TORONTO, OTTAWA -- The federal Liberals showered the auto industry with hundreds of millions of dollars yesterday -- about $200-million for General Motors of Canada Ltd. and $100-million for Ford Motor Co. of Canada Ltd. -- as Canada's two largest auto makers prepare to overhaul their operations.

Late yesterday, the Liberals, who are battling a drop in the polls in a hotly contested election campaign, promised support to GM for a $2-billion investment at three Ontario plants and a dramatic increase in the company's research and development activities.

GM's announcement that it would receive federal money came on the same day that Human Resources Minister Joe Volpe announced a $100-million federal commitment to Ford for a redevelopment of its Oakville, Ont., assembly facilities.

The money for GM -- in the order of $200-million or roughly 10 per cent of the cost of the company's "Beacon Project" -- will support investments at car assembly plants in Oshawa, Ont., an engine and parts plant in St. Catharines, Ont., and a joint venture assembly plant in Ingersoll, Ont.

Auto makers are retooling to make their assembly plants more flexible so they can adapt more quickly to changes in market demand.

Flexible manufacturing is a key piece of the Big Three's strategy to try to regain market from offshore-based manufacturers. Japan-based auto makers are the leaders in flexible manufacturing.

"Our project is much more than a renewal of manufacturing facilities," David Paterson, GM Canada's vice-president of corporate affairs, said late yesterday after the auto maker received a letter from the federal government committing to the support.

Mr. Paterson noted GM could add 500 jobs to the 10,000 now at the three facilities and that it would increase the engineering capabilities the auto maker now has at its engineering centre in Oshawa.

"That's a very significant step forward," he said. "We think that other [auto makers] should and could be adding more engineering capability."

GM also wants to work with Ontario universities and Canadian parts makers to expand research and development to make sure those companies are performing at the highest level possible.

The auto maker has been in discussions with the federal and Ontario governments for more than a year, Mr. Paterson said.

"This commitment is totally in tune with what the entire automotive industry has identified as a top priority for its future," he said.

The aid to Ford will go toward a $1.2-billion assembly plant in Oakville.

Just hours after Ottawa unveiled a $1-billion, five-year incentive fund for auto makers and other manufacturers, Mr. Volpe also said the government has re-opened talks with DaimlerChrysler Canada Inc. about a major investment at its Ontario operations. That would mark at least the third time that the company has considered a major investment in Windsor, Ont., where the company closed a full-sized van assembly plant last year.

DaimlerChrysler Canada spokeswoman Kerrey Kerr said the company has had discussions with Mr. Volpe but not about specific projects and the company's one-time plan to build a new assembly plant in Windsor is still on the cancelled list.

"The biggest driver in the manufacturing sector today is the auto industry," said Mr. Volpe, in announcing the new incentive fund during a speech in Niagara-on-the-Lake, Ont. "It is vital to Canada's economy and the mainstay of Ontario's prosperity."

Mr. Volpe, whose department is responsible for skills development, said $500-million of the $1-billion fund will be for the auto sector, which would match a fund set up earlier this year by the Ontario government. The rest of the new fund would be for manufacturers in aerospace and other sectors, particularly to encourage research and skills development.

The Liberals also hope that their new fund could be a key vote-grabber in the country's most populous province, where they are struggling in the current federal election to maintain the political stranglehold they have enjoyed since 1993. The auto industry, the heart of the region's economy, directly employs 210,000 people.

A handful of government sources said they were caught off guard by yesterday's announcement, particularly the deal with Ford. "It came straight out of the blue," said one official who is involved in discussions with the auto sector. "Clearly, this is outside the normal protocols."

One auto industry source said the government announcement smacks of desperation as the Liberals try to reverse their slide in the polls.

James Rajotte, the Conservatives' industry portfolio critic, questioned why the Liberal government chose yesterday, just hours before the first television debate by the party leaders, to make the funding announcement.

Karl Moore, a management professor at McGill University in Montreal, said the timing of the announcement is unusual and appears to be inspired by the election campaign. "Ontario is a critical place obviously for them."

The issue of corporate subsidies -- or "incentives" as both givers and receivers like to call them -- also threatens to become a key campaign issue. Conservative Leader Stephen Harper has said his party would eliminate subsidies and other "corporate welfare," a policy that could threaten auto industry projects.

The stakes are high, with potentially thousands of jobs at risk if car makers pull back from their expansion plans. But many Conservatives argue that lower taxes, but not subsidies, are a more effective way to attract investment.

Mr. Rajotte softened his party's stance yesterday, saying Mr. Harper has a long-term plan to "move away from subsidies" but that a Tory government would listen to any company's proposal. "You can't have a blanket policy . . . You have to be pragmatic about it."

Mr. Rajotte repeated that the Conservatives wouldn't, however, break any deals the Liberals had already signed with companies.

Car makers have not chosen Canada as a site for new plants in recent years, at least in part because of more generous subsidies in some southern U.S. states.

Government officials also questioned whether the announcement had received cabinet approval, which would otherwise mean that it was a campaign promise, not a government commitment.

Mr. Volpe, the Liberals' political minister for Ontario, said about half of the $1-billion -- including the money earmarked for Ford -- has received cabinet approval and that the rest will soon get official government sanction. He also said he hopes the issue of subsidies becomes an election issue and that it's discussed during this week's debates. "It is a wedge - people have to start making a comparison."

Ontario Economic Development Minister Joe Cordiano said Ottawa's announcement will provide a big boost to Ontario's auto industry. "This is a very huge commitment," Mr. Cordiano said. "We needed this to happen and we needed it to happen publicly."

Ford gave Ottawa a deadline last month to make a decision about the company's request for financial help. Industry Minister Lucienne Robillard sent Ford a letter a few days after the deadline expired, although it provided no financial guarantee or firm offer. Mr. Volpe said Ford issued the deadline because it needed a government commitment to take to its head office in the United States.

Ford Canada welcomed yesterday's announcement. "The $100-million allows Ford of Canada to complete a strong business case to bring flexible manufacturing to Oakville," Ford Canada spokeswoman Lauren More said.

Industry sources and union officials said Ford is proposing to spend about $1.2-billion to redevelop its Oakville site and turn it into a leading-edge, flexible manufacturing facility capable of producing several models from a single platform, or basic underbody.

Flexible manufacturing would allow it to react more quickly to changes in market demand, if, for example, buyers shift preferences from sport utility vehicles to passenger cars. The auto maker is planning to assemble two crossover utility vehicles beginning in 2006 and the next generation of the company's minivans later in the decade.

Canadian Auto Workers union president Buzz Hargrove said the Ford announcement should "solidify" the company's Canadian operations. About 4,000 Ford workers at the company's assembly operations in Oakville have been worried about their futures, with the permanent closing of an assembly plant at the end of the month.

Mr. Volpe said the discussions with DaimlerChrysler are in the early stage. "They wanted to get back to the table," he said during an interview.