Government of Canada

Government of Canada

April 07, 2009 13:19 ET

Ministers Clement and Day Announce New Measures to Help Boost Consumer Confidence in Auto Industry

OTTAWA, ONTARIO--(Marketwire - April 7, 2009) - The Honourable Tony Clement, Minister of Industry, and the Honourable Stockwell Day, Minister of International Trade, today announced a pair of new measures to help boost consumer confidence in the auto industry.

The Government of Canada has created the Canadian Warranty Commitment Program for new vehicles purchased from General Motors of Canada Limited (GMCL) and Chrysler Canada Inc., and added $700 million to Export Development Canada's (EDC) Accounts Receivable Insurance (ARI) program available to auto parts suppliers.

"By back-stopping new vehicle warranties for General Motors and Chrysler in Canada, and putting our auto suppliers on a more stable footing, our goal is to increase consumer confidence and encourage Canadians to buy new cars," said Minister Clement. "Accounts receivable can be one of the largest assets on a parts supplier's balance sheet, and the recent global credit crunch has put a strain on companies' cash flow. To that end, the ARI program is a significant tool at the disposal of auto suppliers."

"These measures, along with other measures announced by our government, will help achieve a viable industry that maintains Canada's share of Canada-U.S. production going forward," said Minister Day.

Under the Canadian Warranty Commitment Program, the federal government is committed to honouring consumer warranties on new vehicles purchased from GMCL or Chrysler Canada for a limited period while improved restructuring plans are put in place.

The Canadian warranty program parallels the U.S. warranty program announced by President Barack Obama on March 30, 2009.

With respect to the ARI program expansion, auto suppliers will be able to take advantage of an additional $700 million being advanced to EDC through the Canada Account. This money is in addition to EDC's existing corporate business, and offered on the same commercial terms.

Combined with EDC's current ARI exposure of approximately $550 million for auto parts suppliers, the additional $700 million brings the exposure to $1.25 billion. This amount is proportional to a 20 percent share of the US$5-billion Auto Supplier Support Program announced by the U.S. Government on March 19, 2009.

In 2008, EDC provided a total of $4.2 billion in commercial facilitation to 595 Canadian companies in the auto industry through its financing and insurance products and services. Of this amount, $3.2 billion was in the form of ARI.

BACKGROUNDER

Accounts Receivable Insurance Program

Export Development Canada's (EDC) Accounts Receivable Insurance (ARI) program covers Canadian companies for up to 90 percent of losses if their customer doesn't pay.

As part of the program, sales contracts can be insured against a range of commercial and political risks such as:

- customer bankruptcy;

- customer fails to pay when due;

- customer refuses goods (provided the Canadian company has complied with the contract terms);

- contract is cancelled before shipment of the goods (where pre-shipment coverage is in place);

- delayed payment caused by a blockage of funds or transfer difficulties;

- war or hostilities break out in customer's country, or in other countries affecting the customer's country; and

- export or import permits are cancelled and cannot be renewed.

ARI and the Auto Industry

In Canada's auto industry, ARI is used to protect the auto parts suppliers selling to the auto manufacturers, such as General Motors of Canada Limited and Chrysler Canada Inc.

Auto manufacturers usually require parts suppliers to enter into agreements with guaranteed delivery obligations that can range up to 60 or 90 days, regardless of the automaker's financial situation.

With ARI, auto parts suppliers can insure the amount of parts supplied under the contract.

Key Benefits

- Greater access to credit for Canadian companies - when EDC insures receivables for a Canadian company, it provides security for their banks, and banks can then lend to the Canadian company against that security.

- Increased sales - Canadian companies will have the ability to offer more flexible credit terms to their buyers.

- Increased the stability of cash flow - Canadian companies can free up working capital by not having to self-insure.

BACKGROUNDER

Canadian Warranty Commitment Program

On March 30, 2009, the governments of Canada and Ontario announced that they were not certifying the long-term restructuring plans submitted by General Motors of Canada Limited (GMCL) and Chrysler Canada Inc. because they were not sufficient for the governments to certify. The governments requested that additional work be undertaken by GMCL and Chrysler Canada as part of ongoing restructuring efforts.

In the case of General Motors, the governments asked the company to complete the process within an additional 60 days. The governments asked Chrysler to complete its process within an additional 30 days.

Under the Canadian Warranty Commitment Program, the federal government is committed to honouring consumer warranties on new vehicles purchased from GMCL and Chrysler Canada for a limited period while improved restructuring plans are put in place.

Program Operation

Under the program, a separate entity will be funded with cash contributed by the automakers (15 percent) and a loan from the federal government through Export Development Canada (110 percent) to pay for repairs covered by the automakers' warranty on each new vehicle sold during the restructuring period. The cash contribution will amount to 125 percent of the costs projected by the automakers to satisfy anticipated claims under the warranty issued on a particular vehicle. In the event of a failure by GMCL or Chrysler Canada any time over the next 12 months to honour their consumer warranties, the trust administrator from the separate entity will appoint an auto service provider to supply the warranty services using funds from the Warranty Commitment Program.

Program Participation

Chrysler Canada and GMCL are the only participants under the Canadian Warranty Commitment Program.

Eligibility Warranties

The program will cover the participating automakers' warranty on every new vehicle sold during its restructuring period.

Contact Information

  • Office of the Honourable Tony Clement
    Minister of Industry
    Laryssa Waler - A/Press Secretary
    613-995-9001
    or
    Industry Canada
    Media Relations
    613-943-2502