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

[Arturo Elias]

On the security of the loans, yes, we have limited capacity to provide guarantees, and we have been quite transparent with both the Ontario government and the federal government as well as the EDC on this. That's why I think it's critically important that we focus on the proportionality of our production vis-à-vis the United States and change our business model to a contract manufacturer that would enable us to restructure the company and to have the financial returns to repay the loans.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Elias.

Now we're on to Mr. Watson.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

I appreciate the opportunity to ask some questions. Thank you to our guests. I'm not sure whether I spend my time trying to correct some of the factually incorrect things I'm hearing in the politically charged questions across or whether I spend my time asking questions about the restructuring plan.

Let me start first with, I would suggest, some of the hopeful news. Of course, you're probably aware that tonight the economic action plan of the government did pass third reading in the House and it is on its way to the Senate. So after a gruelling process in the House, I think we're making some progress, and we'll certainly keep the pressure on. That of course has the fully repayable loans in it, the money you spoke of for the parts sector, as well as the important money to restart the automotive credit.

I think you've touched on this a little, but to set the stage, there are actually two problems facing...shall we call them the Detroit three companies. One problem is a structural issue. All of the companies were in varying degrees of restructuring their business operations when the second problem, which was the cyclical problem, an economic downturn, hit. That's obviously the bad storm to occur, but it's somewhere a little more ahead of the others in terms of restructuring. But that's essentially the nub of the issue here and why we're talking about this.

Of course, in December the government, with our Prime Minister and the Government of Ontario, announced that there would be fully repayable loans available. First, for the record, of course, the discussion back then was that the lights were going to go out at General Motors, that the clock was ticking, and yet it's not. Can you answer what happened to your day-to-day credit situation for GM Canada in light of that announcement? Why didn't you take the Canadian loans initially?

[Arturo Elias]

There were two things that essentially happened. We put in place very severe cash conservation measures. In addition to that, the U.S. Treasury loan became effective, the first tranche to our parent, and that provided additional cash for us to operate and focus on what I think is really important, and that is the long-term plan and the support for long-term restructuring. That's the place we're in right now.

[Jeff Watson, Conservative, Essex, ON]

Because the TARP money was available to the parent company, that allowed an opportunity to access global capital for the Canadian operations. Do I understand that correctly?

[Arturo Elias]

That's correct.

[Jeff Watson, Conservative, Essex, ON]

Thank you.

Of course we also want to talk about the scale of priorities here. I think all of us sitting around the table would recognize that while there are irritants--perhaps the size of the vehicle scrappage fee, for example--those are issues of lower scope or priority to stabilizing your Canadian operations, the supply chain, so that we can address those additional issues down the road. I think that has to be said here.

Let me ask an additional question in terms of the relationship before cross-subsidization occurring between your Canadian and U.S. operations, prior to the access to loans on both sides of the border prohibiting cross-subsidization now. Is that why the move to a stand-alone model?

[Arturo Elias]

That is correct. The U.S. Treasury agreement prevents investment, as it's defined, in foreign subsidiaries.

Maybe, John, you can elaborate a little bit on that.

[The Chair, Conservative, Michael Chong]

Go ahead briefly, Mr. Stapleton.

[John Stapleton]

Briefly, the bottom line is that the structure kind of put a wall up around the U.S. relative to funding flow, and in that regard, they're looking to not have the American taxpayers shoot funds to other--non-U.S.--entities.

[Jeff Watson, Conservative, Essex, ON]

I have a question of context. In the pre-period with cross-subsidization, did GM Canada make a net positive contribution to the parent company prior to that? I know that we had a lot of high-profit-per-vehicle vehicles manufactured here. Was that situation a positive flow beforehand, or is that complicated to answer?

[John Stapleton]

If you go back just a little way, if you look at our assembly plants, we were running full bore in our truck plant and very heavily in our car plants in Oshawa. That helped the situation due to product demand, really, in the U.S., because we ship 90% of our vehicles south. A lot of that dried up, and therefore you start to reduce your workforce, and you reduce your revenue, and there's a crippling effect. It's very tough right now.

[The Chair, Conservative, Michael Chong]

Do you have a short question?

[Jeff Watson, Conservative, Essex, ON]

It's a very short question.

In terms of the automotive credit that we're talking about, the $12 billion, you're seeking some of that to flow through your credit arm at GMCL. Have you forecast what your interest rates, for both purchasing and leasing, might be available to consumers if we do extend money through that? Where will it be? Have you done any forecasting that way?

Thank you, Mr. Chair.

[Arturo Elias]

I'm generally not in the business of forecasting. I've been wrong with respect to our outlook on stock markets and currencies, so I'd rather not speculate, if that's okay with the members.

[The Chair, Conservative, Michael Chong]

Merci, monsieur Elias.

You have the floor, Mr. Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chair. In response to a colleague's question concerning new job losses, you stated that we should not expect any more closures in Canada, aside from the ones already announced.

When they unveiled their restructuring plan to Congress, the three US automakers admitted they would not hesitate to cut tens of thousands of jobs over the next few years. GM in particular talked about sacrificing one third of its work force by the year 2012.

Can you confirm that there will be no additional plant closures in Canada?

[Arturo Elias]

Obviously the demand drives production and drives jobs. To the best of our ability, our viability plan has been built on what we consider to be conservative assumptions for the U.S. market as well as the Canadian market. We have a baseline scenario, a downside scenario, and a upside scenario for planning purposes. We believe we have, overall, taken a conservative approach to the industry outlook in both the United States and Canada. We couple that with the restructuring, the reduction of our break-even points, and to the best of our knowledge right now, we would not foresee the closure of another plant in Canada.

[Robert Vincent, Bloc, Shefford, QC]

Regarding GM operations, are Canada and the United States considered two different territories. You may answer “no“, but if Detroit decides to lay off one third of its work force and you receive a call telling you that a plant in Canada has been included in the equation...

Could that happen, or are Canadian and US operations completely separate? Perhaps I'm completely off the mark here.

[Arturo Elias]

The restructuring plan that we have presented to you, which is a public plan, was certainly developed in consultation with our U.S. offices, and so they are fully aware of the plan. They are fully supportive of the plan. They are supportive of the actions that are reflected in the plan, and they are supportive of the conclusions of the plan.

[David Paterson]

I might add, too, that one of the great strengths of the plan is that it's not just the plants that are there. We have brand new mandates that have been identified for those plants. We happen to be fortunate that we're at a stage where we can identify brand new vehicle mandates that can move forward into those plants, and that gives us an awful lot of confidence in terms of where we can go.

[Arturo Elias]

If I may elaborate on the issue of the mandates, we are looking at an investment in St. Catharines to build a new, highly fuel-efficient, six-speed transmission in a flexible manufacturing environment. That would be new. We're looking, obviously, at Camaro production in Oshawa very soon. We are looking at new products coming out in a year. We are looking at two new products out of CAMI that will come into play here in the August timeframe.

So to David's point, the life cycle that is so important for determining levels of production and so forth is at the beginning in Canada. So we feel we're in a very good position. Coupled again with what we see as the upsides and downsides for the markets both in the U.S. and Canada, we feel comfortable that our plan will work and allow us to repay the Canadian taxpayer.

[Robert Vincent, Bloc, Shefford, QC]

Executives in Detroit plan to pay themselves an annual salary of $1. You are talking about taking a 10% cut. Will you be asking your workers to accept a 10% pay cut as well, that is to accept the same 10% pay cut as the company executives?

[Arturo Elias]

Our executive workforce and salaried workforce, as I indicated, have taken a substantial reduction, not only in salary but also in wages and benefits. We are simply asking our labour partners—and we want to do this cooperatively with them—to reach comparable levels to those in the companies we compete with in the North American market, who are obviously the workers in the United States.

On the salaried and the executive side, I've been subject to a 10% wage reduction as well, and a reduction in benefits. I am also subject to some of the restrictions on executive pay and compensation imposed by the U.S. Treasury. So we have adopted those in Canada de facto.

[The Chair, Conservative, Michael Chong]

Thank you.

Mr. Young.