Government strikes deal with GM for Ontario investment

Sat Sep 6, 2008 12:46pm EDT
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TORONTO (Reuters) - The Canadian government said on Saturday it had struck a deal with General Motors of Canada Ltd that commits the automaker to invest $290 million at several of its Ontario operations.

The announcement is the second of its kind in the past three days and may help shore up support for Canada's minority Conservative government in Southern Ontario, where the auto manufacturing sector has been bleeding jobs, on the eve of an election call.

Under the agreement, GM will put about $245 million into its St. Catharines plant to make fuel-efficient 6-speed front-wheel drive transmissions, which would support more than 300 jobs, Industry Canada said in a release.

In Oshawa, where GM recently announced it was shuttering its truck plant, eliminating 2,600 jobs, Canada's largest auto maker has agreed to build a mid-sized hybrid vehicle at its car plant.

GM will also commit $40 million for environmental research at its Canadian engineering center, also in Oshawa.

The Canadian government, which is widely expected to call a federal election on Sunday for October 14, is not required to contribute any new funds.

Instead, it said it would not trigger early repayment of loans it provided GM under a 2005 agreement, of around $200 million, that hinged on minimum employment targets, which GM will not meet due to the truck plant closure.

On Thursday, the government announced it would invest up to $80 million in Ford Canada facilities in Windsor, Ontario.

Canada's auto sector has been hit hard by a combination of high gasoline prices, a stronger Canadian dollar and the economic slowdown in the United States, where nine of every 10 Canadian-built cars are sold.

(Reporting by John McCrank)

<p>A General Motors employee inspects Chevrolet Impalas on the production line in Oshawa, Canada August 21, 2006. REUTERS/J.P. Moczulski</p>