Yesterday, the Canadian Minister of Industry Tony Clement and Minister of International Trade Stockwell Day announced the creation of the Canadian Warranty Commitment Program, which will guarantee consumer warranties on new vehicles purchased from General Motors of Canada Limited (GM-Canada) and Chrysler Canada Inc. (Chrysler-Canada), until "improved restructuring plans are put in place." Much like the warranty program announced by the Obama administration last week, the Canadian program will be funded with cash contributed by the automakers (15%) and a loan from the Canadian government (110%) through Export Development Canada (EDC) to pay for repairs covered by the automakers warranties. In the event of a failure by GM-Canada or Chrysler-Canada to honor their consumer warranties during the next 12 months, an independent trust administrator will appoint an auto service provider to supply the warranty services using funds from the Warranty Commitment Program. GM-Canada and Chrysler-Canada are the only participants in the program.
In addition, the Canadian government will add CDN$700 million to the Accounts Receivable Insurance (ARI) program of Export Development Canada (EDC) to insure that auto parts suppliers receive money owed to them by struggling automakers. The additional funding for EDC brings Canada's total exposure to auto parts suppliers to CDN$1.25 billion, which equates to about 20 percent of the $5 billion Auto Supplier Support Program announced by the U.S. government on March 19, and is roughly proportional to Canada's share of the North American auto market. Under the Canadian ARI program, Canadian auto parts suppliers are insured for up to 90% of losses if their customers do not pay.
The announcement of the Canadian Warranty Commitment Program and ARI program comes one week after Mr. Clement, Jim Flaherty, Minister of Finance, and Michael Bryant, Ontario Minister of Economic Development, announced that the plans submitted by GM-Canada and Chrysler-Canada were not sufficient for the governments to certify their restructuring plans. As a result, interim loans will be advanced as necessary in the amounts of $3 billion for GM-Canada and $1 billion for Chrysler-Canada to assist the companies while they continue work on their restructuring plans.