Auto parts maker Linamar Corp., plans to create 1,200 new jobs at its operations in Guelph, Ont., with a major investment backstopped by financial assistance from the federal government.

Transport Minister Lisa Raitt and Canada's second-largest auto parts maker unveiled an investment of more than $500-million on Monday to develop fuel-efficient transmissions.

The Canadian government will fund about 10 per cent of the project, as will the Ontario government.

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"This major announcement will support jobs and innovation in Canada's world-class auto sector," a senior federal government source said.

Such policies as low taxes, investments in key industries and free-trade agreements are increasing Canada's competitive position internationally and creating new job opportunities, the source said.

It's the second major job and investment announcement the Conservative government has made in the past six weeks as the government moves to support manufacturing in key industrial areas of the country ahead of the federal election this fall. Last month, the government said it will provide $300-million in loans to Pratt & Whitney Canada as the airplane engine maker invests in plants in Mississauga and Longueil, Que.

In addition to creating new jobs in Guelph, the investment is also expected to secure more than 1,500 existing jobs at Linamar, which has grown from a company founded in 1966 by entrepreneur Frank Hasenfratz into a global powerhouse in the auto parts sector – one of just a handful of Canadian companies that can make that claim.

The announcement of 1,200 new jobs is a shot in the arm for the auto parts sector, which is capitalizing on robust vehicle production amid booming auto sales in the U.S. market and record deliveries by auto makers in Canada.

But there is also growing concern about the medium and long-term future of vehicle assembly in Canada and thus many of the 80,000 jobs at Canadian auto parts suppliers, the bulk of which exist to support auto makers' assembly plants in the country.

New investment by auto makers has been flooding in to Mexico and the southern United States in recent years. That poses a danger to Canadian jobs because parts makers need to locate their own factories close to vehicle assembly plants to meet just-in-time delivery schedules.

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The federal government has supported the industry financially through the Automotive Innovation Fund, which was established in 2009 and renewed in 2013.

The government was negotiating a financing package with Ford Motor Co. last year, hoping to secure a new investment in engine plants in Windsor, Ont., but Ford decided to make the investment in Mexico instead.

Canada's auto parts makers shipped $24-billion worth of components last year, although as a producer mainly of parts that go in engines and transmissions, Linamar does not ship directly to vehicle factories, but rather to engine and transmission facilities that then deliver to assembly plants.

In addition to its auto parts business, Linamar also has an industrial equipment division whose products include scissor lifts used in construction and warehousing.

Linamar has more than 18,000 employees, several thousand of whom work at a cluster of factories and the company's head office operations in Guelph. The company also has plants in the United States, Mexico, Europe and China.

Linamar has already tapped Ottawa's auto fund, which is designed to help companies innovate and develop new technologies, borrowing $55-million beginning in 2009.

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The recovery in vehicle production is generating improved financial results at Linamar.

The company reported a profit increase of 54 per cent in the nine months ended Sept. 30, 2014. Profit rose to $248.8-million from $161.1-million a year earlier. Revenue rose to $3.2-billion in the period from $2.7-billion.