October 28, 2008 / 7:17 PM / in 9 years

Ottawa balks at more aid for auto-parts makers

TORONTO (Reuters) - The Canadian government balked at a request from the auto-parts industry for up to C$1 billion ($775.2 million) in emergency funds and loan guarantees on Tuesday, arguing it has already taken steps to improve financing conditions.

“Effectively the government is doing really already what has been asked for,” Industry Minister Jim Prentice told Reuters. The industry is seeking short-term loans and is asking for Canadian and Ontario government help in guaranteeing funds it borrows.

Prentice said the government had already authorized a C$2 billion increase in the borrowing capacity of Export Development Canada, and that the Business Development Bank is also taking additional measures to improve liquidity.

In a letter to the finance ministers of Canada and Ontario asking for extra assistance, the head of Automotive Parts Manufacturers Association Canada said the liquidity crisis is drying up regular funding, and financial institutions are only lending to the industry’s strongest players.

“Everyday it just gets worse,” he said in an interview.

North American vehicle production is down by 5 million units from where it was four years ago due to a souring economy, and cash flow for many companies is evaporating. Demand is not expected to start bouncing back until 2010.

“People will be buying vehicles again... so we just have to get through the next year and a bit and that’s difficult without some sort of government assistance in terms of financing,” Fedchun said.

The auto parts industry still makes up the biggest chunk of the country’s manufacturing sector, but it has been on a steady decline since 2002, when it employed 106,000 Canadians. It currently provides around 85,000 jobs.

Last Thursday, Canadian Finance Minister Jim Flaherty announced a program to insure borrowing by federally regulated banks in the short to medium term to help get liquidity flowing. Fedchun said he would like to see similar guarantees for loans taken out by auto parts makers.

He also called for the government to match proportionately a $25 billion package the U.S. government has offered U.S. auto makers to help them reach more stringent fuel-economy standards by 2020.

The call for action was supported by the Canadian Vehicles Manufacturers Association, which represents Chrysler Canada Inc, Ford Motor Co. of Canada Ltd, and GM Canada.

Fedchun may soon get his chance to argue his case personally to Prentice. He said they are both members of the Canadian Automotive Partnership Council and that the council’s co-chairman, Don Walker, is trying to set up an emergency meeting to discuss the industry’s problems. Walker is better known for his role as co-chief executive of Canadian auto parts manufacturing giant Magna International Inc.

($1=$1.29 Canadian)

Reporting by John McCrank, additional reporting by Randall Palmer in Ottawa; Editing by Peter Galloway

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