Canada’s export credit agency said it would lend Volkswagen AG €400 million ($430 million) to buy Canadian-made parts for the German company’s auto plants in Tennessee and Mexico.
Export Development Canada said the financing is intended to benefit small and midsize Canadian companies that specialize in tooling, or making equipment used in the manufacturing process, and domestic auto-parts makers generally. VW already acquires parts from 35 Canadian companies, EDC said, including Magna International Inc. and Linamar Corp., which are both based in Ontario.
Canada’s auto-parts industry, benefiting from stronger U.S. demand and a weaker domestic currency, is leading a manufacturing revival in central Canada, according to a recent report from Bank of Nova Scotia. After falling in 2013, shipments from the Canadian auto industry rose 7.4% last year, lifting annual sales above 86 billion Canadian dollars ($70 billion) for the first time since 2007. The auto-parts segment of the industry saw a double-digit increase in shipments, Scotiabank said.
The financing deal with Volkswagen will increase Canadian firms’ exposure in the southern U.S. and Mexico, where more auto-assembly plants are being built, EDC senior vice president Carl Burlock said in a statement.
The loan was issued on commercial terms, EDC said, though it didn’t provide details. The export credit agency said it has negotiated similar financing deals with foreign companies since 2003, in which it tries to match Canadian firms with multinationals. Under such arrangements, it has issued loans totaling C$33 billion, a spokesman said, leading to Canadian firms winning contracts with a collective value of C$48 billion.
Volkswagen last month said it would invest $1 billion to expand its assembly plant in Puebla, Mexico, to build a new version of its Tiguan SUV for the U.S. market. The company’s luxury unit, Audi, is building a factory about 40 miles from the Puebla plant to build its Q5 SUV, starting in 2016. Volkswagen also opened a plant in Tennessee in 2011, where the Passat is built.