The federal and Ontario governments will provide a lifeline worth about $3.3 billion for the struggling Canadian auto sector, but the money won't flow until the U.S. approves its own bailout package, Industry Minister Tony Clement announced Friday.

Clement added that the funds are "contingent" upon the auto industry creating a plan for long-term viability, and he noted that the announcement is intended to send Washington a message that urgent action is necessary.

"What we're signaling here tonight ... is that we want to be part of the solution as well," Clement said in Toronto.

The fund falls short of the nearly $7-billion package which Ford, GM and Chrysler requested from Canadian leaders earlier this month.

"It is up to the automakers, with their parts suppliers and the unions, to work together on a long-term solution for their industry," said Clement.

"Governments can decide to help, but these decisions will only be made in the best interest of the tax payers."

The announcement follows a meeting Friday between Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty in Ottawa where the two leaders hashed out a plan.

Clement said that he expected the "the American administration to come forward very soon" with an aid plan, and added the fund represents 20 per cent of the proposed US$14 billion dollar package in the U.S.

That plan was shot down by the U.S. Senate on Thursday, but there was still hope Washington could deliver some aid.

On Friday, the White House said it may tap into the US$700 billion banking fund to stop the "precipitous collapse" of the auto industry.

With General Motors and Chrysler on the brink of bankruptcy, the announcement marks a sharp policy reversal for the White House, which has previously said that the bank bailout money was off limits.

"A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," said White House press secretary Dana Perino on Friday.

The U.S. Senate voted down a $14 billion proposal - which had bi-partisan support from President George Bush and congressional Democrats - after the United Auto Workers refused wage cuts.

But there seemed to be some confusion about which automotive sectors in Canada would in fact get government help.

Earlier in the day, Finance Minister Jim Flaherty said Ottawa is still working with the domestic industry, and he added that the defeat of the bailout in the U.S. would not hold up talks in Canada.

The announcement comes as the once-mighty Detroit automakers drift into increasingly perilous financial waters.

GM puts factories on hold

On Friday morning, General Motors confirmed that it will stop virtually all North American production in January. That would cut 250,000 vehicles from its first-quarter production schedule. In all, 21 factories across North America will be affected.

Chris Buckley, the president of the Canadian Auto Workers local 222, told CTV Newsnet that GM says the Oshawa, Ont., plant will shut down for about six weeks beginning in January. The shutdown would end in the middle of February.

But there will be some production at GM's plants in Ontario, GM spokesperson Stew Low told The Canadian Press.

"There's a lot of plants that are running at that time," Low said. "There's plants that have only part of January out of their schedule and some weeks in February and March. It's very dependant on customer demand."

At a press conference in Toronto Friday, CAW President Ken Lewenza said not all of Canada's car manufacturing plants will shut down at the same time or for a full month.

But Lewenza noted: "All of our plants -- as a result of the declining sales in the U.S. -- are facing unprecedented shutdowns."

He said all workers are facing "temporary layoffs," noting that Ottawa needs to step up and help car manufacturers.

Otherwise, he said, 300,000 or 400,000 Canadians dependent on the industry will lose their jobs.

"I believe if the Canadian government intervenes ... we can avoid this economic crisis in the auto industry," Lewenza said.

He said governments around the world are offering stimulus packages to help their economies and Canada needs to follow suit.

Meanwhile, Honda also announced on Friday that it's cutting more of its North American production due to lower demand. But the Japanese carmaker doesn't plan to layoff any of its 4,600 workers here in Canada. Honda says its plants in Alliston, Ont., will be reduced by 37,000 units by the end of March 31.

With files from The Canadian Press