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

[Terence Young, Conservative, Oakville, ON]

Thank you, Chair.

Thank you for coming tonight on short notice.

My name is Terence Young. I represent the riding of Oakville, which is, as you know, Ford of Canada's head office location. So I've been very, very aware and have spent a lot of time on this, how important it is not just to my community and the surrounding area, which has 4,000 jobs in this sector, but also to Canada. I understand the figure is that there are about 500,000 spin-off jobs related to the big three manufacturers alone.

The auto caucus met with the import manufacturers, the 13 companies that manufacture primarily outside of Canada—although some of them manufacture in Canada also, but it's primarily outside—and I have to tell you they supported loans to Ford, GM, and Chrysler. They're supporting the continued existence of their major competitors, the reason being, of course, that they share the same parts manufacturers, and the parts manufacturers' survival is key to their survival. So this is an existential issue.

I think back to 1957, when I was six years old and playing in a field behind the house, when I heard thunder. I ran home to tell my mother, and my mother said, that wasn't thunder, but the Avro Arrow breaking the sound barrier. It sounded just like thunder. That was my first lesson in science. A short while later, the government of the day cancelled the Avro Arrow to save money. It cost 50,000 jobs overnight, and about 30 of the most brilliant aerospace engineers in the world left Canada, went to the United States, and later put a man on the moon. Arguably, our aerospace industry has never recovered.

So I understand the importance of this issue for the Canadian auto industry. I applaud your efforts to become competitive with Toyota, Nissan, Honda, and the others that don't have the legacy costs, etc., and I wish you every success.

I'm trying to understand worldwide overproduction. In 1998 I was parliamentary assistant to the Minister of Finance for Ontario. The auto industry folks came in and sat around the table, and they all said that by 2001 we would have worldwide overproduction. And I thought, well, who's going to walk away and stop making cars? BMW, Chrysler, Ford? Nobody. Everybody is going to keep going until.... Now we have a recession, the catalyst that has put us in this situation.

My concern is that we've been making, probably for seven years, 17 million cars a year in North America, with over a million in Canada, and this year it's going to be around 11 million. Where is General Motors going to be over the next few years in terms of numbers of units produced?

[Arturo Elias]

In our submission we have outlined the industry outlook and our outlook for volume as well as production.

I'd like to build on your comment that the current crisis being faced in the automotive industry is not just limited to North America. It is spreading around the world, and we are seeing it in all regions of the world.

Secondly, here in Canada we feel a great deal of responsibility to our communities where we operate, to our employees, our suppliers, our dealers, and all the other stakeholders who work with us. We have, as I indicated, more than 3,000 suppliers. That's about half the suppliers here in Canada. We have 700 dealers who employ more than 33,000 people. Then, of course, as you correctly point out, that has a multiplicative effect.

We feel a great sense of responsibility. The support to be provided by the Canadian taxpayers really extends far beyond General Motors, indirectly. It allows us to maintain our operations, support our suppliers, dealers, communities, the universities we're working with, and maintain a research and development centre here in Canada, which is very important.

[Terence Young, Conservative, Oakville, ON]

In 1979—and we haven't had a full discussion about this, I don't think—under Lee Iacocca, Chrysler was given $1 billion. They let it go too far, because Chrysler's creditors took a huge beating and went down; they took 33¢ on the dollar. Nevertheless, he said he would turn the company around and pay back the money. That was a lot of money back in 1979, and they did pay back that money. They paid back the money over 10 years, and Chrysler has survived until this other point, another contingency period. In the meantime, all the employees who worked at Chrysler paid income tax, there was corporate tax, and there was property tax paid.

Where do you see General Motors being in terms of production in three years, five years, and ten years?

[Arturo Elias]

Again, the whole premise of our plan and our discussion with the government is on the concept of proportionality in terms of support here in Canada, proportional to the support the U.S. government is providing General Motors in the U.S., and proportional production relative to the U.S., because it's an integrated market. Again, our best forecast is that we will be at a proportion of production of 17% to 20% and be able to maintain that over our planning horizon. If you would like, I could certainly send you the specific numbers in terms of what that means in units of production and so on.

[Terence Young, Conservative, Oakville, ON]

I would appreciate it.

[The Chair, Conservative, Michael Chong]

Thank you.

We'll go to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Mr. Young referenced that Chrysler actually paid it back and with interest as well. It's unfortunate with today's news, as we did have arguably the most successful minivan plant and one of the most successful manufacturing plants since World War II, when you look at it.

Also, Mr. Young mentioned that a very important component is the parts sector. One issue that is a drag on tier one and tier two suppliers, tool makers, and mould makers is the issue over the PPAP system. That's with regard to payment of work for service they perform for the OEMs. Could you highlight what you're going to do about that situation?

Right now I understand there's a big liability to those who are owed money. There's an inefficiency as well. I know that some of the shops in my riding often end up having to carry interest charges at longer dates for borrowing, which is an inefficiency and a drag on productivity. They're not getting reimbursement as quickly as they should, and so their borrowing costs are then extended. Once again, there's basically a cost in the system for no productivity; it's just the borrowing and management of money.

Is there anything you're suggesting in this plan to restructure those relationships or to be able to improve that? Is there also going to be some payment of those bills that certainly need to be fixed?

[Arturo Elias]

There certainly has been some coverage of that, but I have to point out that just as we have direct suppliers, which we call tier one, they in turn have their suppliers, which we call tier two and up to tier three. Many of these stories that have been published relate to tier three and tier two suppliers that do not sell directly to us.

I'll let John speak here, but to the best of my knowledge, we are current on all our payments to our suppliers. We basically have agreed contractual payment terms, and those are being honoured. They would be honoured under the proposal.

John, do you want to elaborate on that?

[John Stapleton]

To echo that, it's the tier two and tier three, way down in the stream, so everything gets shifted 30 days. In part, we pay based on parts getting PPAPs. That's when we pay for the tools. Everybody has gone backwards. I will say that I think the suppliers are banking quite a bit of that interest or stress in the system based on the piece-cost when we actually write the cheque to buy the parts from them. Hopefully we'll build many cars and repay that quickly.

[Brian Masse, NDP, Windsor West, ON]

I'm not saying it's your company, but there has been the suggestion that the tier one suppliers have been forced, for a number of years, to reduce costs prior to our current crisis and, as well, to outsource to low-market economies. Has your company been one of those that have put pressure on those suppliers to do that?

[Arturo Elias]

We ask our suppliers also to be competitive, but General Motors purchases about $14 billion per year from Canadian suppliers. Some of that is used here in our plants; some of that is exported back to the United States. The recent small decline that we have seen has been mostly due to the period when we had a strong appreciation of the Canadian dollar. But in general, over the years we actually, except for the last few years, have been growing our presence with Canadian suppliers and it's quite healthy today.

[Brian Masse, NDP, Windsor West, ON]

I'm going to quickly switch gears, I know I'm running out of time. The United States has the advanced technology vehicles manufacturing loan. It's a $25 billion low-interest loan outside of the current discussion that we're having here to bring new clean, green vehicles on line. The Canadian government has in place a $25 million per year loan program for $250 million over five years.

Is this not a competitive disadvantage if we are able to turn around the industry and move to higher-performance vehicles? The U.S. would have a disproportionate amount of low-interest loans for those movements if the numbers are reflected upon here.

[David Paterson]

The energy bill section 136 loans, which many of our companies have already applied for in the United States and have pending support for, are very significant incentives in terms of providing advanced technology production in the United States. Now, in Canada, as you mentioned, we have the advanced innovation fund, and Ontario has a similar fund. We've benefited from that in terms of bringing forward some of these types of hybrid technology aspects. I must say that if we can utilize that in the future, it's very important to be competitive in all these areas. I agree that this is something we need to watch carefully.

[The Chair, Conservative, Michael Chong]

Thank you. Mr. Lake.

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

Thank you, Mr. Chair.

I have three questions that are unrelated, in a sense. In one of the comments you made at the beginning you talked about significant shared sacrifices and we've talked a little about executive pay. We've said repeatedly that all the stakeholders need to be at the table, and it looks as though we have the stakeholders at the table right now.

Looking at the CAW press release issued November 21, I'm reading a quote from Ken Lewenza towards the bottom. He says,

Hundreds of thousands of jobs in Canada depend on a vibrant domestic auto industry. It's important to note that Canadian labour is a strength within our industry providing skills, productivity and quality that are internationally recognized.

I totally agree with that. I think we have a lot of respect for the workers and the skills they bring to their jobs in the auto industry.

Then he gets into some numbers in the press release. It says:

CAW labour costs equal seven per cent of the cost of a vehicle, an amount that is less than the dealer margin. At the current value of the Canadian dollar (82 cents U.S.) CAW labour is cheaper than auto labour in the U.S., Germany and Japan.

I'd like to get your comments on that statement from their news release. Is labour an issue here? And would you also comment on CAW costs of labour versus Toyota and Honda plants, for example, in Canada.

[Arturo Elias]

Let me first say that we've had a good relationship and a good partnership with the CAW. They have helped us with competitive operating agreements in our plants. We have among the most productive plants in North America, and that's certainly a positive.

As you may appreciate again when you look at restructuring a company and getting your cost base in line with your competitors, to be fair, no element of the cost structure you have can be ignored. Seven per cent...I know the number has been quoted, but we are, for example, looking at ways we can reduce our engineering costs, ways to reduce our manufacturing costs and our information technology systems, many of which are much below that.

Simply stated, what we are seeking with our labour partners is to reach competitive labour, wages, and benefits that are comparable to the folks we compete with. And we are trying to follow the same benchmarking philosophy in everything we do, so that at the end of the day you have an entity that has a cost structure that is competitive with market practices and therefore is viable and allowed to generate sufficient profitability to repay whatever loan the Canadian taxpayer decides to provide us in support.

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

My second question has to do with the mandates. And again, on the proportionality issue, you say you have five new mandates here in Canada. Hypothetically, right now, let's address a circumstance that isn't a very good circumstance, and let's say that all five of those mandates are not very successful in terms of sales. Therefore it would affect the proportionality. And of course my constituents, the taxpayers who are asking me these hard questions, might have some concerns about that.

What would be done to address that? How would you maintain the proportionality in that situation?

[Arturo Elias]

Again, the proportionality is driven by a relative demand in both countries, because at the end of the day demand translates into production and production translates into employment and all the benefits of the supply chain. But I think it's very important, if you look at General Motors and what General Motors has done in the recent years--it's nothing short of a revolution in the car industry.

I would say our recent new launches are all vehicles that have received significant accolades. I personally drove the Camaro this weekend that we are proudly producing in Oshawa, and I'm very confident that the car will be a success.

I have looked at our new Equinox that we're producing in Ingersoll in CAMI, and based on my experience, I have all the confidence that the vehicle will be a success. It will be a fuel economy leader in the marketplace.

And I look at the mandates that we have for future products and what General Motors has done in terms of improvements in quality and design and fuel economy and environmentally, so I am optimistic that these product programs, which would be at the beginning of a life cycle, will enable us to execute the plan.

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

I have a very short question, if I could. I want to touch on an issue that's kind of timely right now.

On Friday we're going to be discussing Mr. Masse's private member's bill on the right to repair, Bill C-273. Of course the bill would give auto repair shops access to certain information that they may require in order to repair cars, and it makes certain associated amendments to the Competition Act and CEPA.

I just wonder if you might be able to comment on how that particular bill would impact your business.

[David Paterson]

I can talk to that briefly, and I have talked to Mr. Masse about this too. We understand the situation. We are in a situation in General Motors where we've always provided this information. It's available through websites in Canada and in the United States, in French and English. And the tools, availability, and the like are available.

Our strong preference in this thing would have been to have a mirror, voluntary approach, an agreement. I think everybody would. We understand there are a couple of companies—I think three or four now—that don't provide this information, but the vast number of companies now do. So we would much prefer to see a voluntary kind of mirror agreement to resolve it and to make sure that these things are harmonized.

[The Chair, Conservative, Michael Chong]

Thank you.

Mr. Valeriote.

[Frank Valeriote, Liberal, Guelph, ON]

Mr. Elias, I know there are no guarantees in life, but I come from the town of Guelph, which is an auto town. We have close to 37 auto parts manufacturers that employ probably 9,000 to 10,000 people. You have two dealerships that employ about 123 people. With all combined dealerships, close to 400 or 500 are employed.

If you get this money, what kinds of guarantees or projections can you make that we have hit bottom as far as job losses go? Or are you anticipating more losses?

[Arturo Elias]

Again, as I indicated earlier in my testimony, our plan is based on very conservative assumptions. It contemplates no further plant closings beyond those we announced in our planning period. I would say that, as you know, the business viability is essentially very simple. It is the revenues that generate your cost structure, which leads to your profitability and your ability to pay, and also the financing that you get to finance your business.

On the revenue side, I can't stress enough how confident I feel about the products of General Motors, so I think that on the revenue side we'll be in good shape. I think that on the cost side we'll be in good shape. Therefore, I believe that we, to the best of our ability, have a plan that basically preserves this proportionality of production.

[Frank Valeriote, Liberal, Guelph, ON]

Will that money trickle down to the auto parts manufacturers? That's what I'm saying. Are their jobs going to be protected?

[Arturo Elias]

Oh, absolutely. As I indicated, we, General Motors, carry a substantial chain in the whole value chain, whether it's suppliers, dealers, universities and research centres, or our own employees, so obviously a healthy sector certainly has trickle-down effects.