Feds to back warranties if automaker fails

Ottawa is providing up to $185 million to guarantee warranties on vehicles sold by General Motors and Chrysler, as the companies attempt to restructure, and another $700 million to protect hard-hit auto parts suppliers.

Industry Minister Tony Clement said consumers do not have to do anything to receive the federal warranty commitment — if either company were to go bankrupt.

However, Clement said it only applies to new vehicles sold as of Tuesday until the restructuring period is over.

“This is a new program. It matches, very clearly, what the United States has been doing,” Clement said.

“On a go-forward basis, as things become less stable, we felt that this was a way to assure the buyer that if you buy a GM product, or if you buy a Chrysler product, your 5-year warranty for parts and labour and service will be acted upon.”

The program is expected to cost the government $185.3 million.

General Motors Canada welcomed the announcement, and said in a press release, “We remain focused on taking all necessary steps, working with the governments and all our stakeholders to quickly and successfully complete our restructuring in this challenging market.”

Canadian Auto Workers president Ken Lewenza also backed the move.

“There seems to be a pattern — that the Canadian is following whatever the U.S. government does,” Lewenza told CTV’s Power Play on Tuesday. “I would suggest that’s appropriate for them to do that, in terms of the warranty support.”

Last week, U.S. President Barack Obama announced a similar measure saying his government would help consumers by backstopping auto warranties.

Earlier Tuesday, Reuters reported that GM was in intense and earnest preparations for a bankruptcy filing. The move, which would likely also occur in Canada, would allow the company to restructure.

“There used to be a phrase in the auto sector: Too big to fail,” Clement said when asked about the report. “I don’t think that phrase exists anymore in this sector.”

If the company does file for bankruptcy, one analyst says assembly line workers would likely be safe, but not suppliers and dealers.

Bill Pochiluk, president of industry adviser AutomotiveCompass, told The Canadian Press that GM’s assembly plants may be safe because, “from a production standpoint, the product mix in Canada really is quite excellent.”

But he added that filing for bankruptcy may damage the company’s brand and cut into sales.

“One of the reasons to try and keep these companies around as long as possible is the impact that would have on the supply chain,” he said. “It would be dissolving before our very eyes and it might be difficult for anyone to produce vehicles.”

About 12,500 people in Canada work for GM, mostly at assembly plants in southern Ontario.

Clement also announced $700 million in additional help for struggling auto parts manufacturers.

The money will be given to Export Development Canada’s Accounts Receivable Insurance program, which is available to parts suppliers.

Accounts receivable can be one of the largest assets on a supplier’s balance sheet and the recent global credit situation has pinched these companies’ cash flow to a trickle, Clement said.

Canada has more than 650 auto parts suppliers which shipped a combined total of nearly $33 billion worth of supplies in 2007.

Sourced via toronto.ctv.ca