Chrysler, GM Get $3.3 Billion Canada Loan, Could Receive More

General Motors Corp. and Chrysler LLC will get C$4 billion ($3.3 billion) in government loans from Canada and the province of Ontario, Canadian Prime Minister Stephen Harper said yesterday, refusing to rule out further aid.

A day after the U.S. agreed to lend the two automakers $13.4 billion in emergency loans to keep them operating, Canada and Ontario said they will advance General Motors’ Canadian unit C$3 billion while Chrysler will receive C$1 billion. GM had asked for a total of C$2.4 billion in aid from Canada through the second quarter and Chrysler LLC had not disclosed a sum.

“It’s pretty striking that they’re lending more money than was asked for,” Dmitry Anastakis, a professor of history and Canadian auto policy at Trent University in Peterborough, Ontario, said in an interview yesterday. “This totally conflicts with the rhetoric we’ve heard from Ottawa about the need to protect the interest of the taxpayers.”

“I cannot rule it out,” the prime minister told reporters at a briefing yesterday in Toronto when asked whether he may offer the automakers additional aid. “We have a social responsibility that goes beyond the marketplace.”

The automakers must accept limits on executive compensation and report “material” transactions of more than C$125 million, the governments said in a joint statement. Harper declined to say what penalties Chrysler and GM would face if they had to file for bankruptcy and could not repay the loans.

“We will not allow a catastrophic failure” of the Canadian auto industry, Harper said. “They will not fail in my judgment” but “the auto companies have to change the way they do their business in a very serious way.”

‘Proportional’ Loan

Canadian Industry Minister Tony Clement on Dec. 12 pledged to offer GM, Chrysler and Ford Motor Co.’s Canadian units federal and provincial aid “proportional” to their contribution to North American production, which is about 20 percent. Ontario, the country’s automaking hub, last year built more cars than Michigan.

The aid package is “not a blank check” and Canadian taxpayers expect the money to be used to renew the industry and involve all stakeholders in that process, Harper said.

Ontario will contribute C$1.3 billion to the package and the Canadian government C$2.7 billion, Ontario Premier Dalton McGuinty said at the same news conference.

“This is about 400,000 jobs and 400,000 families,” said McGuinty. “There’s a lot at risk,” he said, adding that there is a “real possibility” that Chrysler and GM will ask for more money, which, he said, will have to be considered if and when that happens.

Announcement Praised

The Canadian units of both GM and Chrysler praised the announcement.

This support is a “welcome financial bridge,” Arturo Elias, president of GM’s Canadian business said in a Marketwire statement. “GM Canada intends to earn the trust being placed in us.”

“Chrysler is very pleased with the decision by the Canadian government to provide this loan, which will ensure Chrysler has sufficient funds to continue our restructuring activities during this unprecedented downturn,” the automaker’s Canadian unit said in an e-mailed statement.

The Canadian Auto Workers union, which represents about 27,800 active GM, Chrysler and Ford Motor Co. workers in Canada, lauded the package and pledged to continue working with the companies and governments to ensure the industry’s survival in Canada, Ken Lewenza, president of the union said.

The pledge “was important for our industry, our workers and for all citizens of Canada,” Lewenza said yesterday in a press briefing.

Declined to Speculate

He declined to speculate on whether his membership will have to take wage-and-benefit cuts as part of the package.

The U.S. package requires companies to have pay-and-work rules in place by the end of 2009 that make them competitive with those of overseas automakers with plants in the U.S.

The C$600 million in loans beyond what GM had asked for may be a sweetener to keep more jobs or assembly projects in Canada, Trent’s Anastakis said.

“Canada is in a position here that it can’t make too many demands and may be making a generous offer so Ontario doesn’t get left behind when the real restructuring begins,” he said.

GM will receive C$800 million Dec. 29, C$1.2 billion on Jan. 30 and a further C$1 billion on Feb. 27. Chrysler gets C$400 million immediately with another C$400 million at the end of January and the balance in February. The loans are for three years and are charged at 3 percentage points above the London Interbank Offered Rate, or Libor. Libor is currently 1.5 percent for 3-month loans in dollars.

Auto Suppliers Insurance

The Canadian government said it will extend insurance to auto suppliers for their accounts receivable to ensure that they can continue to secure credit. The government said it will also improve access to credit for consumers and businesses to stimulate car purchases and help car dealers without giving details.

The industry will have to restructure and will probably end up being smaller, said Harper. “This will be a difficult restructuring,” said McGuinty.

Ford’s Canadian unit had asked for access to as much as C$2 billion in “standby” credit, to be used if the current economic crisis worsens. Today’s statement did not address the status of that request.

Pakistani currency dealers held

Munaf Kalia is at the center of a nationwide investigation

Two directors of a Pakistani currency company have been remanded in custody over allegations that they illegally transferred millions of dollars abroad.

The two directors of Khanani and Kalia International (KKI), one of the biggest foreign exchange companies, were arrested on Saturday.

Their company’s license to trade has also been suspended for a month and its offices have been searched.

Pakistan’s economy is in crisis and the IMF is preparing a rescue package.

Inflation is running at 25%, and there has been a collapse in the value of its stock market and currency.

There are also massive trade and budget deficits, plunging foreign currency reserves and capital flight.

Pakistan’s foreign exchange reserves have dropped

The government in Islamabad needs to find $5bn this month if it is to avoid defaulting on foreign loans.

Officials say that the activities of Munaf Kalia and Javed Khanani – arrested in Karachi and Lahore respectively – may have contributed to a big reduction of the country’s foreign exchange reserves, which have depleted from over $16bn in October 2007 to below $7bn today.

The authorities say the flood of money out of the country has also caused an enormous drop in the value of the rupee. At the beginning of the year it was trading at 65 to the dollar. Last month it fell to a record low of 90 to the dollar.

Few details of the charges against the KKI duo have been released. Investigators have seized a computer which they say may have details of transfers to accounts in the Gulf, Europe and the US.