UPDATE 5-Canada extends lifeline, takes stake in Chrysler

* Canada to take 2 percent equity stake
* Ottawa sees smaller company in smaller industry
* Ottawa, Ontario to provide $2.42 billion
* U.S. to take 8 percent stake, provide $8.08 billion

(Updated throughout; figures in U.S. dollars unless noted)
By John McCrank and Pav Jordan
TORONTO, April 30 (Reuters) - Canada's government will take
an ownership stake in troubled automaker Chrysler in exchange
for more than $2 billion in loans, under a sweeping North
American rescue plan, government officials said on Thursday.
Chrysler filed for Chapter 11 bankruptcy protection in the
United States earlier in the day and also entered into an
alliance with Italian automaker Fiat SpA .
Ottawa and Washington demanded the Detroit company partner
with Fiat by Thursday as a condition for funding.
The Canadian government, along with the province of
Ontario, will provide $2.42 billion in financing to assist with
the restructuring process. Under the terms of the deal, Canada
will take a 2 percent stake in the revamped Chrysler and will
have one director on its nine-member board.
The deal also launches a restructuring of Canada's massive
auto sector, and may form the blueprint for a similar
arrangement with struggling General Motors Corp .
"This decision is not a perfect decision, but one that will
ensure a viable Chrysler, and ultimately be a part of a viable
auto sector coming out of the recession, which Canada must
have," Prime Minister Stephen Harper told a news conference.
The political and economic costs of an auto industry
collapse in Canada would be exorbitant, and Harper said it
would mean half a million jobs losses overnight.
Ontario produces more vehicles per capita than any other
jurisdiction in the world, and is also home to plants owned by
GM , Ford , Toyota <7203.T> and Honda <7267.T>.
Chrysler's minivan is just one of the many well known
vehicles built in the province.

INTERTWINED INDUSTRIES
Speaking at a news conference Harper, flanked by Ontario
Premier Dalton McGuinty, said the fates of the Canadian and
U.S. auto industries were inseparable.
Chrysler's Chapter 11 bankruptcy filing in the United
States has implications for the entire industry -- including
the company's rivals and parts suppliers. [nWEN8254]
As part of the filing, the U.S. government will provide up
to $3.5 billion in debtor-in-possession (DIP) financing and up
to $4.5 billion in exit financing. Washington hopes the entire
process will take only 30 to 60 days. [nWEQ000942]
Canada hopes the aid will allow Chrysler to survive, albeit
as a smaller company.
"Let's not give the impression that everything is being
saved ... These will be smaller companies with less
employment," said Harper.
Ontario's McGuinty said the number of Chrysler jobs that
will stay in Canada is impossible to guarantee, and would
depend on the automaker's future performance.
"This is a measured success," he said. "We think we've done
everything we possibly can to put this on a solid footing on a
go-forward basis."
Chrysler currently employs about 9,000 people in Canada --
about 8,400 unionized -- at plants in Windsor, Brampton and
Toronto, all in Ontario.
The Chrysler agreement includes clauses that guarantee the
company maintains 20 percent of its North American
manufacturing footprint and investment in Canada and opens new
export avenues through Fiat's operations in Europe.
Harper and McGuinty said the deal was only possible due to
concessions from the powerful Canadian Auto Workers union.
At a brief press conference on Thursday, CAW President Ken
Lewenza gave his thanks to both levels of government -- and to
union members "for their incredible sacrifices and for their
trust in their union."
The union agreed on Sunday to cut its labor costs by C$19
($16) per hour.
Washington will appoint four independent directors to the
board of the new company and and will hold an 8 percent stake.
Ottawa, which said it has no intention of staying in the
auto business, can unload its 2 percent stake in the new
Chrysler starting in January 2013, or could sell the stake to
Fiat any time before that.
The government also said Fiat will have the right of first
refusal to buy Canada's stake.
Auto suppliers will be protected under planned
debtor-in-possession financing while Chrysler is under
bankruptcy protection, officials said.
Under the deal, the Ontario provincial government provides
one-third of the collective Canadian financing for Chrysler and
takes one-third of the 2 percent stake.
($1=$1.19 Canadian)
(Additional reporting by David Ljunggren, Randall Palmer and
Wojtek Dabrowski; editing by Rob Wilson)
((david.ljunggren@reuters.com; +1 613 235 6745; Reuters
Messaging: david.ljunggren.reuters.com@reuters.net))
Keywords: AUTOS/CANADA

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