Ottawa aids auto leasing, but plan may fall short

Wed Jan 28, 2009 5:19pm EST
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By John McCrank

TORONTO (Reuters) - Ottawa's move to provide up to C$12 billion ($10 billion) to loosen financing for vehicle and business equipment loans and leases was welcomed by the struggling Canadian auto sector on Wednesday, but more needs to be done, industry members said.

The Canadian government included a plan in its annual budget on Tuesday under which it will buy securities backed by loans and leases on vehicles and equipment from banks and other regulated financial institutions.

The idea behind the Canadian Secured Credit Facility plan is that auto leasing companies, which have been battered by the credit crunch, will use the funds to provide more leases.

"The frozen credit market has really been a problem for organizations who have their own captive finance companies, like the Chryslers and Fords of the world, and others," said Mark A. Nantais, president of the Canadian Vehicle Manufacturers' Association.

"The C$12 billion is certainly welcome. I suspect, however, that the demand, or the need, is actually going to be much higher than that," said Nantais, whose organization represents the Canadian arms of Ford Motor Co, Chrysler, and General Motors Corp.

Derek Holt, an economist at Scotia Capital, agreed.

He said the auto financing market in Canada is worth about C$60 billion. So even if the budget measure were solely directed toward the auto sector and did not include capital equipment purchases by businesses, it would only represent about 20 percent of the market.

"This isn't the end of the debate in terms of how to repair some of the damage done to the leasing market," said Holt.   Continued...