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article imageGM Says No to Canadian Bailout Proposal

By Marian Peters     Jan 25, 2009 in Business
In a stunning announcement General Motors of Canada has rejected an offer by the federal and Ontario governments for a $3 billion dollar cash bailout which has rendered some analysts speechless.
According to the Montreal Gazette the Canadian plan was suppose to be proportionate to the U.S. loan package of $17.4 billion US. General Motors of Canada was to receive up to $3 billion in Canadian loans whilst Chrysler Canada was to receive up to $1 billion in loans.
"For reasons that are their own, General Motors has decided not to call upon our short term aid," Prime Minister Stephen Harper said yesterday in an interview. "That's actually good news, but we're talking to them about longer-term restructuring." Both Ontario Premier Dalton McGuinty and Prime Minister Harper had announced on December 20 that their governments would offer a combined $4 billion in emergency loans to General Motors Canada and Chrysler Canada. At the time Prime Minister Harper said that the loans were being offered to avoid a "catastrophic short-term collapse" of the auto industry in Canada and the United States.
Stew Low a spokesperson for General Motors Canada stated yesterday in an email that the company "is continuing our restructure and has initiated more self-help actions to conserve capitol, which has allowed us to take the necessary time to work (in the short term) with all our stakeholders to determine how to complete restructuring needs for long term sustainable viability."
Mr. Low confirmed that the company will not be drawing on the Canadian loans for now. He said it is " more prudent to work that through with our stakeholders" before drawing on government aid. "It is anticipated however, that we will still require the offered assistance, as our 'self-help' efforts are for the short term."
According to Denis DesRosiers, auto industry analyst, this decision puts the Canadian production facilities at greater risk. He said that it is quite "shocking" that GM refused the emergency loans, considering the importance given prior to bailout announcements that this was necessary to save the auto industry. "The survival of GM depends on the U.S. bailout. Canada was participating in order to protect Canadian assets, so if they don't get involved with the Canadian government, then, obviously Canadian assets are more exposed," DesRosiers said.
As for Chrysler Canada, Harper said that the negotiations continue. We're still negotiating over some particular due diligence requirements before we release the money," the prime minister said.
Industry Minister Tony Clement has recently expressed frustration over the pace of the negotiations with the two auto makers. Under the U.S. bailout plan both companies have already begun to receive funding. The companies have until February 20 to present to the Canadian government their restructuring plans in order to still qualify for aid, according to Clement. One of the conditions is for the automakers to ensure they could lower their labour costs to levels of their Japan-based competitors.
According to Darren Cunningham, a spokesperson for Clement, the company still plans to submit a restructuring plan by February 20. He said the government would still have to see the company's request before deciding whether it is still eligible for the loan.
"What was originally announced on the 20th of December was for short-term financing. "We'll have to see what happens when they come back," Cunningham said.
A spokesperson for McGuinty has not yet returned a request for comment.
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