Canadian government pours C$250 million into auto sector

OAKVILLE, Ontario (Reuters) - Canadian Prime Minister Stephen Harper unveiled C$250 million ($253.69 million) in government support for the country’s auto industry on Friday as Ottawa tries to lure investment to the shrunken sector and create jobs.

The new Ford Flex is seen on the assembly line at the company's Oakville Plant June 3, 2008. REUTERS/Fred Thornhill

Harper announced a five-year extension and new funds for the Automotive Innovation Fund, which was set up in 2008 with an initial C$250 million of government money for research and development projects in Canada’s auto industry.

"Our goal in creating this fund was to promote and secure more high quality manufacturing jobs for Canadian workers in this industry through innovation," Harper said, speaking at an event at the Ford Motor Co. F.N assembly plant in Oakville, Ontario.

In order for companies to be considered for the funds, they need to make auto sector investments of more than C$75 million. The government said its support to date has leveraged up to C$1.6 billion in industry investment.

Companies who have made use of the fund include Ford Motor Co of Canada F.N, Linamar Corp. LNR.TO, Toyota Motor Manufacturing of Canada 7203.T and Magna International MG.TO.

The government subsidy comes as the industry is still reeling from General Motors Co's GM.N announcement last month that it will produce the next generation of its Chevrolet Camaro in Lansing, Michigan, instead of at GM's Canadian production hub in Oshawa, Ontario, where it currently produces the sports car.

Canadian Auto Workers union president Ken Lewenza welcomed the government support for the auto industry, but said Canada needed to do more to match the level of incentives offered by other countries and certain U.S. states.

“I’m very grateful for the fact that they established the fund, but I still think we have to take a look at a longer term approach to how do we sustain it long term, because what we know is investment comes and goes,” Lewenza told reporters at the event.

According to the CAW, Canada was the fourth largest auto producing jurisdiction in the world in 1999. A decade later, hit by a range of factors including a soaring Canadian dollar, which hiked manufacturing costs, Canada has fallen out of the top 10 and the number of industry jobs has shrunk by a third.


Separately, Harper said the Canadian government does not intend to keep its stake in General Motors Corp GM.N over the long term, but it will not be influenced by the United States on when to sell.

The governments of Canada and Ontario, the heartland of the country’s auto sector, became shareholders of GM in 2009 when they contributed a combined C$10.8 billion to a bailout to keep GM afloat. The U.S. government provided about $50 billion.

Canada and Ontario’s combined stake in GM is equal to about 9 percent.

“We are not bound by what the United States decides,” Harper said. “We’ll sell in a way that attempts to maximize the value for the Canadian taxpayer.”

The U.S. Treasury said on December 19 that it plans to sell its entire stake in GM over 15 months, all but assuring a multibillion dollar loss.

Analysts have said Canada is under no fiscal pressure to sell its GM stake soon and may hold onto it until after the country’s next general election, scheduled for 2015.

In return for their investment in GM, the Canadian governments required that the automaker maintain its share of production in Canada for several years moving forward.

Canadian Industry Minister Christian Paradis said last month that he was “concerned” about GM’s decision to move its Camaro production and that Ottawa would hold the Detroit automaker to the commitments it made when Canada and Ontario invested in it.

($1 = $0.9855 Canadian)

Additional reporting by Randall Palmer in Ottawa; Writing by Nicole Mordant; Editing by Leslie Gevirtz