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

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

Thanks, Mr. Chair, again.

I want to come back to verifying a couple of numbers. You said that you are projecting 10.1 million units for this year. Then I thought you said that you were going to add 500,000 per year in your projections. That's what you project. That's an addition of 500,000 per year, starting with 10.1 million and capping it at 13.7 million in 2012, which is all of three years from now.

How do those numbers add up? That's adding 1.5 million.

[Thomas LaSorda]

I would have been mistaken. It might have been longer, but it's 500,000 per year.

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

That's until you hit 13.7 million, whatever year that is.

[Thomas LaSorda]

That's correct. I apologize.

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

Okay. Thanks for that.

I want to verify, going back to the proportionality issue, because this is very important, that 25% of your manufacturing in North America is done in Canada. That's right?

[Reid Bigland]

Yes.

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

Is the $2.3 billion you're asking for in Canadian dollars?

[Reid Bigland]

We would prefer it to be in U.S., but yes.

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

But you're asking for Canadian dollars, which today would translate to $1.77 billion U.S. That $1.77 billion U.S. is on top of $9 billion that you're asking for from the Americans?

[Reid Bigland]

Yes.

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

Okay. So the total you're asking for in North America is $10.77 billion U.S.?

[Reid Bigland]

Yes, approximately.

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

Okay. The $1.77 billion that you're asking for from us divided by the $10.77 billion U.S. is about 16% of the total that you're asking for from North America. That is just 16.4%.

So what I'm getting at in terms of the proportionality of this is that you're manufacturing 25% in Canada, but you're only asking us for 16.4% of the money. Are we talking about guaranteeing 25% in manufacturing in North America or are we talking about 16.4%?

[Thomas LaSorda]

Let me address that, then I'll turn it back to Reid.

Obviously if the exchange rate was even, this would not be much of a discussion. But we did originally ask for it in U.S. funds. As far as production is concerned, our production plans, as we look out for the next six or seven years with the launch of these new cars, would range in the neighbourhood of anywhere from 22% to 27% production in Canada, based on the forecast. Now, if the forecasts go higher, obviously we'll do much better, but these are very conservative forecasts that Chrysler put into this viability plan that was shared with the government.

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

So the 25% manufacturing right now that is in Canada is not subject to an exchange rate. That's 25% of vehicles manufactured in Canada?

[Reid Bigland]

Correct.

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

So how confident can we be that we're going to maintain 25% of those vehicles manufactured in Canada?

[Thomas LaSorda]

If we meet the terms as we outlined, there would be a high likelihood that it would stay within that range, plus or minus 10%.

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

Plus or minus 2.5 basis points?

[Thomas LaSorda]

That's 25% of production in our product plan in the next five to seven years. It's in that range of 23% to 27%, based on our forecast of where the segments are going. If there's a major shift from small to really small cars--from, let's say, minivans--obviously the production is going to be what the market tells us. But our planning has it in that range, which is a great range to have that kind of capacity in this country for the future.

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

What commitments are you making, though? I want to know how firm that commitment is.

[Thomas LaSorda]

Well, on the commitment, first of all, let's be very clear. We're committing to spend $1.1 billion on just one plant launching two all new vehicles. That's in Brampton. In Windsor we're committing the right-hand-drive export models of a minivan, which we just launched with VW, which stays there for six years.

I'll go back to Brampton. The new cars launched in 2010 will be on a five- to six-year life cycle, so we're talking to 2016 or so that these products will be in Brampton. So there's long-term viability to keep investing and to keep those products here in this country.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Lake.

Thank you to the members of the committee for your questions and comments.

Thank you, Mr. LaSorda, Mr. Bigland, and Madam Shalhoub, for your testimony today.

We'll suspend for a couple of minutes to allow the panel of witnesses to change and we'll reconvene.

[The Chair, Conservative, Michael Chong]

Good evening, members of the committee.

Good evening to our three witnesses.

For the second panel we have Mr. Peter Frise, who is the chief executive officer and scientific director of Auto21 Inc.; we have Mr. Dennis DesRosiers, who is president of DesRosiers Automotive Consultants Inc.; and we have Mr. Percy Ostroff, who is partner at Doucet McBride LLP. Welcome to all three of you.

We're here to study the challenges facing the Canadian auto industry. Your testimony will help us write a report and recommendations that will be submitted to the House of Commons by the end of March. You'll each have about seven or eight minutes to provide your introductory remarks, and then we'll have questions and comments from members of this committee.

We'll begin with Mr. Percy Ostroff.

[Percy Ostroff, Partner, Doucet McBride LLP]

I was asked just this afternoon to come here, so my preparation time has been a bit short. I will give a general overview of the two main statutes that govern restructuring in Canada. It's a little difficult for me to know what level to pitch this at, because I'm not sure what the general knowledge its, but I'll try to make it simple, and if there are questions, you can pepper me with them later.

There are two statutes that really govern insolvency restructuring in Canada. One is the Bankruptcy and Insolvency Act and the other one is the Companies' Creditors Arrangement Act. They are alike in some ways, but very different in some ways. The intention of both is to keep companies operational in an insolvency situation and avoid a bankruptcy. But that doesn't mean you can not liquidate with the statutes. And it's important to know that you can have a proposal under either statute, which ends up just being a liquidation at the end of it. So the idea of keeping on in business is the intention, but it's not a necessary corollary of using one of the two acts.

In the Bankruptcy and Insolvency Act, most of the rules are written in the act itself, so it's easy to follow. And if you can read the act, you know what it is you're allowed to do as a creditor, what you're allowed to do as a debtor, and sort of what the guidelines are. It's not as often used in complicated restructuring as is the CCAA.

The CCAA is more a court-driven process. It starts off with an application to court. You get a court order, and that's now been streamlined so that the court orders are pretty well pro forma at the beginning. The first order lasts 30 days, and then you go back for subsequent orders. And because it's a court-driven process, there is a lot more flexibility in the type of deals or arrangements that can be reached. But it also means you get a lot more time built into it, a lot more appearances to convince a court of the aspects you're trying to sell, and the rules aren't as constrained. It's usually, though, the statute of choice in any large or complicated restructuring, which is probably what would be used in an auto industry restructuring.

The Bankruptcy and Insolvency Act has time limits associated with it. You can keep your creditors at bay, but for a limited period of time. Usually that is six months and no greater; whereas under the CCAA, the stays can apply much, much longer.

Both statutes require creditors to vote on whatever it is you're arranging, and after the creditors approve the plan, a court has a second chance to approve it. So it's sort of a two-step process.

Secured creditors are treated a little bit differently in the arrangements than unsecured creditors, and that's also important to know. If secured creditors don't vote in favour of the plan, there's no necessary bankruptcy, but it just means they're not stayed and however they were being kept at bay ends, and they can basically take their collateral and walk away with it.

The plans are approved basically by the unsecured classes of creditors. Those are the ones that count for the vote. But the secured creditors still have to be satisfied or else they take their goods back.

In a nutshell, those are probably the differences between the two. I'm not sure how much more detail you want or if there are particular questions about the operations that you want to get into.