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

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Gauthier.

Mr. Lake.

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

I want to propose to our committee, when we're going past nine o'clock, that we invite Red Bull to be one of the witnesses for any meeting that goes past ten o'clock.

[Some hon. members]

Oh, oh!

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

It looks as though I have some support on the other side.

I want to touch a little bit on the human element. We throw around numbers, and there are significant effects of what is happening globally upon people's jobs. One of the important untold stories, I think, of what's happening—and you may not have examples of this—is of organizations you represent that may be doing some extraordinary things or going to extraordinary lengths to try to bridge the gap for some of their employees; to make sure, maybe, that the layoffs are minimized, because they know there's light at the end of the tunnel, and recognizing the impact it has on their families.

Can you speak to that for a second?

[Gerald Fedchun]

I can tell you that I have a number of members who are on short work weeks. They're taking advantage of the...I forget what the federal program is, but you work four days, and then on the fifth day you're laid off. I know there are probably 20 or 30 companies that are on short work weeks doing that. Other companies have slowed down their line speed to accommodate the situation, so that instead of basically running 50 parts an hour, they run 40 parts an hour and keep that speed, to try to do something. They're doing everything they can—they're doing back-flips—to try to keep as many people as they can employed.

Other people are taking vacations. They're saying, take your vacation in the first half of the year, because I think things will pick up in the second half. So people are taking vacation now, when they don't really want to. But there's not enough money to pay everybody, so do it now. These are examples of different common ways. We haven't actually categorized it, but anecdotally it's going on all over.

Still, I can tell you that our industry peaked at about 106,000 people a couple of years ago. The high dollar started to thin the ranks, and we're down to the mid-80,000s. We're probably under 80,000 now, and it's going to get a little lower yet, but it will come back. The same thing happened in the last recession, when we shrank but did recover, because it is a cyclical industry. We who work in this industry all know this. This cycle is deeper and longer than we've experienced, and we need a little help getting out of it.

[Huw Williams, Director, Public Affairs, Canadian Automobile Dealers Association]

I'll add to that from the car dealers' perspective.

We employ 140,000 employees across the country and we have not experienced job losses yet. Speaking to your earlier analysis, last year we were tracking for one of the best years in automotive history, and right up until November it looked as if we could have had the best ever; then things fell off a cliff. November is when the signal really started to hit that the liquidity crisis was going to grind things to an absolute halt, and that's what we've seen. Dealers are proactively shifting resources around to their used car operations and their service operations, so we haven't had to go through those employment cuts. I think you're going to see dealers try to be as imaginative as they can be in those areas.

One of the tragic things you have to consider is how all of these things relate among the manufacturers, the parts makers, and the dealers. We had a dealer—I won't name him—in the Toronto area who had an order for over 100 vehicles. A customer was coming to him in December asking to do a lease transaction with them, as a fleet lease. They were unable to get financing from their bank to order those vehicles and get them into the hands of consumers, because the banks wouldn't provide the lease financing.

Those are 100 vehicles that the dealer couldn't bring into the showroom to put out on fleet leasing. They couldn't be ordered from the factories, which couldn't order the parts to make it happen. As you get this credit crisis happening, the spin-off effects in terms of job losses is really where things are going to hurt. There is not a day that goes by when we don't get dealers calling begging for credit because the situation is so dire. Even when they're successful operations, they cannot sustain the kind of liquidity demands that are out there.

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

I think we have the message: pass the budget, right? That's pretty important, so that we can get the money flowing.

[Huw Williams]

Yes. I don't want to be partisan with this response, but on the domestic side of the industry the credit crunch only really came in November. Our initial meetings with Finance took place in November and December, and of course Finance responded with a credit facility because they'll make a profit on it. I have to say that to our...I don't want to say astonishment, but we've been impressed with the fact that Finance is absolutely seized with trying to get this program rolling as fast as possible. They put a very short timeframe on the consultation with BDC—it's not a drawn-out period of time—and they seem seized in a very real way, more than I've seen ever before out of Finance officials, to try to get this BDC secured credit facility out into the marketplace.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Williams.

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

May I add one more short thing?

[The Chair, Conservative, Michael Chong]

Make it very short.

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

The CADA folks commented on Bill C-273, and I want to give everybody the chance to quickly give their own thoughts on it while we're going through this process, because it is something that is up for debate.

[The Chair, Conservative, Michael Chong]

Mr. Fedchun, do you have a position on this?

[Gerald Fedchun]

I'm sorry, which one is this?

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

It's Bill C-273, the right to repair—Mr. Masse's bill.

[Gerald Fedchun]

No, I have no idea. I know nothing about repairing cars; I'll admit it.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Fedchun and Mr. Lake.

The floor will now go to the last member for today, Mr. Valeriote.

[Frank Valeriote, Liberal, Guelph, ON]

I want to comment on Mr. Lake's analysis of the banking system. He's quite right: it is strong, and that, as you know, is the result of successive Conservative and Liberal governments making sure that regulations were there to keep the industry strong, in fairness. We don't want any one particular government taking credit for that.

My question, directed perhaps to Mr. Hatch or to whoever feels qualified to answer it, is, have you read General Motors' actual restructuring plan?

Okay, you seem to have all read it.

Like Mr. Lake, I have people in my riding in Guelph who support under all circumstances the buoying up of the industry; others are not so inclined. For us to fully understand this, I need to understand what happens in a structured, protected restructuring—protected from creditors.

We're also talking about a lot of money here; we're talking about $7 billion to $10 billion dollars in loans. We can't trivialize that amount. What would happen to dealers and manufacturers if there were a structured, creditor-protected restructuring and the same amount or less money were applied to making sure that parts people were paid, to making sure that people who were unemployed were given the funds they require to survive? Can you look at that and tell us the difference between lending $7 billion to $10 billion out right now and having a structured, creditor-protected arrangement?

[Richard Gauthier]

We have looked at this. I suppose you are referring to what we call here in Canada CCAA filing—chapter 11 in the United States. We're hearing a lot of discussion with regard to chapter 11. We have had some experience here in this country, although thankfully minimal, with the Daewoo situation.

When we have a manufacturer who files for bankruptcy—but let's talk specifically about a structured reorganization—all CEOs of the Detroit three have testified before Congress and, in their own restructuring proposals, have included analyses that indicate that they do not believe, and we support this, that they can come out of a chapter 11 environment. We believe that our industry does not lend itself to that.

There are numerous surveys that indicate that 80% of consumers would not buy a vehicle from a manufacturer that is under bankruptcy protection. Unlike an airline.... When you and I are required to travel, let's call any airline under bankruptcy protection; that airline continues to operate as an ongoing concern. But your or my relationship with that airline will be for a couple of hours, to get from point A to point B. As long as the plane is safe, we're willing to get on board and get to our destination. In the case of a vehicle manufacturer, with whom the customer relationship is a much longer-term relationship and where you're talking about a three-, four-, or in the case of some manufacturers now a ten-year warranty, consumers have clearly and loudly indicated that they would not buy from that manufacturer.

So our view and our position on this question is that an automobile manufacturer could not come out of a CCAA filing and in fact would probably go straight into bankruptcy. The end result of that would be--and we have experienced this with the Daewoo Motor Company situation in Canada--that literally within days of the manufacturer's either filing for bankruptcy or seeking CCAA protection, the dealer network closes. Because you have a brand and you have a sign outside now that is attached to a manufacturer who is no longer in business, the dealer network goes. The implications of a manufacturer in Canada failing would be disastrous on the dealer network.

So the government must look beyond the factory implications; you also have to take a look at the implications for that dealer network. In the case of General Motors, you have 700 dealers.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Gauthier.

That's all the time we have for today.

[Gerald Fedchun]

Can I make a comment?

[The Chair, Conservative, Michael Chong]

Sure. You can give a brief intervention, Mr. Fedchun. Go ahead.

[Gerald Fedchun]

From the other side of this, the parts side, most of the parts people wouldn't get paid. In the U.S., anything over 20 days.... We're averaging 45 days, so 25 days goes out the window.

I told you that two-thirds of our parts are sold mostly to the U.S., and half of our business in Canada is with General Motors. You'd have a huge number of Canadian suppliers go out of business if GM even took a structured bankruptcy, because a big chunk of their receivables couldn't be protected in either Canada or the United States.

[The Chair, Conservative, Michael Chong]

Thank you very much, gentlemen, for your testimony.

Thank you, Mr. Hatch, Mr. Williams, Mr. Gauthier, Mr. Fedchun, and Mr. Bali, for appearing on short notice in front of our committee. Your testimony will be valuable to the committee when it prepares its report and recommendations to our fellow parliamentarians in the House of Commons.

Once again, I thank you for appearing.

[Richard Gauthier]

Thank you very much for your time. I appreciate you're keeping long hours.