TORONTO - The Business Development Bank of Canada will receive a $350-million injection from the federal government in next week's budget to free up lending to auto supply companies and other small- and medium-sized businesses, federal Industry Minister Tony Clement said Monday.
Clement said the investment will allow the government-owned bank to provide an additional $1.5 billion in financing to businesses that otherwise may be unable to secure loans under tight credit conditions.
"One message I've heard loud and clear from business was that in order for business to succeed, we need to get credit moving," Clement said in a breakfast speech to the Canadian International Council in Toronto.
The funding will include an immediate $250-million capital investment to increase the bank's term-lending activities, as well as another $100 million to top up lines of credit for small- and medium-sized businesses.
Clement said the investment will act as a lifeline to struggling businesses, including auto supply companies, which are suffering amid slumping demand for new vehicles in the U.S.
The federal and Ontario governments have already promised $4 billion in emergency loans to the Canadian subsidiaries of General Motors and Chrysler. The beleaguered automakers have also received a promise of US$17.4 billion in loans from the U.S. government, although they have asked that all funding be deferred until the companies, governments and unions are able to reach an agreement on the conditions of the funding.
Clement said he finds the pace of the discussions "disappointing," and the Canadian government has been ready to hand over its portion of the money since December.
"I'm signalling to them, let's get a move on, let's finish our discussions and our dialogue, and if you need the money let's flow the money," Clement told reporters.
"The offer was made in good faith by both Ontario and Canada, the offer still stands and... I'm hoping to see some conclusion of this in the next couple of weeks."
He said there are some "complex legal issues" slowing down the discussions, but refused to elaborate. The companies have until Feb. 20 to provide the government with a comprehensive restructuring plan.
Clement said he expects the automakers to work with the Canadian Auto Workers union to make Canadian labour costs competitive with those in the U.S. at both Detroit Three and foreign-run plants.
There's a wide range of opinions on the true cost of Canadian employees of the Detroit Three. Tony Faria, an auto industry specialist at the University of Windsor, estimates that once new contracts negotiated by both the CAW in Canada and the United Auto Workers in the U.S. come into effect, Canadian workers will cost their employers about $27 an hour more than their American counterparts.
Meanwhile, the CAW argues its members cost automakers less than U.S. employees of GM, Chrysler and Ford.
Labour costs at other automakers' plants are usually lower because their employees generally aren't unionized.
Clement called labour competitiveness a "tough" condition of government funding, but a necessary one.
"Automakers will have to make some tough decisions, we know, and will have to make some bold actions during the restructuring," he said.
"I think it's evident that change will have to be made by the automakers, by the unions and other stakeholders in order for this industry to survive."
CAW president Ken Lewenza has said he is willing to negotiate with the automakers, but hasn't specified what concessions he is willing to make.
Clement says the government is talking to the U.S. about better integrating the auto industries in both countries, but he cautioned the Canadian industry will shrink.
"We realize that this restructuring could take years to complete. We also realize that industry sales will likely not rebound to previous levels for a significant period of time," he said.
"But if we continue to move forward with new and innovative production processes and technologies, I'm convinced that we can and we will have a leaner, more efficient and more competitive Canadian auto industry."
The auto industry has been struggling to stay afloat amid slumping U.S. sales and tight credit markets.
