Credit squeeze, slump putting Canadian firms near brink: manufacturers

Canadian Manufacturers and Exporters president Jayson Myers sent out the distress call Tuesday, a day after auto-parts makers said they needed up to $1 billion in short-term loans to help them survive the credit crisis.

The peril is much broader than just Canada's auto sector, he said, adding that many firms dependent on exports to the U.S. are in trouble.

Myers said he will seek a meeting with the ministers of finance and industry after Thursday's cabinet shuffle to lay out the industry's argument for short-term relief.

"Until now we've been talking about what the government has needed to do to promote investment and ensure the long-term competitiveness of the sector," he said in an interview.

"Right now, though, we've got a short-term priority and that's just the survival of companies.

"Frankly, if we do not see government helping to provide credit to companies ... we are going to see an awful lot of very, very good and very important companies go out of business in Canada."

Finance Minister Jim Flaherty and Industry Minister Jim Prentice, who are widely expected to be reappointed to their key economic portfolios Thursday, have eschewed direct bail-outs of industry, preferring tax breaks for the purchase of new equipment or the auto innovation grants for future projects.

But the financial crisis has brought some flexibility. Earlier this month, Flaherty hiked the Export Development Corporation's borrowing limit by $2 billion to $6 billion as a way to help companies finance exports.

Prentice cited the increase Wednesday as a possible avenue for auto-parts manufacturers.

But Myers says the problem is much deeper and the government's response so far too timid.

Myers said the auto sector is not the only part of the industrial economy that needs rescuing. He says any manufacturer selling into the U.S. markets dealing with autos, housing, industrial equipment, or general consumer items is in danger of perishing in the next six months to a year.

Myers says Canadian exporters are being squeezed by tight credit conditions that are make it difficult and more expensive for them to borrow, and also impact their industrial customers in the U.S., which have responded by cancelling orders and delaying payments to their Canadian suppliers.

Making matters worse, the looming global recession has collapsed demand for Canadian exports across the board, particularly in the U.S.

The U.S. market for Canadian exporters - particularly auto and wood products - will likely deteriorate before it improves, suggests a new Conference Board survey that found consumer confidence stateside at the lowest level in 41 years, when the survey began.

As well, home prices tumbled over 20 per cent in August, the sharpest-ever annual rate of decline.

The only bright spot on the horizon has been the crashing dollar, but that has been an insufficient boost to overcome tight credit and falling demand, Myers said.

"The government doesn't seem to have any problem stepping in to guarantee interbank lending, and I think right now, it should seriously be looking at putting in some loans to enable companies to have the credit so they'll be able to survive."

Myers said even strong companies could go down through no fault of their own, and once they are gone, "this is industrial capacity, productive capacity that we're losing for good in this economy."

Canadian industry was already walking a tight-rope before the latest manifestation of the financial crisis sent stock markets around the world tumbling the past month, and economies, including Canada's, headed toward recession territory.

Since 2002, about 300,000 factory jobs have been lost in the sector, which includes forestry. As well in the past year, a number of auto plants have given closure notices, including the General Motors plant in Oshawa, Ont.

A new report from the EDC predicts the hard times will not be fleeting with exports remaining at the low 2008 levels, which saw exports volumes decline by five per cent from 2007, although higher commodity prices pushed export values up one per cent overall.

Next year will see more of the same, said the EDC, with no corresponding value-added makeup from commodity prices, including oil, which have recently fallen precipitously.

The situation would have been worse but for the dollar's fall from grace in the past few months to below 80 cents US.

"The current market turbulence is serious and presents a significant near-term obstacle to Canadian exporters," the Crown corporation states. "Risks are now considerably higher than at this time last year."

If anything, Myers said, the EDC is looking at the world through rose-coloured glasses. He said Canadian exporters would be ecstatic with no growth next year instead of the sharp contraction they fear. Both agree that conditions won't start improving until at least 2010.