Autoworkers union Unifor has denounced an Export Development Canada decision to loan Volkswagen $526 million without any guarantee of Canadian jobs, calling it an example of the "incoherence of the federal government's auto industry policy."

Earlier this week, EDC announced it would loan the $526 million to Volkswagen, which has no manufacturing presence in Canada, to help it consider doing business with Canadian parts makers.

But Unifor president Jerry Dias says VW is committed only to a "matchmaking" process and any business for Canadian firms would probably flow to their parts plants in Mexico, where VW has an assembly plant.

Under WTO rules, EDC cannot tie its loans to specific purchases.

"It is absolutely incredible that a Canadian government agency is helping to facilitate and accelerate the migration of the continental auto industry to Mexico, and with no guarantees of any Canadian benefit from the loan whatsoever," Dias said in a statement released Friday.

Loss of Windsor engine plant

Jerry Dias

Unifor president said EDC loan to Volkswagen makes no sense. (CBC)

He called on Industry Minister James Moore to review EDC's actions, pointing out it gave a similar loan to BMW  last year and has also supported Canadian parts makers who want to open new plants in Mexico.

"It is painfully ironic that we recently lost out on a lucrative engine investment in Windsor by Ford, largely because of inadequate government support.  Yet we can somehow find $526 million to help a foreign firm invest in Mexico," Dias said.

Ford confirmed earlier this month it would build its new engine plant in Mexico, instead of in Windsor, Ont., as many in the auto sector had hoped.

One of the sticking points in the talks was apparently lack of incentives from government.

Carl Burlock, EDC's senior vice-president of financing and investment, said VW's expansion in Mexico and the U.S. presents opportunities for Canadian parts makers. The EDC loan is an opportunity to stretch the supply chain to Canada, he said.

About 70 Canadian parts suppliers already sell to VW.

Dias suggested the EDC would make better use of its resources to attract investment here in Canada.

Canada has been losing out to Mexico in capital investment in the auto sector and now has a trade deficit with Mexico on auto parts and manufacturing.

Last year Canada sold only $484 million worth of auto parts to Mexico, Unifor claimed, making the EDC loan bigger than Canada's annual exports of parts to Mexico. Meanwhile, Canada imported $4.4 billion of auto parts from Mexico.

"This decision is just the latest evidence of Prime Minister Harper's failure to provide the strategic leadership required to rebuild and maintain Canada's auto sector," Dias said.