Federal government, Ontario agree on $3.3B auto bailout package

Industry Minister Tony Clement says Ottawa will closely watch what, if anything, the U.S. government does for the auto sector south of the border.(Nathan Denette)

The federal government and Ontario have reached a deal to offer proportional funds to Canada's auto industry if a proposed $14-billion US aid package is approved in Washington, Industry Minister Tony Clement said Friday.

Speaking to reporters in Toronto, Clement said the proposed aid to Canada's ailing auto sector would amount to approximately 20 per cent of the U.S. proposal, or about $3.3 billion Cdn.

The U.S. bailout appeared to have died late Thursday night after hours of heated negotiations between lawmakers, representatives from automakers and unions. But lawmakers said they still hope an agreement on the Democratic- and White House-backed plan could be reached.

The Canadian subsidiaries of the Detroit Big Three automakers had asked Ottawa and Ontario for financial aid that could total as much as $6 billion.

Clement said the deal was contingent on GM, Ford and Chrysler working together with parts suppliers and unions for a long-term solution for their industry, as well as the American proposal going forward.

"Governments can decide to help, but these decisions will only be made in the best interests of the taxpayer," Clement told reporters.

The minister also said the Canadian government expects U.S. President George W. Bush to announce something "very soon."

"What we’re signalling here tonight, both the governments of Ontario and the government of Canada, is that we want to be part of the solution as well, and it will be commensurate with the production that takes place here in Canada," Clement said.

The pre-emptive move by Ottawa and Ontario will make it harder for U.S. lawmakers to strike a deal that protects American jobs at the expense of Canadian ones, said veteran auto analyst Dennis DesRosiers.

"You want to be out on front of this one because it sets the standard and sends a message out to Detroit that Canada is there, crystal clear," DesRosiers told CBC News on Friday.

South of the border, with the U.S. Senate gridlocked and the country's economy on the brink, the White House declared Friday it would step in to prevent the "precipitous collapse" of the nation's auto industry and the disastrous loss of hundreds of thousands of jobs.

White House press secretary Dana Perino said the White House is considering using money from the $700-billion US Wall Street rescue fund to support the domestic automakers.

But the Bush administration said no decisions had been made on the size or duration of the new bailout plan, or what type of concessions might be demanded from the struggling automakers, their workers or stockholders.

Flaherty: Budget 'likely' to include deficit

Meanwhile, the Canadian government acknowledged Friday that providing stimulus packages to kickstart the moribund economy would "likely" make it run a deficit.

Speaking to reporters after addressing the Saint John Board of Trade in New Brunswick, Finance Minister Jim Flaherty said it is "likely" that the government "will now be obliged to present a budget with a deficit."

"The key here is that the deficit be temporary and not structural, which means permanent and long term," Flaherty said.

"As we prepare to present the next budget [on Jan. 27], the challenge we are facing is how to fix a short-term problem without creating a long-term problem for our country."

Flaherty had already said the government was prepared to go into deficit next year if a stimulus package proved necessary to support the Canadian economy.

In his economic statement released last month, Flaherty said the federal government was projecting balanced budgets and small surpluses through 2012-13, but with an allowance that world economic uncertainty might make it impossible to rule out deficits.