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Canada’s Flaherty Says Chrysler Request Is Substantial

Canadian Finance Minister Jim Flaherty said Chrysler Group LLC’s request for government funding is “substantial” and he anticipates additional demands from other carmakers.

Canada wants to entice auto manufacturers to remain in the country by helping them expand facilities, Flaherty said at a press conference in Ottawa today, the day after releasing a budget that includes C$500 million ($455 million) for carmakers.

The money “is not just for Chrysler, it’s for some of the other automotive companies in Canada,” Flaherty said, adding he considers the industry an employment hub. “The demands by Chrysler are substantial.”

Chrysler is reported to be considering at least a C$2.3 billion investment in its Windsor, Ontario minivan plant and has asked the federal and Ontario governments for subsidies. Canada’s auto industry is shrinking, with Mexico expected to surpass Canada as the biggest exporter of cars to the U.S. in 2015, according to consultant IHS Automotive.

Chrysler, owned by Fiat SpA (F), is asking for at least a C$700 million contribution from government for upgrades to facilities including the minivan plant and for new research and development, the Globe and Mail reported today.

“This is the largest manufacturing sector in Ontario,” Flaherty said. “This is not to be treated lightly.”

Shawn Morgan, spokeswoman for Auburn Hills, Michigan-based Chrysler, declined to comment on the potential investment yesterday. Sergio Marchionne, CEO of Chrysler will give the keynote speech at the Canadian International AutoShow in Toronto on Thursday.

Auto Fund

Canada will pay the additional money for carmakers through the Automotive Innovation Fund, which has invested C$316 million in six projects since 2008, according to yesterday’s budget. The fund, which provides repayable contributions to automakers for large-scale research and development projects, has attracted private-sector investments of as much as C$2.3 billion, budget documents show.

The cash adds to Canada’s investment in the car industry, where it holds a 6.9 percent stake, worth about $3.9 billion, in General Motors Co. (GM), the largest U.S. automaker. The federal and Ontario governments are the second-largest shareholders in Detroit-based GM. Canada has maintained its holding even after the U.S. government sold its GM shares.

The auto industry represented 10 percent of manufacturing gross domestic product and 14 percent of total merchandise exports in 2012 and employs more than 115,000, according to the budget.

The industry has been struggling to attract investment after the Canadian dollar rose above par with its U.S. counterpart in the wake of the financial crisis, and auto companies directed investment to cheaper locations in the southern U.S. and emerging markets. Canada’s dollar dropped to the lowest in four years last month to about 90 U.S. cents.

By 2015, U.S. sales of autos from Mexico may climb to 1.9 million, topping Canada’s 1.87 million, Lexington, Massachusetts-based IHS has estimated.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net

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