Subcommittee on the Automotive Industry in Canada Committee on March 4th, 2009

[Robert Vincent, Bloc, Shefford, QC]

The question is whether you intend to subcontract to companies here in Canada rather to firms in China or elsewhere, in order to keep jobs here in Quebec and in Canada.

[Arturo Elias]

It is very clear and it's very well understood that whatever funds are provided to help us restructure and implement our plan are to be used exclusively within Canada. We have a very large and extensive supplier network. We have over 3,000 suppliers in Canada, with 275 or a little more in Quebec and over 2,400 in Ontario.

Also, to restructure our dealer network and all of our operations, it is a comprehensive plan that we think has a good chance of being implemented here in the month of March and, again, provides long-term sustainability.

John, would you care to add anything further?

[John Stapleton, Vice-President and Chief Financial Officer, General Motors of Canada Ltd.]

Yes, just from a supplier-based perspective. We manufacture small to big automobiles, but because we manufacture very large automobiles, if our suppliers ship seats, steel, and frames, the parts need to be kept in general proximity to the manufacturing locations. That benefits the Canadian supply base as we introduce these new programs.

For some of the money that you talked about, you were worried about it branching out into other continents. I truly feel that just as a result of the cost of shipping a lot of the stuff over, because the parts are so big—seats cannot be put into a little box—you'll generally see the supply base stay here in Canada if we produce here in Canada.

[Arturo Elias]

I would add that in addition to our very large supplier presence in Quebec, we also have, as part of this plan to sustain our research and development activities here in Canada, ongoing relationships and initiatives with many key universities throughout Canada to do some of this. That includes four key universities in Quebec.

We have, in some of those suppliers, outstanding allies and true knowledge. For example, we have suppliers that have allowed us to go from steel parts to aluminum parts and are now even working on magnesium-type parts, which can bring down the weight of vehicles and allow for improved fuel economy, with tangible environmental benefits.

So those are important suppliers we have, important allies, in Quebec as well as throughout Canada. Our relationship with universities and research centres is basically across the board.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Elias.

You have the floor, Mr. Lake.

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

Thanks for coming here on short notice; let me start by saying that.

I'll throw in an extra thanks to the clerk and research analysts on the committee. They're giving up their own evening time to spend time with us over the next few nights as well--a significant sacrifice for them.

I'd like to start with a little bit of context. One of the things I was surprised to see when I started looking at the situation, when I became parliamentary secretary in November, was that Canadian auto sales, or sales within Canada, at that point were actually still relatively strong. I believe at that point we were still above the year before for auto sales, while in the States they'd fallen off the cliff. Of course, we talk a lot about proportionality, such as the 10% of sales but the 20% of manufacturing here.

How important is that global context? Perhaps you could differentiate, for anyone who might be watching this on TV with interest or who have questions, such as many of my constituents, in terms of that global context.

[Arturo Elias]

Thank you very much.

Indeed, we have seen a significant decline in the U.S. market. More recently we have seen some softening in the Canadian market. The reason the U.S. market is important for us is that we export 90% of the products we make. Obviously, if the demand goes down, so does our production, which then has an effect through the chain. Therefore, when we talk about proportionality within North America, I think that balances the sales as well as the production side.

Again, it's a market that is very difficult to decouple. We are extremely harmonized and joined at the hip with the U.S. operations and the U.S. market. That said, certainly what happens over there in terms of demand affects us here in Canada.

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

There was an article in the London Telegraph--this is a little bit outside of North America, obviously--that talked about, in terms of the global economy, the strength of the Canadian economy versus other economies. This is what they said about Canada at the end of the article: “If the rest of the world had comported itself with similar modesty and prudence, we might not be in this mess.”

Does that strike you as a true state of affairs?

[Arturo Elias]

Yes, it does.

First and foremost, the decline in sales of automobiles has been widespread. I would say that we have seen in Canada a much smaller contraction of demand than we have seen in many other places. As a point of reference, in the United States, as recently as 18 to 24 months ago, the industry was selling in the range of 16 million to 17 million vehicles a year. Here in Canada, up until October of last year, we were essentially running with an industry of about 1.6 million, approximately one-tenth the size of the American market. Since the U.S. market has declined, it has had now six consecutive months of sales below 10 million. Here in Canada, we have seen some softening, but certainly not to that extent.

In general, then, our opinion is that the financial situation in Canada is much better than that in many other countries. Certainly it is our opinion that the banking system as well in Canada is in much better shape than that in many other countries around the world.

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

And in fact the World Economic Forum ranked us the number one banking system in the world, and I think the Americans were number 40 on that list. That might speak a little bit to some of the problems.

I want to ask a couple of questions on behalf of my constituents. I sit on round table after round table in my riding. My riding is in Edmonton, and my constituents are fairly concerned about what they hear described in the media all the time as an auto bailout. And I inform them that in fact it's a loan that will be repaid and that there are a lot of conditions attached to that loan that are still being negotiated as we speak.

They'll want some assurance that we'll see the money back--I'll come to that in a second--but one of the things we talk about is this proportionality. And I'm a little bit concerned when I read your restructuring plan highlights about the way the language is worded in your first bullet point. And maybe it was just quickly drafted, or whatever, but you used the words, “which is expected to range between 17% and 20% between 2009 and 2014”. There is no guarantee there. It's number one. The range is between 17% and 20%, while we seem to talk about 20%. So that seems to be on the definite lower end of the range. And it uses the words, “expected to” to precede that. That would be a little concerning for my constituents, and I just want to hear your response to that.

[Arturo Elias]

On the first part of the question, the repayment piece, this is certainly why I think the work we are doing jointly with all of our stakeholders, including the federal government, Ontario, EDC, and all of our stakeholders, is very important. We want to make sure, before borrowing any funds from the Canadian taxpayer, that we have a business model and have made the necessary changes to ensure that we are viable and sustainable over the long term, and our plan achieves that.

On the issue of the range of 17% to 20%, what happens is that products have different life cycles. So you may have a situation where one product in one country is at the end of a life cycle and the other product is at the start of the life cycle. Obviously a product that is at the start of a life cycle generally tends to experience more demand than a product that is at the end of a life cycle. Therefore it's very difficult to focus on a single point with respect to production proportionality, and you have to sort of look at it in a range.

Does that answer your question, sir?

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

It starts to. I think what you're saying is that when you talk about a range, it could move up and down depending on what's.... Now, could it go above 20%?

[Arturo Elias]

Yes, it is possible. We have based this range on what we have seen historically and what we think our best forecast provides going forward. Obviously it will depend on a bunch of factors, including the life cycle of the vehicles, but generally I think it's a reasonable range over the time horizon of our planning.

[David Paterson]

I just want to back it up a little bit. We are at the launch point for five new vehicle mandates in Canada, according to the specific plan, and that is a very beneficial thing because they will tend to grow as we go forward. So as we see these proportions go forward, one of the really positive aspects of where we're at is that we will have these new investments and that will help drive a very strong proportion.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Paterson and Mr. Elias.

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for appearing here this evening. I appreciate that. I know that Ford and Chrysler were invited also and have yet to come before the committee. Hopefully, they will come at some point.

Today was a particularly bad day for Chrysler. I am very distressed, as is the community, about the families. There were 1,200 people fired today. That's very difficult, not only for them but for the tier one and tier two suppliers. There is also the philanthropic work that's been done for the United Way and what not. It's a very serious issue that is compounded when one auto job contributes several others.

I want to correct one thing, and that is the interpretation concerning the banks. It's interesting. I hear about how they are so strong here today because we didn't do similar things. I remember, in this room, in these halls, in the chamber, stopping the deregulation of the banks a few years ago when it was originally proposed.

I want to touch on something that's interesting in terms of credit. In your opening statement you talked about loans being available and about GMAC credit financing, which I would agree is critical. I just downloaded something from the site of a major bank in Canada. They are proposing car and truck loans for new vehicles for 8% to 9% for up to seven years. I think that's part of the problem we have right now. That is beyond the life cycle of the vehicle, and it seems like a high profit margin for getting somebody into the market right now with interest rates being so low.

I'll turn it over and hear from you as to what can be done about that. I would prefer to see a much lower rate. There are actually some credit unions out there--they are very few and far between--that have 0% to 1% rates for fuel-economy vehicles.

Is there something creative that can be done here? I just don't accept the fact that with interest rates so low, and the banks reporting profits again.... I can tell you that I've watched tier one suppliers with profitable parts go out of business because they couldn't actually get bank loans when they were supplying cars that were selling.

I still have a problem with the banks in regard to this current situation. Perhaps you can shed some light on what needs to be done with interest rates for consumers.

[Arturo Elias]

Let me first say that I understand your feelings about the loss of the shift at the Chrysler plant.

These are very difficult decisions. They are not our decisions, but we have made similar decisions. They are very difficult decisions. In our particular case, I am very pleased to announce that our plan does not foresee any further closures in Canada beyond what we have now. So that is quite positive, and that's part of the agreement we are trying to orchestrate with the governments involved.

With respect to the banks' lending practices, I'm not sure I can speak for them. We try to work with banks, and we will work with banks to try to provide consumers with affordable loans and so on and so forth. Historically, we have done that through GMAC. One of the policy recommendations was that any support that could be provided to entities like GMAC to bring that consumer back to the marketplace, whether it's a scrappage program or an incentive related to taxes or tax holidays, would be extremely beneficial. At the end of the day, we are in a very difficult economic environment throughout the world, and I think consumers could benefit if in fact we were able to get them accessible loans to buy new vehicles.

[Brian Masse, NDP, Windsor West, ON]

Increasing the amount of credit for the purchase of a new vehicle is one of the things that should be looked at. If it's not done in the context of making sure the loans for those vehicles are very attractive, it is really a subsidy for the banks. They would be financing them by having a high-interest-rate loan that's different from the actual one out there. So that's one of the things I think we need to watch for.

I know you have negotiations taking place tomorrow. The minister has argued that the CAW has to agree to something similar to what has been done in the United States. With regard to what has been done for our banks, both in the United States and Canada, I find it interesting that there hasn't been the same scrutiny of workers. I haven't heard of a banker being made to take the wage of somebody working in Alabama. At the same time, we've asked the CAW and its workers to take a cut. It is really hard for a community. When you look at an economic stimulus package, there's the fact that even though we are rescuing the footprint of an industry that is so important to us, the input back into the economy is going to be less. I would argue that some of the slippage of sales we're seeing in Canada is also a result of 300,000 manufacturing jobs having disappeared over five years, which is significant, by all measures, for those who want to purchase a vehicle and change over old stock.

With regard to how you're going to approach the negotiations, what is considered comparable? Could you shed some light on that? There is a lot of discussion about Canada's health benefits, our taxation system, and all those things used to measure out the workers' wages so that they are comparable. There seems to be a lot of discrepancy.

[Arturo Elias]

What we are trying to achieve is labour wages and benefits that are comparable to those of our key competitors--transplant companies in the United States--to sort of have a level playing field on that.

When we do our estimations and sit with our labour partners, there is a benefit to operating in Canada because of the health care system. There is a benefit because of our higher productivity in our Canadian plants. But notwithstanding that, we have a gap. We have shared that with our labour partners, and that's the gap we are trying to close. It is not our intent to leave Canadian workers at an income disadvantage versus anybody else; it's simply to bring certain aspects of compensation and benefits to comparable levels.

I have to give our labour partners credit. I think they understand the severity of the economic situation we are facing in our company, and they're committed to working with us to find acceptable solutions to reach these benchmark levels in compensation in benefits and wages.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Elias.

Now we're on our second round. We'll go to Mr. Valeriote.

[Frank Valeriote, Liberal, Guelph, ON]

Mr. Elias, I have a lot of questions to ask you, so please keep your answers a little shorter.

I've been observing the auto industry for a number of years. I've noticed the employment level has declined from 20,000 in 2005 to about 8,000 or 9,000 now. This hasn't just happened in the last two to four months; this has been happening over a number of years.

In 2005, I know the Liberal government gave $20 million to the Beacon Project and the flex plant in Oshawa. I know they contributed $50 million to a new Toyota plant in Woodstock, which just opened. I attended the opening in November. I know they gave money to Bombardier, which is doing research on new fuel-efficient planes, hiring thousands of people on their new CSeries plane.

I also know that the McGuinty government declared quite openly a willingness to partner with industry, particularly the auto industry, and has done so over the years. Yet I have not seen any response of meaning from this government, and in fact we know the declaration of last year that they don't choose winners and losers.

So I want to know whether you had a plan. Did you go to the government before now with a plan or proposal? If you did, what was that plan and what was the nature of those discussions? Were they willing to partner with you before now?

[Arturo Elias]

I think we have had a very good partnership with both the Province of Ontario and the federal government. What has happened here is a significant decline or contraction in demand for vehicles. At General Motors our restructuring has started and has been in place for a number of years now. I think we are in a position today where we don't foresee any further closures in our facilities here in Canada, beyond what we have announced.

In addition, the Beacon Project has provided significant benefits, working with universities, research centres, and chairs to help the industry with breakthroughs in innovations that are going to help us be more competitive on a global scale.

The other important contribution of the Beacon Project to General Motors has been the flex line that we put in place.

[Frank Valeriote, Liberal, Guelph, ON]

But those were Liberal proposals and partnerships. I'm not aware of anything with the Conservative government between 2006 and early 2008.

[David Paterson]

I can respond to that. We have been working in partnership with Ontario and the federal government consistently. We indicated that we were going to be able to proceed, and under our restructuring plan all this would be recognized, with significant new investments in St. Catharines for a flex line related to new transmission capability. In addition, we would be proceeding with new vehicle capability in Oshawa. We're pleased to say we'll be the first company in Canada to manufacture hybrid vehicles.

So these agreements have really been partnerships that have allowed us to put in place some capital facilities in Canada that are extremely enviable. We have state-of-the-art flex manufacturing. We have a brand new paint plant, and we are doing more R and D in Canada than the rest of the industry combined.

[Frank Valeriote, Liberal, Guelph, ON]

I have another question. Back late last year General Motors worldwide was in the United States communicating with the American government over a new loan. There were discussions, no doubt, about protecting our mandates, and there ought to have been discussions about the pledging of assets to secure those loans. As I understand it from our investigations, all of the General Motors assets worldwide have been pledged now to the American government without anything really available to secure any loans that the Canadian government might offer.

So my question is this. Were you in Canada at the table in the United States when those discussions were going on, and was our government at that table when those discussions were going on, to protect our mandates and to make sure there were some assets left in Canada that could be pledged to secure loans to you?