UPDATE 3-Canada unveils C$4 bln plan to help auto industry

Sat Dec 20, 2008 1:19pm EST

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By Frank McGurty

TORONTO Dec 20 (Reuters) - Canada will follow the United States by providing C$4 billion ($3.3 billion) in emergency loans to the Canadian arms of Detroit's ailing automakers to keep them operating while they restructure their businesses, Prime Minister Stephen Harper said on Saturday.

The package, announced by Harper and Ontario Premier Dalton McGuinty, comes a day after the White House unveiled a $17.4 billion package to shore up Detroit's auto industry.

Harper also announced two new federal measures to support the overall industry -- one to benefit automotive suppliers and a second to help consumers get credit to buy cars.

"There are literally across the country hundreds of thousands if not millions of potentially affected families by the distress of this industry," Harper said at a joint news conference.

"And we are obviously making sure at this Christmas time that, within the confines of our responsibility for taxpayer money, that we are also going to look after their interest."

A collapse of the Detroit Three automakers would put nearly 600,000 Canadians out of work within five years, most of them in Ontario, according to a recent report by provincial advisory panel.

Under the plan, the federal government will provide C$2.7 billion in short-term loans and Ontario C$1.3 billion.

General Motors of Canada Ltd (GM.N) is eligible for loans of up to $C3 billion and Chrysler Canada Inc CBS.UL for up to C$1 billion. The Canadian arm of Ford Motor (F.N) has not asked for immediate assistance, the Industry Ministry said.

Harper said the governments were attempting to attach some liens and secure some assets of the car companies "but I will not fool you -- there is obviously some money at risk here."

He said the aid reflected Canada's 20 percent share of North American production capacity. But at $3.3 billion, the Canadian package actually represents one-sixth, or 16 percent, of the $20.7 billion in North American aid announced over the past two days.

FAILURE IS NOT AN OPTION

Harper said Canada would not allow a restructuring of the industry on U.S. terms in a way that might cause the relocation of Canadian facilities to the United States.

He said the Bush administration and the incoming Obama team have made it clear they would not let the companies fail.

"We may well have much smaller companies but they will not fail in my judgment," Harper said. "The question then for Canada is to ensure that as they are restructured that we retain our market share."

Harper said the aid to automotive suppliers would come in the form of additional accounts-receivable insurance coverage through the federal Export Development Corp.

The federal government also will create a new facility to support access to credit for consumers. Details were not immediately available.

"We don't want a package that simply helps the Detroit Three and therefore has the effect of ... subsidizing those who are struggling while penalizing those who have made good business decisions," Harper said in explaining why the package included help for suppliers and consumers.

It was apparent any deal would need some concessions from the Canadian Auto Workers. Harper said all stakeholders would have to help in the restructuring.

After the announcement, the CAW said it was willing to work with industry to protect jobs. Even so, it said the crisis was not caused by compensation for North American autoworkers but by the overall troubles in the economy.

McGuinty, the Ontario premier, said Asian automakers, which have facilities in Canada, backed the aid package. He said that if the one of the Big Three companies fail, the entire industry, including the Asian-based companies, would suffer because of the integration of the North American industry.

A recent study commissioned by the Ontario Manufacturing Council warned that a collapse of the Detroit Three would ripple through the entire economy, hitting creditors, suppliers, parts manufacturers and dealerships.

Harper is a Conservative who generally opposes state intervention in the economy but he said on Thursday that the government would end a 12-year string of budget surpluses and inject C$20 billion to C$30 billion of stimulus into the economy next fiscal year.

Interest on the short-term loans to the automakers will be set at 300 basis points above LIBOR, the federal government said in a release. The closing date is Dec. 29. ($1=$1.20 Canadian) (Additional reporting by Randall Palmer)