Thank you, Mr. Chair.
Good evening, everyone. My name is David Mondragon. I'm the president and chief executive officer of the Ford Motor Company in Canada.
Ford Canada is pleased to have this opportunity to address the subcommittee on the automotive industry in Canada.
With me tonight is Caroline Hughes, our director of government relations, and James Rowland, an executive with us in government relations. Together we'll be happy to answer your questions regarding the automotive industry in Canada from Ford's perspective.
First, though, I'd like to start with a brief overview of Ford's history and restructuring actions. Ford's position has not changed. We do not expect to access government loans for automotive business. At Ford, we are well on our way to transforming our company. In fact, few companies have restructured more aggressively than Ford. As Canada's longest established automaker, Ford Motor Company of Canada is proud of its 104-year history of contributing to the Canadian economy. Together with our 47,000 employees, retirees, and dealership personnel, Ford has demonstrated a legacy of hard work, innovation, and commitment to communities all across Canada.
Long before the current global economic crisis, Ford recognized its business model needed to be changed. During the past several years, Ford has taken steps to put the company on a path to long-term viability.
We have adjusted our automotive operations to meet demand at lower market volumes in North America, and these actions have resulted in difficult decisions to downsize our Canadian operations over the past few years. We took early action to restructure our business, focusing on product innovation, fuel economy, industry-leading quality, and unsurpassed safety. We'll introduce seven new vehicles in the first six months of this year; that's more than any other manufacturer.
And when it comes to product, everything we do at Ford is focused on excelling in four key areas: fuel economy, quality, safety, and smart technology.
When it comes to alternative fuels, Ford was one of the first automotive manufacturers to put fuel-cell vehicles on Canadian roads. We are the first automaker in the world to be operating hydrogen internal combustion engine vehicles, and those hydrogen vehicles are being used as shuttlebuses right here on Parliament HIll.
Ford is bringing affordable fuel economy to millions of drivers by delivering best in class or among the best in class fuel economy with every new vehicle we'll introduce. For example, this year we'll introduce the new Ford Fusion Hybrid, which is the most fuel-efficient mid-size sedan in the world.
Also this year, Ford will introduce industry-leading EcoBoost engines, delivering 20% better fuel economy and up to 15% lower CO2 emissions.
Ford will be selling a new battery electric commercial vehicle this year as well, the Transit Connect, a 2010 model we'll introduce later this year.
And we've introduced a joint venture with Canadian-based Magna International to develop a battery electric small car by 2011.
By 2012, Ford is bringing to market a family of next-generation hybrids, plug-in hybrids, and battery electric vehicles.
Now let's turn to quality for a moment. Ford quality is now on a par with Honda and Toyota, and that is consistently being recognized by important third parties like J.D. Power and Associates and Consumer Reports.
Ford is also leading in safety with more five-star safety ratings than any auto company, and recently moved past Honda with more top safety picks awarded by the Insurance Institute for Highway Safety.
Clearly, 2009 presents many challenges. Companies and consumers everywhere are feeling the impact of the global economic crisis, and we do not expect the Canadian auto industry sales to grow. In fact, we expect them to shrink by about 13% this year.
In February, industry sales were down 28%. So far this year, sales are down 26% compared to the same time last year. When you consider that 20% of all retail sales in Canada are automotive-related, this downturn will have a severe ripple-through effect. This decline in auto sales translates to about 250,000 fewer vehicles being sold, with an estimated impact of $20 billion in lost sales and nearly $3 billion in lost taxes in 2009. If we see even sharper declines like those the U.S. is experiencing, those losses will double.
By far the most important way the Canadian government can support the auto industry is through direct consumer stimulus to get people into our showrooms, willing and able to buy new vehicles. To do this, consumers need access to credit and incentives to purchase new vehicles during this difficult economic time.
There are two important actions the government can take to help in this regard. While the Canadian secured credit facility announced in the 2009 budget will help provide auto financing companies with the funds they need to provide consumer loans and leases, and to finance dealer inventories, the $12 billion announced is likely much less than what is needed. The Canadian Finance and Leasing Association estimates that annual auto loans and leases are worth about $60 billion.
The credit markets have been frozen for more than a year for the auto financing companies. As a matter of fact, not since 2006 has Ford Motor Credit been able to securitize any loans in the open market in Canada. These funds are needed to underwrite new loans and leases, and this lack of credit is reflected in the reduced industry sales and the pullback in leasing activities that have occurred over the last year.
With additional credit, auto finance companies will be able to underwrite more loans and leases for consumers. Investment-grade ABS securities offer the government and taxpayers a high-quality investment that will provide significant returns. These can be set up as low risk and will provide the industry with the flexibility it needs to raise funds in this challenging credit market. The funds should apply to automotive loans, leases, and dealer inventories, and the funding needs to be implemented urgently.
Canada appears to be three to six months behind the U.S. downturn in sales. Providing this access to credit will help us mitigate further declines. We need to establish an anchor in the sea, and right now there's no anchor in the sea for our ship.
The second action the government can take is to offer consumer stimulus, which would be provided in a program that would offer a $3,500 incentive to purchase a new car or light truck. In January, Germany introduced an incentive that provides consumers with 2,500 euros, or the equivalent of about $4,000 Canadian, to purchase a new car or light truck when they turn in a vehicle that's nine years old or older. Remarkably, new vehicle sales in Germany rose by 22% in February with the introduction of this program.
The federal scrappage program introduced by Environment Canada is not working, and no one appears to be using it. It's likely because a 10-year-old vehicle has a value of about $3,500 and the incentive offered is only $300. The Canadian government should introduce an immediate $3,500 consumer stimulus incentive for any new car or light truck purchased from now through to the end of the year.
To qualify for this incentive, consumers would be asked to turn in a vehicle that's 10 years old or older to be scrapped. This will ensure that the sales are truly incremental and the money is not being paid to consumers who would have purchased a vehicle otherwise. This program would also benefit the environment, because a 10-year-old vehicle produces 12 to 18 times more air pollutants than do new cars and trucks, and the average fuel economy of a vehicle purchased today is much better than the fuel economy of a vehicle purchased 10 years ago.
The consumer incentive is urgently needed to spur automotive sales, which will help drive economic activity and factory production for all manufacturers in Canada. With the livelihood of 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.
We look forward to working with this committee and helping to stabilize our economy here in Canada.
Thank you for the opportunity to meet with you.
Now, Caroline, J.R., and I will take questions.
