Subcommittee on the Automotive Industry in Canada Committee on March 9th, 2009

[Mark Nantais]

If I could add to that, I think now it's evident that any major automotive jurisdiction around the world is supporting their domestic industry in some major way. Certainly, I think it's known that Toyota has sought funding assistance from the Japanese government, and of course that can take different forms as well. We do know that Toyota has also sought funding from the EU in terms of helping them bring forward advanced technology vehicles.

So it doesn't matter which manufacturers or which country; it seems that wherever you have an auto industry and they recognize the economic benefit, whether it's Australia, the EU, Spain, North America, Canada, the U.S., or elsewhere, those jurisdictions are providing some means of supporting their domestic industries.

[The Chair, Conservative, Michael Chong]

Thank you.

Mr. Masse, you do have more time, but I've asked the research analyst if he would provide the committee with that information as well, and he said he would be able to do that.

[Brian Masse, NDP, Windsor West, ON]

Oh, great. Thank you, Mr. Chair. That's a great suggestion.

I'll just mention this quickly. I do have a private member's bill with regard to the after market. I think it's important to note that universally, we've heard, there's a request for billions of dollars of loans and potentially more with regard to the purchase of new vehicles. I think it is important that we extend some type of vehicle...and I have gone over and over this, and I will continue to, because the banks are being irresponsible with their lending right now. Once again they're charging 8% to 14% for good credit users, which is ridiculous. They'll make more money on a vehicle than anybody else will.

My private member's bill has a provision.... Basically, I get out of my driveway and I can be in Detroit, Michigan, in five minutes and have a repair done by a service mechanic who is maybe less qualified than is a Canadian technician. Some companies like General Motors provide that information and others don't. The United States has that capability. We don't over here. Does that seem fair that there be requests for a lot of support to purchase new vehicles, but at the same time the United States has a different set of systems for tooling, training, and using software versus what we have over here, especially given the fact that a lot of auto manufacturers have asked for harmonization on a whole series of things, but we don't have that for the after market? Does that seem like a fair scenario for the Canadians?

[David Adams]

If you're looking at your bill in particular, I don't know that it necessarily addresses what you want it to address. As I understand it, you're looking for the provision of information, training, tooling--

[Brian Masse, NDP, Windsor West, ON]

Let's take it out my bill and talk about that situation. Is it fair that there's a different set of rules in the United States from what there is here? It could be my bill. It could be something else, but do you think that's a fair situation for Canadians to be in right now? You can literally, once again, go out and be over in Detroit or you could be travelling down to Florida and have a problem with your car and have to get it repaired at a facility and then later on bring it back to Canada, but the same thing could have been done over here.

[Frank Valeriote, Liberal, Guelph, ON]

A point of order, Mr. Chair.

[The Chair, Conservative, Michael Chong]

Mr. Masse, we have a point of order.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you, Mr. Chair.

We're not here to talk about Mr. Masse's bill. We're talking about the future of the auto industry in Canada.

[The Chair, Conservative, Michael Chong]

I understand, but I'm going to rule the question in order since it does concern the auto sector.

Mr. Adams, if you could briefly answer it, then we'll move on to Mr. Valeriote.

[David Adams]

Whether in the U.S. or in Canada, I think the reality of getting your vehicle repaired is contingent on whether it's a dealership or an independent repair shop having expended resources to purchase the manuals, which are readily available from sources other than the manufacturer, and the tooling, which is readily available from sources other than the manufacturer. So it all depends on who's going to make the investment to purchase the equipment and the manuals, whether it's on one side of the border or the other.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Adams and Mr. Masse.

Now the floor is Madam Hall Findlay's.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

Thank you very much, everybody. I'll repeat our gratitude for your being here with us so late.

I have several questions so I'm going to try to be relatively quick, but I will preface this again by saying that we all are very concerned about the jobs throughout the industry. We are also, as parliamentarians, concerned about taxpayers' money, so we have a combined interest in being here.

First off, Mr. Carnevale, thank you very much for being here and for shedding significant light on the complexity of the challenge here. I may have questions to ask after the fact, but I just wanted to make the point that you have added here in showing that this is significantly more complex than I think most people understand and that there are tentacles to this problem that go much further. So thank you for that.

Mr. Nantais, the forecast numbers are pretty dismal, and my question is very blunt. We keep hearing questionable numbers. Several of you have talked about concerns about where the forecasts are, and whether we're sure the forecasts will actually be where they are. You've talked about the credit facility and maybe that not being enough and that we'll cross that bridge when we get to it. But with regard to the actual cash being asked of the government from the two companies, and given the significant burn rate in particular with GM--I'm not as familiar with Chrysler's numbers because as far as I know they're not appearing yet--do you think that's enough?

[Mark Nantais]

I really can't say. I can't offer any guarantees. I can't say yes, that is going to be enough, or no, it isn't. Let's be clear here. When we take a look at the economic conditions, whether it be in Canada or the United States or elsewhere around the world, we are indeed a global economy now. So every time I hear Bloomberg news I start to get depressed because they start linking the global picture together. When we think we're making some progress here, somebody on the other side of the world says, no, things are going to hell in a hand basket, and everything drops again. So it's very difficult to say, one way or the other.

But certainly you've heard from General Motors that they have expressed optimism. You've heard from Ford today that they expressed optimism.

It's going to be a very different future, we do know that. But we do know the consequences of not doing anything are going to be far greater, and that once we lose jobs here, they're gone forever. That is the new norm, that is the new reality, so I think we have to look at it in that context.

I'd like to give you more, but unfortunately I can't.

[Martha Hall Findlay, Liberal, Willowdale, ON]

I have a question for Mr. Worts. We've heard different explanations of the role that the parts supply chain plays. I have heard that on the one hand the parts supply chain in Canada supplies, for the most part, the big three and not Toyota and Honda, for example. Their parts supply comes mostly from abroad. And then I've heard the opposite. Can you shed a little bit of light on the parts supply chain in Canada and what proportion of that work goes to which of the companies?

In that context also, what portion of the parts supply in the system actually goes down to the United States, recognizing that a lot of those cars then come back up. If you could shed a little bit of light on the overall picture there, that would be helpful.

[David Worts]

I assume you're referring just to Japanese automakers' operations?

[Martha Hall Findlay, Liberal, Willowdale, ON]

No. I'm asking, assuming that you're involved in the auto sector generally, if you can help with the larger picture, because, as I said, the inconsistency I'm hearing is that in some cases.... I'll give you a graphic example. If GM is allowed to go down, the parts suppliers that supply GM will then go down, and on the one hand they will die, or on the other hand they will keep going because they supply Toyota and Honda. But quite honestly, I find that conflicting. If you could shed some light on the proportions, that would be helpful.

[David Worts]

It is a complicated situation with global supply chains. Certainly I am aware, from comments that have been made to me by our members, that they have concerns about the viability of GM, Ford, and Chrysler because at some levels they do share some suppliers. If any of the dire scenarios that some analysts have been painting about the loss of the Detroit three occur, it would have a pretty direct and immediate impact on our members as well, because, as I say, having integrated into the North American industry and having localized their operations in North America, they do share some suppliers with those companies.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Worts.

Madam Hall Findlay, thank you.

We now go to Ms. Brown.

[Lois Brown, Conservative, Newmarket—Aurora, ON]

First of all, I have a comment. I noticed that in all of your presentations, in the first four--sorry, not Mr. Carnevale's--you did refer to the importance of the secured credit facility. We're working on that as quickly as we can. I'm glad to hear you see that as part of the resolution.

Mr. Nantais, I want to just clear the record. We keep hearing about Canada not having a comprehensive automotive strategy, and yet what I'm hearing from you in your comments is that the automotive innovation fund and some of the things that you've already put forward in recommendations to the government, we are most definitely working on. Even though we may not be calling it a comprehensive strategy, or whatever the plan is, it is there and we are moving forward on that.

Mr. Carnevale, I wanted to address my comments to you, and some of them have already been discussed. I'm hearing the same things from my constituents. I have constituents who are in the tool-and-die industry or in the industry providing supplies to the OEMs. I find it disturbing that this has come about. My first question is, who negotiated this kind of a deal on your behalf? How did this come about?

My second question is really to the automotive manufacturers. Is the $4 billion going to go to paying off debts like these? How can we be assured, by putting in taxpayers' dollars, that there aren't a whole lot of other invoices out there that are going to have to be satisfied before you can move forward?

I'd like a comment from Mr. Carnevale first, if he doesn't mind.

[Angelo Carnevale]

I think it was an evolution. In the eighties, for example, when profits were fatter, the PPAP system was strictly more of a quality system to ensure that there were high-quality parts being mounted on vehicles. It is a structured system and it has different levels of approvals. Say you have an assembly, a head lamp, for example. You would have the lens, you would have the inside...you would have maybe four or five parts. The problem is if one part out of five does not pass, then the whole assembly is rejected. You may be the tool shop that built the four good ones, but the one bad one held back the PPAP. It was a failure. You didn't get paid.

Now, maybe in the eighties they had some money and they could have paid you. Profits were a little better. Tool shops could afford to carry the money. Then with the cost cutbacks and target pricing, the margins became thinner and it became harder to carry the money. It spiralled, and a lot of the Detroit three started to pressure their suppliers for 5% a year on a five-year program, or they would move it. What happened then is you had tooling going overseas. Now the tooling pie became smaller and all of a sudden it became a buyer's market.

Tool shops, by definition, will fall over backwards trying to work for the customer. It is nothing for a toolmaker to work 30- or 48-hour days in a row to get a tool out on time. When we have a delivery date on a tool, we are quoted to the day, sometimes to the hour, and we'll have it at 10 a.m. on Tuesday, or whatever. I hate to put it this way, but what happens is it almost becomes like a battered person syndrome. You become fearful of the customer, and you will not fight back because you are a typical 20- or 30-employee company that does $3 million or $4 million a year. Do you really think you're going to take on GM? Their legal department is bigger than your whole company.

[Lois Brown, Conservative, Newmarket—Aurora, ON]

My problem is this. How many of these invoices are out there? Do we have any idea of how much is owed to these small companies? Can any of you comment on that?

[Mark Nantais]

I can't really comment on that, but those companies that are seeking bridging loans have disclosed viability plans to you or to the government. That discloses their operations, their viability, their liabilities, etc., in terms of being a going concern. That has to be presumably disclosed in those plans.

Let's be clear here. On the whole issue of quality now for parts and components, that's the way it is. You can't accept parts and components that are inferior, and you have a certain threshold that has to be met, because nobody can afford to release a product now that isn't of the highest quality. That's why Chrysler, Ford, and General Motors...and as you heard from Mr. Mondragon this evening, their quality is at par with the so-called top of the heap, which has been Toyota and Honda, by third parties. Quality is something you cannot compromise on any more. One has to look at whether the relationship between the toolmakers is with the OEM directly or with the tier one supplier.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Nantais.

We'll take some questions from Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chair.

My question is for Mr. Worts.

According to your calculations, how does the cost of producing one of your vehicles compare with the production costs of your U.S. competitors?

[David Worts]

I don't have a lot of detailed pricing information. There was a concern in 2007, when the Canadian dollar was above par, that Canadian pricing was not reflecting the full value of that dollar, and of course pricing is generally to the market. To compare exactly a vehicle in Canada and in the U.S., given that we have some different standards in the vehicle, is very difficult to do.