Ottawa waits as Bush ponders decisive auto aid

[Spiral]

The White House said Friday it may tap into the US$700 billion banking fund to stop the "precipitous collapse" of the auto industry, a day after the Senate shot down a lifeline for the fading Detroit Three companies.

With General Motors and Chrysler on the brink of bankruptcy, the announcement marks a sharp policy reversal for the White House, which has previously said that the bank bailout money was off limits.

"A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," said White House press secretary Dana Perino on Friday.

Meanwhile, Canadian officials say they're committed to extending a financial lifeline to the fading domestic auto industry, but that they need Washington to deliver one first.

Ottawa expected to announce a bailout package on Friday, but those plans were put on hold after senators south of the border rejected a US$14 billion boost on Thursday, a government official told The Canadian Press.

The U.S. Senate voted down the proposal - which had bi-partisan support from President George Bush and congressional Democrats - after the United Auto Workers refused wage cuts.

If the U.S. aid package can't be revived, any plan from the Canadian government would also likely dry up, the official added.

But there seemed to be some confusion about which automotive sectors in Canada would in fact get government help.

Earlier in the day, Finance Minister Jim Flaherty said Ottawa is still working with the domestic industry, and he added that the defeat of the bailout in the U.S. would not hold up talks in Canada.

Meanwhile, Industry Minister Tony Clement said the government was looking into aid specifically for domestic auto dealerships and parts manufacturers, regardless of what happens in the U.S., according to the Globe and Mail.

The legislative deadlock comes as the once-mighty Detroit automakers drift into increasingly perilous financial waters.

On Friday morning, General Motors confirmed that it will stop virtually all North American production in January. That would cut 250,000 vehicles from its first-quarter production schedule. In all, 21 factories across North America will be affected.

Chris Buckley, the president of the Canadian Auto Workers local 222, told CTV Newsnet that GM says the Oshawa, Ont., plant will shut down for about six weeks beginning in January. The shutdown would end in the middle of February.

But there will be some production at GM's plants in Ontario, GM spokesperson Stew Low told The Canadian Press.

"There's a lot of plants that are running at that time," Low said. "There's plants that have only part of January out of their schedule and some weeks in February and March. It's very dependant on customer demand."

Buckley called on Prime Minister Stephen Harper and the Tories to give a strong signal to North American automakers that they understand just how serious the crisis in the auto sector is.

At a press conference in Toronto Friday, CAW President Ken Lewenza said not all of Canada's car manufacturing plants will shut down at the same time or for a full month.

But Lewenza noted: "All of our plants -- as a result of the declining sales in the U.S. -- are facing unprecedented shutdowns."

He said all workers are facing "temporary layoffs," noting that Ottawa needs to step up and help car manufacturers.

Otherwise, he said, 300,000 or 400,000 Canadians dependent on the industry will lose their jobs.

"I believe if the Canadian government intervenes ... we can avoid this economic crisis in the auto industry," Lewenza said.

He said governments around the world are offering stimulus packages to help their economies and Canada needs to follow suit.

Union officials said the failure of the U.S. Congress to pass a bailout package for the Detroit Three was a devastating blow.

But Lewenza noted that the fact that the U.S. Treasury Department may now help the U.S. industry shows the dire straits carmakers are in. He said Ottawa needs to give the industry a lifeline, regardless of what happens in Washington.

The Detroit Three have already delivered restructuring plans to the Ontario and federal governments for Canada's car industry. They want financial help of up to $6.8 billion.

The biggest demand is from General Motors Canada, which wants $800 million immediately plus another $2.4 billion in repayable loans.

Meanwhile, Honda also announced on Friday that it's cutting more of its North American production due to lower demand. But the Japanese carmaker doesn't plan to layoff any of its 4,600 workers here in Canada. Honda says its plants in Alliston, Ont., will be reduced by 37,000 units by the end of March 31.