The federal and Ontario governments are making repayable contributions of as much as $34 million to Toyota Motor Manufacturing to build a hybrid car in Canada.

Prime Minister Stephen Harper announced Wednesday at the Toyota plant in Cambridge, Ont.,that the federal money would come from the Automotive Innovation Fund.

The government defines a repayable contribution as a loan where the recipient is expected to repay all or part of the amount or where the government expects to receive a financial return.

Harper said the government is proud to partner with Toyota.

"The rebound of Canada's auto sector is one of this country's biggest economic success stories of the past five years," Harper said.

"We are here because our government is committed to creating high-quality, well-paying jobs for hard-working Canadians."

Outgoing Premier Dalton McGuinty said Ontario's portion will come from its Strategic Jobs and Investment Fund.

Toyota will put $125 million toward the new assembly line to increase production of Lexus luxury cars, including a new sport utility model with a hybrid gasoline-electric engine, which it expects to begin producing next year.

"Besides being the first hybrid vehicle assembled in Canada, the RX 450 hybrid has been, up until now, only, and I want to emphasize that, only, built in Japan," Harper said.

"But that's changing. In a short time, that fuel-efficient vehicle will be assembled right here."

While the Toyotas will be the first modern hybrid cars produced in Canada, car buffs noted Wednesday that the first gas-electric automobile in Canada was made by the Galt Motor Company in Galt, Ont., (now Cambridge, Ont.) in 1914.

Boosting Canadian auto production

Toyota announced last year that it would hire about 400 employees as part of a plan to increase Lexus RX production by 30,000 vehicles to 104,000, including 15,000 RX450h sport-utilities.

The expansion will increase Toyota's annual production capacity in Canada to 500,000 vehicles.

Earlier this month, Harper announced the renewal of a fund to stimulate research and innovation in Canada's automotive industry.

The fund was established in 2008 as part of efforts to help Canada's struggling automotive industry early in the last recession.

The fund required manufacturers to put up some of their own money before applying for funding targeted at specific research and development projects. The subsidy program was touted as an incentive to automakers to keep their Canadian plants open and protect domestic jobs.

The Jan. 4 announcement committed another $250 million to the fund over five more years.

Under the original fund, the federal government made loans to four companies, with Toyota eligible for up to $70.8 million for developing more fuel-efficient vehicles, including electric vehicles.

Today's contribution is the fifth one from the federal Automotive Innovation Fund.

Previously, Ottawa provided $80 million toward an investment of as much as $730 million by Ford to establish an engine assembly plant and powertrain research centre in Windsor, $54.8 million to Linamar Corporation to develop new parts, $70.8 million to Toyota to permit the production of more fuel-efficient vehicles, and $21.7 million Magna to develop energy-efficient auto parts.