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

[Thomas LaSorda]

What they would have said is what was the wage rate per hour, just what they paid as a base wage rate. It's very competitive. All the companies are competitive. However, when we add in retirement, health care, long-term health care obligations, vacations, more time off, more benefits, less break time at Toyota and all those other issues, when you add all that up, fully accounted, that's what our rates are. That's how we have to look at it as a business.

The wage rates are exactly the same, within dollars. But fully accounted, we're much higher than—

[Robert Vincent, Bloc, Shefford, QC]

What is the cost of labour per vehicle? Is it $1,200, $1,300? I am talking about the labour cost per vehicle coming off an assembly line.

[Thomas LaSorda]

That would be the current labour rates in that range, but depending on the manufacture and how many retirees you have, it could be higher.

[Robert Vincent, Bloc, Shefford, QC]

Okay.

Let us continue. With regard to the difference in auto sales, I read that Chrysler Canada had sold 11,923 cars in February, compared to 66,040 in the United States.

So, your action plan for the United States, to stimulate auto sales, would be the same as what you are proposing for Canada.

[Reid Bigland]

The action plan in the U.S. is very similar to the one in Canada. We had quite a bit of success last month in Canada, and for the first time in our 84-year history we're the number one selling vehicle manufacturer in the country.

You're correct, we sold just slightly over 12,000 vehicles last month in Canada. The U.S. was in the 80,000 to 90,000 range. Clearly the goal in Canada and the U.S. is to sell as many as we can, with particular focus on retail sales versus that of some of the sales to larger fleets and rental car companies.

[Robert Vincent, Bloc, Shefford, QC]

A paragraph on page 4 states: Failure to satisfactorily resolve these three factors will place our Canadian manufacturing operations at a significant disadvantage relative to our manufacturing operations in North America and may very well impair our ability to continue to produce in Canada.

This brings to mind a question. The difference between the exchange rate in Canada and the United States is approximately 20%. It is much more profitable to manufacture cars here, in Canada, given the cost of labour and parts, than to manufacture them in the United States. It is much more profitable to manufacture 66,000 vehicles in Canada if the dollar is 20% lower here than in the United States.

So, you are making a direct 20% profit by manufacturing vehicles here in Canada. Is that correct?

[Reid Bigland]

Go ahead, Tom.

[Thomas LaSorda]

Let me make sure. In November of last year, the currency was $1.10. So the way I look at business, you never make decisions on currency play, because you can't predict it. Most economists can't predict it either. If they could, I would probably be trading in currency exchanges and not working. We never make decisions on currency. The decision has to be on total cost and where can we get the best total cost.

Canada has been around for a long time. I'm a fourth generation LaSorda working for Chrysler. There's a huge history here. We want to stay here. We're just asking that the three critical issues be addressed, and then we'll be fine.

[The Chair, Conservative, Michael Chong]

Thank you. Merci.

Thank you, Mr. Vincent.

Thank you, Mr. LaSorda.

Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

And thank you to the guests for coming today.

I'm going to start, as I've started several meetings now, by setting a bit of a global context and seeing what your thoughts are on it.

There are several international publications that have commented on the situation in Canada.

The Economist, for example, stated that “in a sinking world, Canada is something of a cork. The big worry is the fear that an American recession will drag Canada down with it.”

The Daily Telegraph stated: “If the rest of the world had comported itself with similar modesty and prudence, we might not be in this mess.” They were talking about Canada compared with the other G8 countries.

Newsweek said: “If President Obama is looking for smart government, there is much he, and all of us, could learn from our...neighbor to the north.”

Even the President of the U.S., President Obama, said: “One of the things that I think has been striking about Canada is that in the midst of this enormous economic crisis, I think Canada has shown itself to be a pretty good manager of the financial system in the economy in ways that we haven't always been here in the United States.”

Those are four comments from independent external sources that say there's a global context to this problem.

The slowdown in the States has really impacted the situation in Canada. From my thoughts on the problem, it seems there are two impacts to that. There's a direct U.S. impact, and that's on the manufacturing sector. In other words, when Americans stopped buying cars, it immediately affected our manufacturing sector. And then there's the indirect U.S. impact, where Americans generally stopped buying all things. We manufacture many of those things. Therefore, Canadians' jobs were less certain and we stopped buying cars in Canada. That's the sales impact.

Is that a fair assessment of the situation and the challenges we face?

[Thomas LaSorda]

I would say yes, absolutely.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

In terms of the third part of the equation regarding the government assistance you mentioned, we have the $12 billion secured credit facility to address the sales issue. To address the manufacturing side of things, we have the receivables insurance part of the equation for parts manufacturers. And of course there is the $2.3 billion you're asking for to address the manufacturing side of the equation, to bridge the gap until things get back on track.

In your view, are those important steps to move on as quickly as possible?

[Reid Bigland]

I think they're all very important.

From a sales perspective, the Canadian secured credit facility that was pledged is some of the exact medicine the automotive industry in Canada needs in order to get back to health. The issue with the Canadian secured credit facility is that we need that money to start flowing now. Time is of the essence with respect to getting that facility going.

On the EDC insurance for suppliers, again that's very welcome news for the supplier base that feeds into the Canadian manufacturing facilities.

I also agree that liquidity for certain vehicle manufacturers in Canada is also an acute need. It is essential to help some of us weather an unprecedented downturn in new vehicle sales, primarily in the United States. That market was down 41% last month. For the preceding four months, it was down in excess of 35%. It has also now jumped over the border. The Canadian market was down 28% last month, 25% the month before that, and it was down 20% in December, the month before that.

I believe that providing that bridge of liquidity is also an essential ingredient to getting the Canadian automotive industry back on its feet.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

The second bullet point was labour costs. Of course, contingent on receiving $2.3 billion is Chrysler putting forward a restructuring plan. All stakeholders would have to be involved in that, including labour. I'm curious. With respect to the GM-CAW deal, we're all aware of the nature of bargaining and the concept of pattern bargaining. How does that GM deal affect Chrysler?

[Thomas LaSorda]

Well, that's part of the negotiation issues with the CAW. They've always looked at pattern bargaining. But the current agreement with GM is unacceptable to us, and we have to break the pattern.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

How so? Can you elaborate on that a little more?

[Thomas LaSorda]

As we look at the GM pattern, if we take the exact savings that were generated there and relate that to Chrysler, we don't come to even 50% of the gap. Now, GM has a different framework. General Motors has many, many more retirees than we do--we have 13,000--so they've probably looked at retirees and long-term health care issues there. But we have to close the gap. We'll talk to the CAW and negotiate with them, as we always have, and we've always come to finalize the agreements.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

When we talk about the reason manufacturers choose to manufacture in Canada, one thing that's talked about is the strength, the productivity of our workforce. We have a lot of people in Canada who know how to make good cars and trucks. How important is that to you when you're deciding where to put a factory?

[Thomas LaSorda]

We made the tough decision just last year. I had to decide what plant would build minivans, and this was a major factor. One plant had to close, and it turned out to be St. Louis South. Windsor has a history of delivering great quality and good productivity, but the labour costs have to now be aligned with the U.S. rates.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I have a couple of clarification questions from your opening statement or your testimony so far.

I believe you're at about 25% of your North American manufacturing in Canada. Is that accurate?

[Thomas LaSorda]

Yes.

[Reid Bigland]

Currently.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

So in terms of proportionality when you're asking for the loans—you have $9 billion in the U.S.—the $2.3 billion you referred to, is that $2.3 billion of the $9 billion or is that an additional $2.3 billion?

[Thomas LaSorda]

In addition.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

So the total of $11.3 billion...$2.3 billion isn't close to 25%. Why is that?