Vehicles ready to ship from the Volkswagen factory in Puebla, Mexico, Wednesday, January 21, 2015. The plant is one of the biggest manufacturing plants in North America and they manufacture a variety of of Volkswagen cars. The cars are shipped all over the world.Brett Gundlock/The Globe and Mail
Export Development Canada is making a $525-million loan to Volkswagen AG in a bid to get the German auto maker to boost its Canadian supply base as it expands in Mexico and the Southern U.S.
The euro-denominated financing – EDC's largest this year – will "open doors" at Volkswagen for Canadian auto part suppliers, especially smaller ones, according to Carl Burlock, the federal export lender's senior vice-president of financing and investment. "We have the opportunity to add more Canadian suppliers because the expansion is in North America," Mr. Burlock said. "It's close to home."
New auto assembly investment is migrating south, to Mexico and the Southern U.S., and the EDC says its job is to make sure their supply chains still stretch to Canada, he said.
"Growth today is looking different than it did 10 or 15 years ago, and that's a fact," Mr. Burlock explained.
"What we can do is help companies with the opportunities where they are now."
EDC made a similar loan last year to BMW, which, like Volkswagen, has boosted production in Mexico.
More than 30 Canadian parts makers already sell to Volkswagen, including Linamar Corp., Martinrea International Inc., Canadian General-Tower Ltd., Armada Toolworks Ltd. and Warren Industries Inc.
Under World Trade Organization rules, governments can't tie most loans directly to specific purchases.
Instead, Volkswagen makes a commitment to meet Canadian suppliers and look at what they have to offer. EDC arranges "meet-and-greet" sessions between Volkswagen and Canadian vendors.
"When we lend money like this, Canadian suppliers will tend to get more in contracts than we've lent," Mr. Burlock said.
Roughly 5,000 Canadian companies – 90 per cent of them small and medium enterprises – have won contracts following similar financing deals, according to EDC.