OTTAWA (Reuters) -- The Canadian unit of Ford Motor Co. proposed on Monday that Ottawa provide a C$3,500 ($2,700) incentive to consumers who buy a new vehicle in 2009, as a way to counter a sharp decline in auto sales.

David Mondragon, CEO of Ford Canada, proposed the cash incentive, which he said could be based on the German model, in testimony to a special parliamentary committee on the automotive crisis.

He also said a C$12 billion ($9.2 billion) credit facility provided by the government in its 2009 budget for automotive financing companies was "likely much less than needed" to rescue the sector.

Mondragon forecast a 13 percent decline in Canadian auto sales this year and urged government action to minimize the fallout on the overall economy.

"The consumer incentive is urgently needed to spur automotive sales, which will help drive economic activity and factory production for all manufacturers in Canada," Mondragon told lawmakers on the committee.

"For the one in seven Canadians dependent on the auto industry, I don't have to tell you how critical it is that we take steps to stimulate the industry."

Under the proposal, car owners would be eligible for the cash if they bought a car or light vehicle and turned in a vehicle that is 10 years or older to be scrapped.

Germany's car industry has brightened after the German government introduced a consumer incentive plan there, Mondragon said.

Eighty percent of the cars Ford manufactures in Canada are sold in the U.S. market.

Ford, unlike General Motors and Chrysler LLC, is not seeking any government assistance in Canada or the United States at this time. Mondragon said that position has not changed.

His remarks came on the same day that the Canadian arm of GM reached a tentative cost savings deal with the Canadian Auto Workers Union (CAW), bringing it a step closer to qualifying for up to C$7 billion in emergency loans from the government.

Mondragon said Ford was aiming for a similar deal with the union in conversations that are starting now.

"We do not, as a manufacturer, have a production or cost advantage today in Canada versus other North American jurisdictions. We're hopeful that through these discussions with the CAW we will be able to bring our costs in line with other areas of North America," he said.