UPDATE 1-Canada buys 1,300 Navistar trucks, despite layoffs

TORONTO, Jan 9 (Reuters) - The Canadian government said on Friday it signed a C$274 million ($230 million) contract to buy 1,300 military trucks from Navistar International, just days after the company announced it was expanding layoffs at its Ontario truck plant to nearly 700.

Defence Minister Peter MacKay said in a statement the medium-sized trucks, built by Navistar Defense LLC in Texas, will be the logistics backbone of the army.

The vehicles will be used in Canada to support domestic operations.

The government said that, as part of the contract, Navistar will generate one dollar of economic activity in Canada for every dollar it receives from the deal.

That will be achieved through maintenance and repair of the vehicles, which will be supported through the company's local dealer network.

"One of the reasons we were selected is that we have an extraordinary dealer network up in Canada and that network, and the ability to provide parts ... is one of the things that work in our favor," said Navistar spokesman Roy Wiley.

He added that the company will be buying parts from Canadian firms.

"For instance, all the tires will be Michelin tires coming out of a Michelin plant over in Nova Scotia," he said.

The announcement of the deal came just days after Navistar told employees at its Chatham, Ontario, truck plant it plans to lay off up to 199 employees on top of the 499 set to lose their jobs on Feb. 2. The company had fewer than 1,000 workers at the plant in November.

The latest layoffs take effect March 2.

Wiley said the military vehicles will be built in Garland, Texas. The plant in Chatham, Ontario, a city of about 100,000, 290 km (180 miles) west of Toronto, builds larger trucks, he said.

At its peak, Navistar produced over 200 trucks a day in Chatham, but production dwindled to around 100 units a day by the end of last year as sales slumped due to the global recession.

The Chatham plant must continue to turn out a minimum of 35 trucks a day according to an agreement reached between the company and the Canadian Auto Workers union.

In 2003, Navistar said it was going to close the plant in Chatham completely and move production to Mexico.

The CAW said it agreed to significant concessions to keep the plant in Ontario and the federal and provincial governments kicked in C$65 million in financial assistance to sweeten the deal.

A CAW spokesman was not immediately available for comment.

The military trucks will be delivered to the army over an 18-month period starting this summer.

($1=$1.19 Canadian)

(Reporting by John McCrank and Randall Palmer; editing by Rob Wilson)

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