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On a gloomy Friday afternoon in December, Ontario Premier Dalton McGuinty paid an hour-long visit to Prime Minister Stephen Harper in his office near Parliament Hill.

His goal: To hammer out a joint approach to rescuing Canada's beleaguered auto industry.

The two politicians - who had often sparred over economic strategy - together confronted the new political reality of a global economic crisis.

With the North American economy in a tailspin, the U.S. government - led by then-U.S. President George W. Bush - had already indicated its intention to bail out crippled auto makers, General Motors Corp. and Chrysler LLC, to prevent further chaos.

A government-orchestrated bailout in the United States would surely come at the expense of Canadian assembly plants, causing permanent job losses in Ontario's battered manufacturing sector.

Reluctant on principle to intervene, Mr. Harper faced an unpalatable choice: Agree to intervene, setting a unsettling precedent for other ailing industries and angering his conservative voter base, or do nothing and face the increasingly likely prospect of the death of two car companies that are major employers in vote-rich Ontario, which was already hemorrhaging manufacturing jobs.

Mr. McGuinty had no qualms - he had long championed the auto sector and argued that the survival of GM and Chrysler were critical to the economic future of the province, and the country as a whole.

With the Premier urging action, the Prime Minister agreed that Canada would participate in aiding the industry, but on the condition that the companies commit to preserving in Ontario the current share of their North American production.

A week after their Parliament Hill session, Mr. Harper and Mr. McGuinty met again, this time on a snowy Saturday afternoon in Toronto, to announce their governments' offer of up to $4-billion in bridge loans to GM and Chrysler. Mr. Harper said he was acting to avoid a "catastrophic short-term collapse" of Canada's auto industry.

For four months, Ottawa and Ontario have not deviated from the script agreed to in that Parliament Hill meeting: Canada is part of an integral North American industry, and would provide proportional loans for a proportional share of the benefits.

Once that principle was firmly established, the federal government was willing to play the junior partner to Washington, first with the Bush administration and then with the team assembled by U.S. President Barack Obama.

"What [Mr.] Harper said then is what guided us through the process," a senior government official said yesterday.

"What emerged over the [next] few months is that the companies were in rougher shaper. And the economy kept collapsing," the official said. What began with talk of bridge loans eventually became a more fundamental bailout, with U.S. and Canadian governments taking an equity stake, and Chrysler's strategic partnership with Italian car maker Fiat SpA.

Yesterday, Mr. Harper and Mr. McGuinty again took the stage together to announce their joint $3.78-billion aid package for Chrysler.

Their assistance was done in concert with the Obama administration, and represents some 20 per cent of government aid, in exchange for a commitment from Chrylser and Fiat to maintain 20 per cent of the company's current and future production in Canada.

In a news conference yesterday, Mr. Harper insisted his government had no viable alternative except to provide loans and, together with Ontario, take a 2-per-cent equity stake and a seat on Chrysler's board.

"I'm a Conservative because I'm a realist," he said. "Yes, I believe in the marketplace but a free market solution was not on the table in this case. The Americans had determined that there would not be a free market solution one way or the other. I'm not questioning that."

Industry Minister Tony Clement left little doubt that the Conservative Prime Minister - who celebrated his 50th birthday yesterday - had little joy in the Chrysler outcome. "Stephen Harper did not want to spend his 50th birthday taking an equity interest in a car company on behalf of the Canadian taxpayers," the minister said.

But he said U.S. and Canadian governments needed to buy Chrysler equity to avoid driving up its debt levels, and that the company simply didn't have enough security to take on more debt. He said Ottawa will sell the shares as quickly as possible, but has agreed to hold them for at least three years to give the company a chance to gain some stability.

Mr. Clement said Ottawa's biggest challenge had been to persuade the Americans to give Canada a seat at the table during restructuring talks with Chrysler, its unions, its creditors and Fiat.

The terms of the U.S. aid package provided in December prohibited the companies from using American taxpayers' dollars to shore up operations in Canada, and there were fears that an Obama administration could take an overtly protectionist approach to the industry restructuring.

"We had to persuade the Americans that this was an integrated industry, and that a collapse in Canada would not only hurt Canada but the North American industry," Mr. Clement said.

"It was an education that we had to do. We had to persuade the Bush administration and the Congress, and then we had to do it all over again with the Obama team and the new Congress."

A critical point was Mr. Obama's visit to Canada on Feb. 19.

In meetings between the Prime Minister and the President, Mr. Harper hammered home the point that the auto industry was North American in scope and that any solution had to be arrived at jointly. In the news conference afterwards, Mr. Obama echoed that sentiment.

Canada found a valuable ally in Fiat chief executive officer Sergio Marchionne, an Italian-Canadian who had gone to school and started his business career here.

Mr. Marchionne drove a hard bargain for Fiat, and insisted his company would not partner with Chrysler unless its unions and creditors agreed to major concessions.

And he would not have made commitments to Canada if the Canadian Auto Workers had refused to negotiate a new cost-saving contract, or if government had not participated in the bailout.

But he understood more than most outsiders how key Chrysler's Canadian operations were and the integrated nature of Canadian and U.S. economies.

"That was a real plus and a real win for Canada," Mr. Clement said, who has spoken several times by phone with the Italian executive.

In fact, Mr. Flaherty knew Mr. Marchionne from the latter's days in Toronto, where he graduated from Osgoode Hall law school, and Mr. McGuinty visited him in Turin last May, in the hopes of attracting Fiat to his province.

Still, Fiat has incentives written into its agreement with the United States to build new fuel-efficient models at factories there. Mr. Clement acknowledged the commitments to Canada are more vague - beyond the 20-per-cent threshold. He said Mr. Marchionne is talking about exporting models made in Chrysler's Windsor and Brampton, Ont., plants to South America and Europe.

For the past month, Canadian officials have been shuttling back and forth to Washington, participating in negotiations with a U.S. Treasury team - led by Ron Bloom - along with officials from Chrysler, Fiat and creditors. Mr. Clement said there have been days when he received hourly updates from officials led by Industry Canada's associate deputy minister Paul Boothe.

Some of those meeting were held in the law offices of Cadwalader Wichersham & Taft, which is acting for the U.S. government. Sources say the last two days of talks went around the clock as the parties raced to the government-imposed April 30 deadline to win agreement from at least 90 per cent of bondholders in each class.

When a small minority of creditors balked, Chrysler was forced to file for bankruptcy protection.

The Chrysler deal now clearly provides a template for General Motors, which has another month to get a new deal with its unions and persuade debtholders to cut a deal with the U.S. government.

In the meantime, Mr. Harper has a political headache as conservative commentators blast his flirtation with state-owned enterprises and warn it will cost him political support from his base.

"It's a very disturbing development," said Tasha Kheiriddin, a lecturer at McGill University who has written on the North American conservative movement.

"The notion that a government is going to intervene and become a part owner in a car company is anathema to anyone who believes in the free market. And it shows how far the government has strayed from what many people consider basic, sound economic principles, basic conservative principles."

With files from reporters Barrie McKenna and Campbell Clark