TORONTO - Canada will provide the struggling auto sector with $4 billion in emergency loans in a bid to avoid a "catastrophic" collapse of the industry, Prime Minister Stephen Harper said Saturday, as he urged the automakers to use the funding to get their businesses in order.

The announcement by Harper and Premier Dalton McGuinty in Toronto came a day after U.S. President George W. Bush offered a US$17.4-billion in emergency loans to General Motors and Chrysler.

"We are doing this on the assumption that we cannot afford either in the United States or Canada a catastrophic short-term collapse," said Harper.

"But on the other hand, we are doing this with the knowledge that the automakers must change the way they're doing business in a very serious way and must bring their products on their costs into line with the market place."

The Canadian plan will provide General Motors Canada with loans of up to $3 billion and Chrysler Canada will receive up to $1 billion -- a total based on the U.S. aid and proportional to their Canadian production.

The companies will get the money in three instalments, with the first portion coming Dec. 29.

Unlike the American plan, the Canadian aid will also extend additional account receivable insurance coverage for automotive suppliers and create a new facility support access to credit to consumers.

McGuinty, who has been pushing for aid to the sector, said Ontario will provide $1.3 billion of the total emergency loans package to General Motors and Chrysler.

"Here in Ontario we have 400,000 people and their families who rely on the auto industry so that they can put food on the table and keep a roof over their heads," said the Ontario premier who thanked Harper for the support.

"What the prime minister and I are saying today is that those people and their jobs are worth fighting for."

But as he said in the past, McGuinty reiterated that even with an aid package, the auto industry in Canada will shrink.

Harper also warned that the announcement "is not a blank cheque" for the industry, suggesting both the companies and their employees will have to make concessions.

"Canadian taxpayers expect their money will be used to restructure and renew the automotive industry in this country," said Harper.

"They expect all stakeholders, and I emphasize all stakeholders, will come to the table and work together towards sustainable long-tern solutions and they expect that Canada will maintain our current production share of the North American market."

While the government expects to recoup much of its investment, he added, "there is obviously money at risk here and there may well be more money at risk as we go forward."

McGuinty said the funding will only be delivered after auto companies agree to meet conditions set by the governments -- including a request that the parts suppliers get the money they are owed, that borrowers accept limits on executive compensation, and that they provide the government with warrants for non-voting stock.

"The loans will only stay in place beyond March 31, 2009 if our governments are satisfied there are solid restructuring plans in place and underway," McGuinty said.

Harper's statement was applauded by Canadian Auto Workers president Ken Lewenza, who said the goal mentioned to maintain current production share in Canada was key.

He declined to speculate on how many job losses may be coming, saying only that it was clear that the industry was going to do some consolidation and "there's going to be some painful decisions being made."

"I certainly got the message from Mr. Harper and Mr. McGuinty that all stakeholders must play a significant role in terms of turning the companies around," Lewenza said shortly after the announcement was made.

"But we would not take direct responsibility that the crisis we're in today is a direct result of our wage and benefit packages because it is not."

GM Canada said the loan provided "a welcome financial bridge at this critical time."

"The support announced today sends a significant signal of stability in the face of the economic and credit challenges faced by Canada's auto sector," said Arturo Elias, president of the Canadian operations.

Chrysler Canada said the funds will ensure it has enough money to continue its restructuring, and thanked the governments for "their understanding of the situation and their swift reaction."

Aid for Ford of Canada wasn't announced as part of the aid package, but that company never asked for a loan, just a line of credit to draw upon if required.

The company said it welcomes the government's plan to support the auto credit market because "Canadian consumers deserve access to affordable loans and leases when shopping for a new vehicle."

The carmakers are suffering from their slowest sales in 26 years and dwindling operating cash.