April 7, 2009 / 4:28 PM / 9 years ago

Canada says must prepare for automaker bankruptcies

OTTAWA (Reuters) - The Canadian government must be prepared for the possibility that General Motors Corp or Chrysler will go into bankruptcy protection, Industry Minister Tony Clement said on Tuesday after announcing new measures to back up Canada’s auto sector.

Clement told a news conference that the government wants the two companies 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.”

CCAA, the Companies’ Creditors Arrangement Act, is the Canadian counterpart of Chapter 11 of the U.S. Bankruptcy Code.

“There used to be a phrase in the auto sector -- too big to fail -- I don’t think that phrase exists anymore,” Clement said.

He said it is difficult to say whether Chrysler can 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 told reporters.

Clement announced the government would increase the amount of cash available to Export Development Canada by C$700 million ($569 million) to insure that auto parts suppliers can get money owed to them by struggling automakers.

He said the additional funding to EDC brings Canada’s total exposure to C$1.25 billion, which is about 20 percent of the $5 billion U.S. 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.

Clement also said that from now on, warranties on new vehicles sold by Chrysler and General Motors Corp would be guaranteed by a C$185.3 million Canadian warranty 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” in the auto sector ends.

“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,” Clement said.

“If GM or Chrysler does go bankrupt, this warranty is not affected by that.”

($1=$1.23 Canadian)

Reporting David Ljunggren, writing by John McCrank; editing by Peter Galloway

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