Government won't bail out auto industry: minister

Fri Feb 29, 2008 12:04pm EST
 
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TORONTO (Reuters) - The government is willing to help the automotive sector adapt to growing competition and environmental concerns, but Industry Minister Jim Prentice warned on Friday that it will not offer bailouts.

"The industry has always been innovative and competitive. It's going to have to continue to stay innovative and competitive," Prentice told reporters following a speech. "The government of Canada intends to create a framework in which industry can succeed. We think that is our responsibility."

In his speech to the Toronto Board of Trade, Prentice pointed to the federal government's February 26 budget in which it earmarked C$250 million over five years for research and development in the auto sector.

The budget also extended its accelerated capital cost allowance treatment for investment in machinery and equipment for three years.

The government has been besieged with cries for help from the auto sector, which has been hit by the cost effects of the stronger Canadian dollar, by the slowdown in the United States, Canada's main export market, and by competition from lower-cost countries.

Analysts estimate that for every new plant that opens in North America over the next few years, two will close.

"The key really to all this is not government subsidies. The key is to have an industry that is cutting edge," Prentice said.

Independent industry analyst Dennis DesRosiers praised the government's measures in the budget and its refusal to bail out the sector, which he said had been too sheltered under the old Canada-U.S. auto pact, which dated back to 1964.

"We need to cast off the carcass of the industry that was generated from a highly protectionist auto pact environment and move to a dynamic industry that faces global competition, learns how to innovate and addresses the agenda items that the consumers are looking for today," he told Reuters.

($1=$0.98 Canadian)

(Reporting by Scott Anderson; Editing by Peter Galloway)

 
<p>Canada's Industry Minister Jim Prentice stands to speak during Question Period in the House of Commons on Parliament Hill in Ottawa January 29, 2008. Canada's government is willing to help the automotive sector adapt to growing competition and environmental concerns, but Prentice warned on Friday that it will not offer bailouts.REUTERS/Chris Wattie</p>