Exchange of Letters Between Industry Canada and General Motors of Canada Limited

OTTAWA, September 6, 2008 — Industry Canada today released an exchange of letters between the Department and General Motors of Canada Limited. The text of the letters is attached.

For further information (media only), please contact:

Bill Rodgers
Director of Communications
Office of the Honourable Jim Prentice
Minister of Industry
613-995-9001

Media Relations
Industry Canada
613-943-2502

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Mr. Arturo S. Elias
President and Managing Director
General Motors of Canada Limited
1908 Colonel Sam Drive
OSHAWA, ON, L1H 8P7

Dear Mr. Elias,

I am writing to confirm the understanding which we have reached as a result of our ongoing discussions with respect to General Motors of Canada Limited's (GMCL) commitment to making a new investment in St. Catharines and Oshawa.

As you have indicated, automobile manufacturers in North America are dealing with pressing economic and market challenges. The Government of Canada understands that there have been unprecedented shifts in the North American automotive market led by higher gas prices, slower growth in the U.S. economy, and growing attention to environmental issues.

It is in this context that GMCL has had to make strategic decisions to reorient its North American production from pick-up trucks and large SUVs towards more fuel-efficient mid-sized cars. This has resulted in GMCL's planned reduction of production and subsequent closure of its Oshawa Truck facility on July 1, 2009. I note that these decisions will affect commitments you have made to both the Canadian and Ontario governments under the 2005 Beacon Agreement. An obvious consequence of the closure of the Oshawa truck facility is that GMCL will be unable to meet the 2009 employment targets for that facility, as set out in the Beacon Agreement. This will trigger an early repayment obligation for some of the financial support previously provided by both the federal and provincial governments. I note, in passing, that none of the previous financial support was invested in that truck facility.

I am pleased to note, however, that GMCL has now agreed to invest an additional $290 million to manufacture 6-speed transmissions at St. Catharines, produce a hybrid variant of a mid-sized vehicle at the Oshawa Car Plant, and attract advanced environmental technology research and development projects through GMCL's Canadian Engineering Centre (CEC).

The first part of this investment would commit GMCL to an approximately $245-million investment in GMCL's St. Catharines Glendale Powertrain Facility to install a new flexible manufacturing system that would produce more fuel-efficient 6-speed front-wheel drive (FWD) transmissions. The proposed investment in a flexible state-of-the-art manufacturing system would be capable of producing four variants of GMCL's family of 6-speed FWD transmissions on the same assembly line. The planned start of production is April 2011 and would support more than 300 jobs.

The second portion of the investment commits GMCL to including a hybrid variant within the production cycle of one of the new mid-sized cars to be built at the Oshawa Car Plant. GMCL estimates, based on market demand that the hybrid variant could account for some 10 percent of overall demand for the mid-sized vehicle. The production for the mid-sized car is scheduled to begin in October 2010, with hybrid production commencing in early 2011.

Thirdly, a minimum GMCL investment of $40 million over a maximum of five years will go towards transforming the company's vehicle engineering capability at CEC in Oshawa from its current focus on vehicle program engineering design and development to a higher value-added focus on advanced environmental technology development. The CEC would undertake numerous projects in the areas of vehicle electrification (such as advanced battery technology) and fuel efficiency technologies (such as hybrid systems and lightweight materials). GMCL would conduct this work with the involvement of selected Canadian automotive suppliers and universities, providing them with an opportunity to develop a range of environmental automotive skills and capacity. The breakdown of the $290-million investment noted above represents GMCL's current estimates of each of the three component investments and, while additional detailed estimates remain to be done, GMCL is committed to a total incremental investment of $290 million.

I am therefore confirming our agreement, in principle, to amend the Beacon Agreement as it relates to the Oshawa Truck Plant, to commit GMCL to making this new $290-million investment, and to commit the Government of Canada to not trigger the early repayment provisions of the Beacon Agreement. I understand that the Government of Ontario will be sending a letter to GMCL with a similar commitment.

The Government of Canada's agreement with this approach is predicated on GMCL making an investment of $290 million in all three areas, as described in the Revised Pathways Project Proposal submitted to Industry Canada, and that all work is completed by December 31, 2013. As such, the government support for the investment involves no new federal or provincial funding. All money owing to the Government of Canada under the Beacon Agreement will be repaid as scheduled.

Cognizant of your need to meet your decision timelines, upon receipt of your acceptance of this agreement, I will instruct Industry Canada officials to work with you to expeditiously conclude the necessary documentation to support this agreement. We will also work with our Ontario counterparts, who we understand are similarly interested in securing these new investments for Canada.

The federal government recognizes the importance of the automotive industry to Canada's long-term economic success. Canada's automotive industry is a world leader and provides high-quality jobs in many communities. I look forward to the completion of the supporting agreement and the implementation of your new investments.

Sincerely,

The Honourable Jim Prentice, P.C., Q.C., M.P.

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The Hon. James Prentice
Minister of Industry
Industry Canada
235 Queen Street
Ottawa, Ontario
K1A 0H5

Dear Minister Prentice,

I am in receipt of your letter of agreement dated September 5, 2008 and I am pleased to advise that General Motors of Canada Limited agrees to its terms.

We greatly appreciate the considerable work that you and your officials have undertaken with us since early 2007 in reviewing and developing our Revised Pathways Project proposal. With the Federal Government's support, we are confident that these new investments will be of significant positive benefit for Canada.

Yours truly,

Arturo Elias