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Auto-parts industry seeks $1-billion in loans

Government package 'required immediately' to help sector survive during liquidity crisis – and avoid collapse, manufacturers warn

From Tuesday's Globe and Mail

TORONTO AND OTTAWA — Canada's auto-parts makers need up to $1-billion in immediate short-term loans to help them survive during the liquidity crisis or the country's largest manufacturing industry could disappear, the federal and Ontario governments have been warned.

“Assistance is required immediately if our country has any hope of salvaging a once-vibrant and prosperous industry that is experiencing a temporary but very serious financial crisis,” Gerry Fedchun, president of the Automotive Parts Manufacturers Association of Canada, said in a letter to federal Finance Minister Jim Flaherty and Ontario Finance Minister Dwight Duncan.

Mr. Fedchun said in an interview on Monday that it is difficult to assess the amount of money needed, but it could be as much as $1-billion.

The auto-parts industry, meanwhile, is just one of the hard-hit sectors that is turning to the government for help as the tightening economy squeezes Canadian businesses into the red.

A spokesman for Industry Minister Jim Prentice said Monday that Mr. Fedchun's letter would be brought to the minister's attention.

“Clearly the minister has to see this letter and he has to talk to his colleagues as well” before he can formulate a response, said Bill Rodgers, the communications director for Mr. Prentice.

Mr. Rodgers said the plea for assistance from Mr. Fedchun is not the first of its kind. It follows similar requests from the forest industry, which has seen mill closings and layoffs in communities across Canada as a result of the U.S recession.

And, in terms of manufacturing, all segments of the auto sector – not just the parts makers –are feeling the effects of the shrinking economy. That's why the government promised during the election campaign to increase the $250-million automotive innovation fund, Mr. Rodgers said.

Ottawa, meanwhile, is about to hear monetary demands from provinces facing downturns and deficits, even as a growing number of experts predict the federal government will be in a deficit situation of its own next year.

The Ontario government is open-minded about helping the sector and would like to discuss what assistance it can provide with both the industry and the federal government, said Alicia Johnston, a spokeswoman for Finance Minister Dwight Duncan.

“We are absolutely concerned with the impacts of the current economic situation on the manufacturing sector and the various components of it,” she said.

She noted that the province has helped the sector through several initiatives, including its advanced-manufacturing-investment strategy that has created or retained 4,000 jobs, and its $1.15-billion “next-generation” jobs fund.

Mr. Fedchun's call for action is supported by the Canadian Vehicle Manufacturers Association, which represents Chrysler Canada Inc., Ford Motor Co. of Canada Ltd. and General Motors of Canada Ltd., and by GM Canada itself.

“I would agree with the APMA,” David Paterson, vice-president of public and government affairs for GM Canada, said Monday, although he added that the largest Detroit auto maker has not asked the federal government for any money.

Auto-parts companies and other Canadian exporters received one piece of good news Monday as the Canadian dollar fell almost a full cent to a four-year low of 77.59 (U.S.) based on another slide in the price of oil. But the oil-price drop and growing fears of a worldwide recession battered stock prices again, sending the S&P/TSX composite index staggering 756 points or 8.14 per cent to its lowest close in four years.

The APMA letter comes amid reports that the U.S. Treasury Department is considering aid of at least $5-billion (U.S.) to backstop a marriage of the troubled parents of Chrysler Canada and GM Canada: Chrysler LLC and General Motors Corp.

In addition, politicians in Michigan want the U.S. government to come up with an overall bailout package for the Detroit Three to keep them from sliding into bankruptcy protection in the midst of a cash crisis and a slump in sales to levels not seen since the recession of the early 1980s nearly put Chrysler into bankruptcy.

Mr. Fedchun added that in addition to whatever short-term loans Ottawa and Ontario can provide, Canada needs to match on a proportional basis a $25-billion loan package offered by the U.S. government to help auto makers reach a new fuel-economy goal of 35 miles per U.S. gallon (6.7 litres per 100 kilometres) by 2020.

The equivalent amount from the Canadian government would be about $3.8-billion.

With reports from Reuters and The Canadian Press

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