Evidence of meeting #4 for Subcommittee on the Automotive Industry in Canada in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was chrysler.
A recording is available from Parliament.
9:05 p.m.
Bloc
9:05 p.m.
Chief Executive Officer and Scientific Director, AUTO21 Network of Centres of Excellence, Auto21 Inc.
Yes, I would.
I'm not an economist, but I travel a lot and I look at the auto industry all around the world. As I said at the outset, this is happening everywhere. Virtually every major industrial nation is assisting its auto industry, with a view to helping them survive this very difficult period.
Let's set that aside for a minute and look at the economic life of a family. What are the two biggest things you buy in your life? They're a house and a car. When you buy a house, most of the money you spend on the house stays where the house is. The building material is pretty local; all the labour that built the house is local; the lot and the land are local, and so on. So buying a house is an investment in your community.
When you buy a car, a lot of the money you pay for the car winds up back in the locale where the car and its parts were built.
By the way, you can't really separate the parts industry from the assembly industry; it's really not practical to think of having a parts industry without having an assembly industry. The parts industry will go where the assembly plants are. If we let that go, as a Canadian, I would have to ask, are we really happy with exporting that much of our wealth to other countries on an ongoing basis?
9:10 p.m.
Conservative
9:10 p.m.
Conservative
Colin Carrie Conservative Oshawa, ON
Thank you very much, Mr. Chair.
I must say that I am somewhat pumped up today because of my history with the auto industry. As the former parliamentary secretary to the industry minister, I've seen the work the government has done with our auto action plan, trying to get the CAPC recommendations implemented. Recently, with this downturn, we've been working very hard with the American government. We know how important the integration of this market is. Just today, and the last several weeks, the CAW have come to the table. I must say how pleased I am that we're working together. I feel very optimistic.
I was wondering if we could get some comments from you—if the CAW ratify the deal. We heard Chrysler's comments regarding costs, that they want to be competitive with the U.S. to ensure their long-term viability. How big a deal are the labour costs to viability? I've heard they're only 7%.
Would you be able to comment on that?
9:10 p.m.
President, DesRosiers Automotive Consultants Inc.
Let me tell you about this exactly. If you actually look at the manufacturer's wage at the assembly plant, it's about 7% of the price of a vehicle. That excludes all the wages built into the parts sector, all the wages built through the distribution channels, and car dealer wages, and white collar wages, and all of the compensation, etc. When you actually take a look at the labour content of the vehicle, it's somewhere between 40% and 45%.
All of that is benchmarked off the 7% union assembly worker wage. The union worker gets the approximately $75 an hour all-in wage. The parts worker then is benchmarked at a number below that, but still much higher than what the other ones get. Then the car dealer benchmarks off that.
So relative to sustainable compensation, there probably is $2,000 to $5,000 too much in labour costs per vehicle today, on average. It's a wide margin. I respect that.
9:10 p.m.
Conservative
Colin Carrie Conservative Oshawa, ON
Now, with the new deals, are we on the right track here?
I just talked to our union leaders and complimented them and thanked them for coming to the table, finally, after the last few months. We all have to work together here. Are we on the right track here?
9:10 p.m.
President, DesRosiers Automotive Consultants Inc.
Do the math, Colin. They got $6.85 and there's 20 hours of labour on a vehicle. So what's 20 times $7? It's $140.
They need it to get into the $2,000 to $5,000 range. They're a little bit short.
9:10 p.m.
Conservative
9:10 p.m.
President, DesRosiers Automotive Consultants Inc.
It gets you into the low end; it gets you closer to $2,000, which is where we need to be.
That assumes it flows through the whole system. Chrysler is the first step. They get their $20, and then all of the Chrysler suppliers then have to go in and do theirs, and it filters through the whole system. You ultimately get, at the Chrysler basis point, $2,000 to $3,000, and maybe $4,000.
Starting with the GM one, you don't get to that number through the whole system. You get more than $400 or $500, but you don't get to the number you need.
9:10 p.m.
Conservative
Colin Carrie Conservative Oshawa, ON
If the company and the union, though, have come to an agreement--not to be hard on you, Dennis--why do we take your opinion over theirs?
9:10 p.m.
Conservative
Colin Carrie Conservative Oshawa, ON
Would we be able to get a comment from you on the value of maintaining those assembly jobs, as far as the importance of the research and development is concerned? I know that in Oshawa GM has invested significantly in electrification of cars, and they're working on fuel cells. What is the relationship with, or importance of, maintaining those assembly jobs here, and how does this relate to research?
I was wondering if Dr. Frise could comment on this as well.
9:10 p.m.
Chief Executive Officer and Scientific Director, AUTO21 Network of Centres of Excellence, Auto21 Inc.
I'm really not as equipped to talk to the specifics of the numbers as Dennis is.
But again, these are some of the best jobs in our society in terms of technology, the high-value-added engineering jobs and R and D jobs that are associated with vehicle design and also.... And again, Ms. Hall Findlay, a lot of the R and D is not done by the automakers; it's done by the parts companies. The car companies, essentially, buy the technology from the parts companies.
Those high-value-added engineering jobs are spread throughout the value chain, up and down the highway from Windsor to Quebec City and elsewhere in the country in specialized locations. Those are critical jobs in each of those communities. Those are the people who buy homes and send their kids to universities, and so on. Those high-paying, high-value jobs are what every other jurisdiction is really keen to protect.
9:15 p.m.
Conservative
The Chair Conservative Michael Chong
Thank you very much, Mr. Frise and Mr. Carrie, for your questions.
Mr. Masse.
9:15 p.m.
NDP
Brian Masse NDP Windsor West, ON
Thank you, Mr. Chair.
Mr. DesRosiers, the wage issue is of concern. I think it's also a distraction, to some degree, given that it was the financial markets that caused a lot of the issues that affected American consumers significantly, everything from the subprime mortgage to other greed in investments that has really hurt many consumers out there in our North American sphere right now.
Do you expect, though, that even if vehicle labour costs were reduced that much, consumers would see that benefit? Is that saving going to be passed on to the consumers?
9:15 p.m.
President, DesRosiers Automotive Consultants Inc.
In an economic system it would be a producer surplus, consumer surplus analysis. The level of the competition would determine how much would be passed to the consumer. In a highly competitive industry like the automotive, most of the benefit ends up in the consumers' hands.
In an oligopoly situation, which we had with GM, Ford, and Chrysler for the first 90 years of our industry, most of it ended up at GM, Ford, and Chrysler. We're out of that era. But it really would depend on an analysis of that.
You also identified that there are a lot of culprits here. Labour is an easy target. They make themselves an easy target, unfortunately. But they're only one of the targets--and they may not even be the most important target. I would put bond holders ahead of labour.
9:15 p.m.
NDP
Brian Masse NDP Windsor West, ON
I think the commentary has been irresponsible, because it's not going to lead to the solution necessary for our communities. If in Windsor the solution is to lower the cost of the worker, in terms of this situation, we're going to lose on significant economic stimuli required to see ourselves through this. In fact, our footprint will be significantly altered for the future--everything from paying off mortgages to making other investments, all of those things.
I do want to touch on a point I've been raising that is important. This is in regard to the banks, and I'd like your commentary on it.
Right now the banks' borrowing rates for vehicles are significantly higher than the actual cost of borrowing money. From some of the discussions I've had with those in the car loan business, for the dealers there's been everything up to 30% requested of some creditors to get loans from the banks right now.
Do you believe there is a role for us--and if so, what would it be--to ensure that the banks aren't the only ones making money from cars right now, through their loan programs?
9:15 p.m.
President, DesRosiers Automotive Consultants Inc.
That's a very good question.
I want to finish one thing on the worker. We hope to be able to get a competitive labour agreement without touching wages, and I think that's doable. So that helps Windsor.
On the banker front--and I've actually done a lot of work on this--if you look at the historical bank involvement with auto loans, they are more pricey today by probably 200 to as much as 1,500 basis points because of the risk factors that are out there. But they're not outrageous historically.
The issue is that the vehicle companies had the capability of significantly subsidizing their consumers' financing through the lease portal. Now that is shut off because the subprime market and housing market have cut off asset-backed lending. The consumer goes from a lease portal into the bank portal, and that is three to six percentage points higher than the lease portal. So it costs them, literally, without any competitive factors, $150 to $200 a month for the identical vehicle to have a loan versus a lease. Yet higher loan rates bring it up into--who knows?--$200 to $250. But it's not any worse than it was historically.
9:15 p.m.
NDP
Brian Masse NDP Windsor West, ON
But isn't that part of a solution? Why is it that we have so much of the percentage of financing, especially given the fact that the United States and Canada have put up so much public equity to get the banks back on some type of stability, supposedly? They've increased their fees and all these different things. Wouldn't it be better public policy to say they've got their share, they didn't even have to give anything; and second, to get the real economy going, we should make sure they're going to be a player and a partner in this. We've asked auto workers and everybody else to take a cut on this, including the executives and so forth, and why is it that we wouldn't do something public policy-wise to try to move vehicle sales out there and shrink the banks' gouging? I would say it is gouging. You're right, historically it might be lower, but at the same time, our prime rate has never been any lower than it is in the United States and Canada right now in terms of the interest rate.
9:20 p.m.
President, DesRosiers Automotive Consultants Inc.
There are three points. Supply and demand are going to determine the rates, and there's a shortage of supply, and that's why they're higher today. Secondly, one of the reasons we have such a strong banking sector in this country, which is going to help save this country's economic system, is how conservative the banks are, which comes back to this core issue.
9:20 p.m.
President, DesRosiers Automotive Consultants Inc.
Bear with me for one second. I think you're focusing exclusively on consumer lending with the banks and I think that is the lesser of the two bank problems in our industry. The banks will not touch a car dealer.
The ordinary Joe Blow car dealers--I know of half a dozen members of Parliament who come from the car dealer body--have $7 million of debt in their own name in their community from one end of Canada to the other, and that debt is being cut off by the banks. No bank today will touch a car dealer, and if you don't support the car dealer with floor plan capital financing lines of credit, you don't sell cars, you don't make cars. That's where you should be trying to influence the banks--to go out and support the car dealers.
9:20 p.m.
NDP
