The Canadian government on Tuesday said it will provide additional help to the country’s auto industry but warned that Canadians need to be prepared for the possibility that General Motors Corp. and Chrysler LLC could file for bankruptcy protection.
“We have to ready ourselves for other options, including Chapter 11 in the United States and CCAA bankruptcy protection here in Canada,” Industry Minister Tony Clement said.
Clement said $700 million Canadian ($565 million) will be provided to help auto-parts suppliers.
Canada will also help consumers by backstopping auto warranties in the event that a carmaker files for bankruptcy. That backstop of warranties matches what the U.S. has done.
Both the U.S. and Canadian governments are awaiting new restructuring plans from GM and Chrysler before approving more bailout money for the struggling companies. Clement said GM and Chrysler must present plans that maintain the 20 percent Canadian share of production.
The auto industry directly employs more than 150,000 Canadians plus another 340,000 Canadians indirectly.
Clement said it’s difficult to say whether Chrysler will survive. Chrysler was given 30 days to cement the Fiat alliance as part of its restructuring plan. Some industry analysts have said Chrysler will be forced into bankruptcy protection if it cannot complete the deal by the end of April.
“It’s difficult to say,” Clement said. “Over the next two or three or weeks perhaps I’ll be able to give a better answer.”
The Canadian government has had talks with Fiat.
Canada last month offered up to $4 billion Canadian in interim loans to help keep GM and Chrysler afloat. Chrysler has taken some of the money but GM has yet to. The two companies have received $17.4 billion in U.S. government loans to fund their operations as they try to slash costs and debt levels to stave off bankruptcy.
“The situation is bad,” Clement said. “It’s very dependent on the United States situation. When Americans stopped buying cars it affected the auto sector worldwide. At the same time at the current rate that Americans are buying cars it means they are going to keep their cars for 27 years. Americans are going to start buying cars again. They are not going to keep their cars for 27 years.”
The money for the auto suppliers will be used for accounts receivable insurance. Accounts receivable refers to the money that is owed to a company and the federal funds will provide a type of insurance that will ensure auto parts makers will be paid if a customer fails.
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