November 7, 2008 / 9:03 PM / 10 years ago

UPDATE 1-Canada cautiously cracks open door to auto aid

By Randall Palmer and John McCrank

OTTAWA/TORONTO, Nov 7 (Reuters) - Ottawa would consider granting further aid to Canada’s auto industry, but only if it amounted to more than a short-term fix and was affordable, Prime Minister Stephen Harper’s office said on Friday.

The Canadian Vehicle Manufacturers’ Association, representing the Canadian arms of General Motors Corp (GM.N), Ford Motor Co (F.N), and Chrysler [CBS.UL], made another appeal for help to the federal and Ontario governments on Wednesday.

“With the global financial liquidity crisis and the collapse in the U.S. consumer market, Ontario’s auto industry, which exports 85 to 90 percent of its finished product into the U.S. market, is struggling for survival,” the association said in a letter.

The U.S. auto industry is also seeking urgent help from the U.S. government, and President-elect Barack Obama urged the Bush administration on Friday to accelerate $25 billion in advanced technology loans to the industry.

The Canadian government reacted coolly to a request made in late October by the autoparts industry, but it has since opened the door a crack to possible assistance in a number of different sectors.

“We’re not closing the door absolutely on a number of these questions, but I think one has to recognize the fiscal situation that we’re in as well,” said an aide to Harper, speaking to reporters on condition he not be identified.

He said the government would ask itself: “Is it fiscally responsible? Is this actually a long-term solution or is it a Band-Aid that won’t actually ultimately change the outcome of the events that are happening in the economy?”

Ottawa also has to balance competing demands from a number of industries. It is in the consulting phase now and has not made specific decisions, the aide said.

He said the prime minister is “very concerned about the auto sector right now.”

Industry Minister Tony Clement said in a statement that he and Ontario Economic Development Minister Michael Bryant “are committed to working together to address these issues.”

Clement said that on Thursday he met the CEOs of the Canadian divisions of General Motors, Chrysler and Toyota Motor Corp (7203.T), and the heads of autoparts makers Magna International MGa.TO (MGA.N) and Linamar Corp (LNR.TO). He also spoke to Ford Canada’s CEO.

They talked against a backdrop of a sharp downturn in the industry, which has seen sales levels in the United States collapse to 25-year lows.

Ford and GM announced huge losses on Friday and GM Canada said it would temporarily lay off 500 of its 5,000 workers at a car plant in Oshawa, Ontario, in January.

When the auto parts industry asked for C$1 billion ($850 million) in emergency funds and loan guarantees a little under two weeks ago, the federal government said it had already made money available more broadly through its agencies.

Ottawa said it had authorized a boost in the borrowing capacity of Export Development Canada, and the Business Development Bank was also taking measures to improve liquidity.

On Friday, Clement pointed to Ottawa’s steps to buy insured mortgages from the chartered banks to improve the availability of credit to business; money dedicated to infrastructure; and the C$250 million Automotive Innovation Fund to develop competitive vehicles.

In the United States, the chief executives of GM, Ford and Chrysler met with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reed on Thursday to make their case for up to $50 billion in government aid.

Ford said on Friday it had burned through $7.7 billion in cash in the third quarter. It reported a net loss of $129 million, but excluding one-time items, the loss from continuing operations ballooned to $2.98 billion.

GM said it had a $4.2 billion operating loss and burned through $6.9 billion in cash. It said it sees liquidity falling significantly short in the first two quarters of 2009. ($1=$1.19 Canadian) (Editing by Rob Wilson)

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