OTTAWA (Reuters) - Canada will guarantee the warranties of cars sold by General Motors Corp and Chrysler under a new program announced on Tuesday to help prop up the struggling carmakers, even as Ottawa said it must be ready for their possible bankruptcy.
Late last month the government, which says a disorderly bankruptcy in the sector would cause enormous damage, rejected restructuring plans presented by both companies but announced C$4 billion ($3.2 billion) in bridge financing for them.
Warranties on new vehicles would be guaranteed by a C$185.3 million commitment program, regardless of whether Chrysler and GM go into bankruptcy protection.
The program will be funded with cash contributed by the automakers and a loan from the federal government to pay for repairs covered by the automakers’ warranties on each new vehicle sold until “the period of uncertainty” ends.
The United States has already announced a similar measure.
“It will help consumers know that they have confidence when they buy a vehicle from GM and Chrysler during this uncertain period, that their warranty ... will be there for them,” Industry Minister Tony Clement told a news conference.
Clement also said the government will increase by C$700 million the amount of accounts receivables insurance that Export Development Canada can offer to auto parts suppliers so they can get money owed.
He said the additional insurance support to EDC brings Ottawa’s total exposure to auto parts suppliers to C$1.25 billion, which is about 20 percent of the $5 billion auto supplier support program announced by the U.S. government on March 19, and proportional to Canada’s share of the North American auto market.
David Mondragon, president and chief executive of Ford Motor Co’s Canadian unit, told Reuters he appreciates any government support for suppliers.
“Our industry is very interdependent, as we all know, and we understand the fragility of some of the suppliers in Canada and in the U.S., so any support that can be offered to them is well supported by the auto industry and by Ford,” he said.
Clement, repeating his message that no auto company is too big to fail, said “the situation is bad -- parts of it are getting worse, other parts are getting better”.
He said the government wants GM and Chrysler to restructure and survive, but added: “We have to ready ourselves for other options, including Chapter 11 in the United States and CCAA bankruptcy protection here in Canada.”
The Companies’ Creditors Arrangement Act, like Chapter 11 of the U.S. Bankruptcy Code, allows struggling companies to restructure under court protection from creditors.
GM Canada said in a statement after Clement’s announcement that it remained “focused on taking all necessary steps, working with the governments and all our stakeholders to quickly and successfully complete our restructuring in this challenging market.”
Answering a question from a reporter, Clement said it was difficult to say whether Chrysler would survive and that the government has had discussions on that subject with Italy’s Fiat SpA, with which Chrysler is trying to forge an alliance.
“Over the next two or three weeks, perhaps I’ll be able to give you a better answer,” he said.
Chrysler Canada Chief Executive Reid Bigland said in a statement that the company was pleased with government’s announcements.
“We consider this to be a great vote of confidence in our restructuring plans, and a boost to consumer confidence when they purchase one of our products during our restructuring efforts,” Bigland said.
Additional reporting by John McCrank and Randall Palmer