing extended to automakers. The federal and provincial governments will exercise oversight over the use of taxpayer money as part of its ongoing due diligence. Every stakeholder in the auto industry will also be expected to do their part to reduce structural costs and ensure a viable auto industry in Canada, said the statement from the government.
Today’s announcement is not a blank cheque. Canadian taxpayers expect their money will be used to restructure and renew the automotive industry in this country, they expect all stakeholders will come to the table and work together toward sustainable long-term solutions, and they expect that Canada will maintain our current production share of the North American market. This is a regrettable, but necessary step to protect the Canadian economy.—Prime Minister Harper
The Prime Minister 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 EDC coverage to compensate for the reduced availability of credit. In, addition the Government of Canada will create a new facility to support access to credit for consumers with particular attention paid to improve the accessibility of car loans and dealer financing.
The automotive industry in Canada directly represents 14% of the country’s manufacturing output, 23% of manufactured exports, and directly employs more than 150,000 Canadians. It is the country’s largest industry within the manufacturing sector.