news Chrysler C$3.8B investment 'not ideal' but best way to keep jobs, Harper says

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Chrysler C$3.8B investment 'not ideal' but best way to keep jobs, Harper says



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By Romina Maurino And Maria Babbage, The Canadian Press


TORONTO - Canada isn't looking to wade into the auto business and would rather not have to invest a total of C$3.8 billion in insolvent Chrysler LLC, but the move is necessary to keep jobs in the country, Prime Minister Stephen Harper said Thursday.

"While this situation is not ideal, this is the best way forward for the Canadian economy," Harper told a Toronto news conference.

"This is not a perfect decision but far better than the alternatives and it will ensure a viable Chrysler and ultimately be part of a viable auto sector coming out of the recession, which Canada must have."

Harper's comments came after the U.S. and Canadian governments approved a plan to sink billions of dollars into Chrysler and the company filed for bankruptcy protection in the United States as it restructures and cements an alliance with Italian automaker Fiat over the next two months.

"Chrysler was once one of the world's foremost automotive companies, as a result of this restructuring plan and its new partnership with Fiat, we are confident it will become one once again," Harper said.

He also thanked Chrysler's workers in Canada and the U.S. for the concessions they've made to keep the company afloat, saying that without those sacrifices, Thursday's announcement "and the better future that it brings simply would not have been possible."

The plan means Chrysler's plants in Windsor and Brampton, Ont., which employ more than 8,000 workers, will stay open. And while Chrysler LLC is filing for bankruptcy protection in the U.S., the Canadian subsidiary has no immediate plans to follow a similar process in Canada.

Under Chrysler's restructuring plan, Canada and Ontario will get a two per cent equity stake in a restructured Chrysler LLC and will provide US$2.42 billion in new financing to help the company survive. The U.S. government will own eight per cent of the company.

The investment brings Canada's total contribution to the survival of Chrysler so far to C$3.775 billion - including $1 billion already promised to the automaker, $750 million of which has already been drawn down. Chrysler has up to eight years to pay back the loans .

Ontario Premier Dalton McGuinty said his province was contributing a total of C$1.25 billion, while Ottawa would kick in about $C2.5 billion.

"This will give our two governments a two per cent share of the company, it will give us a seat at the boardroom table, and it will give Chrysler's plants in Windsor and Brampton a new lease on life," McGuinty said.

"Those plants will stay open."

While Ottawa and Ontario couldn't guarantee specific job numbers, they said Chrysler has agreed to keep at least 20 per cent of its production and product-related investment in Canada. Currently the company's Canadian plants produce 25 per cent of its North American output.

The two governments have the right to divest their stake starting in 2013, but can exit earlier. They can also call in their loans at any time if Chrysler doesn't live up to its end of the deal.

The government aid is part of a broader restructuring that saw the Detroit-based automaker file for bankruptcy protection in the U.S. on Thursday as it streamlines operations, deals with its financial debts and completes its alliance with Fiat that will help the company produce small, more fuel-efficient cars in North America.

Chrysler also announced it will temporarily halt most of its vehicle production while it completes the deal with Fiat designed to revive its tattered fortunes.

The Obama administration said it had long hoped to stave off bankruptcy for the third-largest U.S. automaker, but it became clear that a holdout group of creditors wouldn't budge on proposals to reduce Chrysler's US$6.9 billion in secured debt. Clearing those debts was a needed step for Chrysler to restructure by a government-imposed Thursday deadline.

"No one should be confused about what a bankruptcy process means," President Barack Obama said in an earlier announcement in Washington. "This is not a sign of weakness but rather one more step on a clearly chartered path to Chrysler's revival."

The Canadian and U.S. governments said they will provide US$10.5 billion in new financing, including short-term and medium-term capital to assist with the court-supervised restructuring of Chrysler in the United States.

The U.S. is contributing US$8.08 billion of the funding.

Ken Lewenza, president of the Canadian Auto Workers union, said he was pleased with the governments' move to protect Canadian jobs and said his union's members shouldn't be worried - at least for now.

"We do not expect anything to change in Chrysler's day-to-day activity," Lewenza said.

"I urge CAW members at Chrysler to remain calm and keep doing their jobs."

But Liberal leader Michael Ignatieff, who was at the Liberal convention in Vancouver, said Thursday he had "some concerns" about the deal, in particularly about "whether taxpayers' money will be safeguarded" and whether workers will be eligible for Employment Insurance during a planned nine-week shutdown.

Nevertheless, he said Liberals want to "preserve Chrysler jobs" and Canada's 20 per cent share of production capacity.

Chrysler is seen as the weakest financially of the so-called Detroit Three carmakers, a group of companies that includes General Motors (NYSE:GM) and Ford Motor Co. (NYSE:F). The entire industry has been battered by the recession, slumping vehicle sales, shifting consumer tastes and a credit crunch that has made it more difficult for consumers to finance car purchases.

Chrysler was in talks last year to be taken over by General Motors, but those negotiations collapsed and the company turned to Fiat to form an alliance to stave off collapse and liquidation.

The company also negotiated major labour concessions with the auto unions in Canada and the United States in a bid to lower costs and become more competitive.

Chrysler has plants across North America, including three in southern Ontario, where the company's Canadian subsidiary, Chrysler Canada, employs about 9,400 people in Windsor, Toronto and nearby Brampton.

Under the restructuring plan, the U.S. will appoint four independent directors to the new nine-member Chrysler LLC board, while Canada will name one director. Fiat will appoint three directors and the United Auto Workers Union will appoint one.

Current auto production shares will be maintained at current levels, as the cost sharing "reflects the historic shares of auto production in both countries for Chrysler."

The board will also pick a new CEO for the U.S. parent company when Robert Nardelli steps down after the company emerges from bankruptcy protection in the United States.