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Car dealers welcome $12-billion boost

Globe and Mail Update

Ottawa, Toronto — Auto dealers and buyers got a $12-billion boost to their available credit as Finance Minister Jim Flaherty provided budget assistance to finance vehicle sales and leases, as well as inventories for car dealers.

Under the new Canadian Secured Credit Facility, Ottawa will purchase from banks and other regulated financial institutions up to $12-billion worth of securities that are backed by auto loans and leases on vehicles and equipment.

The lenders, in turn, are expected to offer more credit to dealers as well as increase lending for car loans and leases.

The $12-billion infusion should kick-start the stagnant vehicle leasing market, said Rick Gauthier, president of the Canadian Automobile Dealers Association.

The credit crisis caused the auto makers' financial arms to halt financial support for their dealers and the banks refused to fill the gap, Mr. Gauthier said, leaving many dealers casting about for ways to finance purchases of vehicles from the car makers.

“We're going to have a direct injection of $12-billion directly into the auto sector, which is going to render these companies – the Toyota Credits and Ford Credits – liquid and allow them to get back into the marketplace and aggressively promote their products and support their dealers,” he said.

Chrysler Canada Inc. and Ford Motor Co. of Canada Ltd. had been pushing Ottawa to create a program to buy commercial paper issued by their finance arms so they could start offering leases to customers again. Leasing collapsed late last year when the credit freeze tightened.

Mr. Flaherty provided little direct aid to auto makers or their suppliers beyond the $2.7-billion share of the $4-billion bailout offered to Chrysler and General Motors of Canada Ltd. in December.

While struggling parts suppliers sought up to $1-billion in direct assistance, they'll have to be satisfied with across-the-board measures to improve access to credit, including a large increase in the lending capacity of Export Development Canada and the Business Development Bank of Canada.

The $12-billion will help indirectly, said Linda Hasenfratz, president of auto parts maker Linamar Corp., because the first step in an auto recovery “is actually getting people buying cars.”

Ms. Hasenfratz is still worried, however, about the cash crunch suppliers are going to face in the next two months because the virtual shutdown of North American production in January means parts makers will have no revenue coming in.

Mark Nantais, president of the Canadian Vehicle Manufacturers Association, which represents Chrysler, Ford and GM, applauded the boost to credit availability and the moves in the budget designed to restore consumer confidence.

“Getting back consumer confidence is the priority here because if we don't get people back into the showrooms, and into the stores and purchasing goods again, the revenue's not there for businesses and we continue to go on a downward spiral,” Mr. Nantais said. “So that's absolutely critical.”

Under the $12-billion program, all federally regulated financial institutions will be able to sell their auto-backed loans to the BDC, with the expectation that they will use the added liquidity to make new loans.

Finance officials said auto makers' finance arms will have to commit to becoming federally regulated institutions in order to qualify for the program. However, they won't have to wait for that qualification process to be completed before accessing federal assistance.

Mr. Flaherty said Industry Minister Tony Clement will develop a strategy over the coming months to position Canada's automotive sector for long-term success.

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