Subcommittee on the Automotive Industry in Canada Committee on March 11th, 2009

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

In terms of the Fiat negotiations, are they ongoing now or are they suspended until we see the outcome?

[Thomas LaSorda]

First of all, from our perspective, there's a terms sheet, and the major framework of the deal with Fiat is completed, However, we need to do due diligence. They were with us with 40 to 50 people for a number of weeks doing due diligence on Chrysler. We have a team of about 15 to 20 in Italy today, this week. They arrived on Monday. They'll spend a few weeks doing due diligence on Fiat, and Fiat is in direct discussions with the treasury department. Marchionne met with them on Thursday of last week, and there were further phone calls yesterday and today, so things are progressing. He wants to do the deal. So do we. Hopefully we can meet by the end of the month and see what happens.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Comartin.

Thank you very much, Mr. LaSorda.

Madame Hall Findlay.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair, and thank you very much, all of you, for being with us tonight.

In your submission you said, “We were unable to access credit for our customers and our dealer network last summer”, and we all appreciate the credit facility that has been discussed now at the federal government level. Would that have helped you last summer and in the fall?

[Reid Bigland]

It most certainly would have. In fact, July 2008 ended our streak of 23 consecutive months of growth. We were running at approximately 50% lease, and our lease financing dried up. The impact on our Chrysler financial organization has been devastating. Traditionally they finance 90% of our business, and their business has now gone to 8%, resulting in significant layoffs within our Chrysler financial operations. It's really just a case of the seizing up and freezing of the credit markets.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you.

You're asking for a significant amount of money from both the American and Canadian governments. Very quickly, what is the Canadian company's burn rate right now, and how does that relate to the amount you're asking for?

[Reid Bigland]

We don't break it out in that level of detail for Canada. We're consolidated into our U.S. operations, and we've provided that to the Canadian government and the U.S. treasury department. It's varying quite a bit right now, but it is a pretty intense burn rate.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Can I be so blunt as to ask how long our $2.3 billion Canadian would go, based on the current burn rate you see?

[Thomas LaSorda]

In the viability plan we submitted to the U.S. government, we anticipated the $9 billion.... At the end of this year, we would look at about a $9 billion cash position for the company. If you add the Canadian dollars on top of that, we'd be over $11 billion. In the forecast of the four-year plan we submitted--in fact, we submitted an eight-year plan--the cash situation would hold in that range for the next four to five years. With the market going up, we would start paying back in 2012.

[Martha Hall Findlay, Liberal, Willowdale, ON]

I recognize that we all want to be optimistic about 2012, but we're looking at some rapidly changing forecasts over the last two months, not just for the auto sector but the entire global economy.

Are you confident this money you are asking for will do the trick in Canada? I understand the North American integration piece, but we're responsible to the Canadian taxpayers. Are you confident that will be enough over the next number of months for you to turn it around, given the uncertainty over the forecasts we're seeing now?

[Thomas LaSorda]

Assuming the U.S. Treasury provides the funding as well, the answer is an absolute yes.

[Martha Hall Findlay, Liberal, Willowdale, ON]

That actually leads me to my next question.

You've talked a fair bit about the possibility of moving production from one plant to another within North America. If Chrysler LLC went into chapter 11, would Chrysler Canada be able to continue to operate?

[Reid Bigland]

No. We would file for Canadian creditor protection in Canada.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Right. So the reverse question would be whether it is possible for Chrysler Canada to do a CCAA even if the U.S. Treasury comes through and keeps Chrysler in the United States going.

[Thomas LaSorda]

There would be no intent on our part.... The products produced in this country are very profitable, and they add to the cash revenue for the company. This kind of volume, even in bad times, at 400,000, is very, very instrumental in the cashflow for the U.S.-based company.

We're fully integrated. We would not be able to stake one unit and say it is out and the rest would stay. At this point in time we have no plans to do that. The viability plan proves that with the funding we'll be a viable company for the future.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Recognizing that, but also recognizing that a CCAA restructuring does not mean you stop producing here--it would provide some opportunity to deal with some of your existing costs--would the fact that the operations themselves might be competitive not be a possibility for the Canadian operation, through a restructuring, to continue to sell into the United States?

[Thomas LaSorda]

We would never separate and take the Canadian operation into that kind of situation independently. It wouldn't make sense. Our sales would plummet big time in this country, and it would affect production and sales in the U.S. too.

[The Chair, Conservative, Michael Chong]

Thank you very much, Madam Hall Findlay.

Thank you very much, Mr. LaSorda.

Mr. Carrie, the floor is yours.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

And I want to thank each of you for being here.

I've had the honour to serve under Maxime Bernier and Minister Prentice. I've really appreciated our relationship in the past. I've seen all the great work you've done with the CAPC report, helping us with our auto action plan and trying to get things implemented.

As we sit here today, I am impressed with your restructuring program and the way you've brought this through. It seems the Detroit three have been going through different ranges of that. I want to ask what the timeframe is with the restructuring you're doing. Are you 50% or 75% through that process? How is it looking? And when we're through this crisis, are you prepared to hit the ground running?

You have some great products. I'm really impressed with what you're putting out the door. What's the status of that restructuring, if you had to put a number to it?

[Thomas LaSorda]

Right now the major restructuring has been done on capacity utilization. There's more we have to do, but I would say we're at the 85% range.

When we went through the restructuring that we announced in the viability plan, we talked about concessions with the dealers. That's in place. With our suppliers, we had an April 1 target date. There are some troubled suppliers, and I think the insurance program will certainly help the Canadian suppliers supply not only in Canada but to the U.S.

The only issues we have left are dealing with the banks with regard to what they have to contribute, and the second lien holders, which are the owners. Both Daimler and Cerberus have offered up their second lien, which is $2 billion, and Daimler has offered its equity back to the owner as well.

So we're pretty much done. I think by the end of March it will be closer to 85% or 95%.

[Colin Carrie, Conservative, Oshawa, ON]

That's certainly good news for me. As you know, I come from Oshawa, and sitting here today I'm actually quite excited with the deal the CAW seemed to put together with General Motors. I think both parties appear to be happy with the way things are going.

But we're looking at the long-term viability of the industry. Sitting here as politicians, we're looking at significant Canadian taxpayers' dollars, but on the other side we're looking at jobs and communities. My neighbour in Oshawa works at GM, and I have another neighbour who is a retiree. We're looking at the competitiveness over the long term, the numbers of sales.

I was wondering if you could comment on your Canadian legacy costs. You did mention it, Mr. LaSorda. You talked about the pensions a little bit. With your situation, how is the pension plan and the health care? Do we still have a Canadian advantage with the health care system? I know your company has done good work in the States with the union there on the VEBA, but I was wondering if you could comment on the legacy cost and how that fits into competitiveness.

[Thomas LaSorda]

Our OPEB or legacy costs are roughly $1.6 billion, made up of prescription drugs, medical, hospital, and all the other areas. The pension status in Canada, in the past and up through this year, has been over-funded—in 2007 and 2006 at 104%, 105%, 106%. So we're at a pretty good funding status. Of course the market has collapsed, with equities and everything, so I think we're at around 85% or 87% funding status in Canada right now.

The health care advantage is still here in Canada versus the U.S., mainly because of your OHIP here in Ontario. The costs to us here are roughly $80 million to $100 million a year that we're paying over and above. But the labour cost.... As you know, we've transferred the VEBA instrument, that obligation, to the UAW starting in January 2010, and we will have no further legacy obligations in the future.

[Reid Bigland]

To build on that, Tom, a matter we're quite proud of here in Chrysler Canada is the status of our pension. As Tom pointed out, we were over-funded in 2006 and 2007, and we were 89% funded as of December 31, 2008, which puts us in one of the top-tier positions in the Canadian marketplace. We've contributed almost $1 billion into our pension plans in Canada over the last five years.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Bigland.

Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chair.

I would like to know whether, in your restructuring plan, you thought about the post-crisis period.

You know that, currently, in the United States as in Canada, there have been numerous job losses, and wage cuts. In fact, workers have agreed to these wage cuts to help companies, in all sectors.

You also know that the purchasing power of all these consumers has dropped exponentially. This evening on the news, I saw that, in the United States, 300 people are now living in tents. And it seems that a whole host of others will be doing the same, because they no longer have a place to live or a car; they now have nothing.

In light of all this, will you continue to manufacture the same kinds of cars or will you manufacture a new model, given the economic crisis?

Purchasing power has dropped and the banks or credit unions can no longer lend money as easily for vehicle purchases. Workers' salaries have dropped, and the debt that they have already contracted has reached a saturation point. These banking institutions no longer want to lend money for vehicle or other types of purchases.

Have you, in your plan, decided to manufacture a new kind of car, a smaller, sub-compact, less expensive model in order to try to seduce consumers into believing that they can purchase such a vehicle? If so, sales could be quite high.

There is still a potential market for cars like the Chrysler 300, the Charger or the Challenger, for example. However, I imagine that the purchasing power for cars will drop below $25,000 or $30,000. Have you already thought of this, that is for the post-crisis period?