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

[Frank Valeriote, Liberal, Guelph, ON]

You obviously know there's a certain portion of the population that doesn't support giving loans to the auto industry, for fear that they may not be paid back, I suppose. I would like to know from you what fear lies in a structured proposal to creditors. What impact would that have on your industry? Why wouldn't a good structured proposal in fact save all these jobs?

[Arturo Elias]

Again, working with the governments and our stakeholders, we strongly believe that the best option for all the stakeholders, for the province of Ontario and the province of Quebec, where we have numerous suppliers, for our employees, and for our dealers is the path we're taking right now. It's a plan that has been developed in consultation with our central offices in Detroit. It has been developed and shared with the Government of Ontario and the federal government. I think it's a plan that has the buy-in, essentially, of our stakeholders. We still need to finalize some elements of the plan and we're hoping to finalize those in the month of March, but we think that is the best option for all our stakeholders.

[Frank Valeriote, Liberal, Guelph, ON]

One more question, Mr. Chair?

I understand that in a structured proposal to creditors there might be some concern about your brand name and possibly a fear that warranties would not be honoured, but I would assume that under those circumstances the government could backstop those warranties and that kind of thing. Could you comment on that?

[Arturo Elias]

I think the biggest risk in a scenario like you point out is the fact that there could be--and there's evidence to support this--disruption in demand. It's not like an airline where you buy a ticket, you fly for an hour, and then that relationship's all over. We and our dealers and, by the way, our suppliers, who provide spare parts, have a relationship with our customer that extends for years while that vehicle is in place.

We have examples around the world where some of the scenarios that you point out lead to a lot of decline, and permanent decline, in demand. Therefore, our focus has been on this plan we have submitted. We think this plan provides the best option for all of our stakeholders.

[The Chair, Conservative, Michael Chong]

Mr. Vincent, you're the only member who has asked questions in French. You have the floor for one last quick question.

[Robert Vincent, Bloc, Shefford, QC]

I would just like you to clarify something for me.

Recently, it was reported that executives had agreed to take a 10% cut in pay. If I understood correctly, when you last spoke, you said that you would not be asking workers to make a greater sacrifice than company executives were prepared to make. Did I understand you correctly?

[Arturo Elias]

What I said was that the executives in our company have taken a 10% wage cut. Our salaried workforce, depending on their levels, have also contributed to our plan. We feel that on the salaried side we have reached a competitive level. Now, the issue is that you have to be very careful, because if you're not, you start losing your most talented people. Obviously people are our biggest and best resource.

Simply stated, what we are trying to achieve with our CAW partners is also to achieve benchmark levels in wages and benefits--no more, no less. So you would get a shared sacrifice from all stakeholders that enables us across all of our cost structure elements to achieve benchmark levels within the industry.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Arturo Elias, president of General Motors of Canada Limited; Mr. John Stapleton, vice-president and chief financial officer; and Mr. David Paterson, vice-president of corporate and environmental affairs. On behalf of the committee and the members of Parliament here, we thank you very much for coming in front of our committee to give us your testimony, especially on such short notice. We've also noted that you're the first to appear. It's noted and appreciated, and it speaks volumes about your commitment to your company and to Canada and your commitment to openness and transparency to Canadians.

We'll suspend now for five minutes to allow our next panel of witnesses to appear.

[The Chair, Conservative, Michael Chong]

Calling the meeting back to order, I'd like to welcome our witnesses tonight and thank them for appearing in front of us on such short notice.

This is the industry committee's subcommittee on the auto sector. We're here to study and understand the challenges facing the Canadian auto sector and to allow Canadians a chance to better understand what the Government of Canada is doing to help out the auto industry. Our study and recommendations will be reported to the House of Commons by March 31 of this year.

We use both official languages in Canada. Some members speak in French, while others use English.

If you need to use translation, the earpieces are on your desk, and the selector for the different channels is on the apron of your desk.

We'll begin without further ado with Mr. Richard Gauthier, who's the president and chief executive officer of the Canadian Automobile Dealers Association.

You have about ten minutes to give us your opening remarks, Mr. Gauthier.

[Richard Gauthier, President and Chief Executive Officer, Canadian Automobile Dealers Association]

Thank you, Mr. Chairman. From speaking with a few of your colleagues earlier, I understand and obviously I can see tonight that you're working late hours, so all I can say is that if your constituents all were aware of how many hours you put in on their behalf and on behalf of the country, some of the election campaigns might be a little less stressful. We certainly commend you for that.

Good evening. My name is Richard Gauthier. I'm president and chief executive officer of the Canadian Automobile Dealers Association. CADA is the national association for franchise automobile dealerships that sell new cars and trucks. I would like to point out that we represent dealers of all brands, and all manufacturers manufacturing and selling vehicles in Canada are represented through our association.

So our 3,500 dealers represent a vital sector of Canada's economy. Through our dealers, we are represented in nearly every community in the country. With me tonight I have our director of public affairs, Huw Williams, as well as our chief economist, Michael Hatch.

Mr. Chairman, tonight I'll outline the key issues facing our dealer network in these most challenging times. To begin with, let me provide a few facts about the automotive industry in Canada. Canada's auto industry is more than a hundred years old and in Ontario alone is the leading jurisdiction for auto production in North America and is the tenth largest globally. Each of Canada's assembly jobs provides seven to 10 spinoff jobs, and this is the highest such ratio of any manufacturing industry sector. Tax revenues from the auto industry to all levels of government in this country exceed $10 billion annually, and since 2002, Canadian vehicle assemblers and parts manufacturers have invested over $10 billion in production and research and development. Canada's auto industry exports--you heard some of that earlier--85% of all its production, roughly $100 billion annually, and every $1 million in exports creates or sustains five jobs.

Canadian automotive companies are global leaders in R and D, in lightweight materials, alternative fuel technologies, and occupant safety. We should be very proud of that fact.

Canada's auto industry procures more than $40 billion annually from Canadian suppliers, which is more than twice the total annual amount of the Canadian federal government's procurement, and it also accounts for over 10% of Canada's manufacturing GDP and over 20% of Canada's total yearly merchandise trade, in excess of $150 billion annually. The industry also accounts for over $30 billion in parts and components shipments annually and conducts over $500 million in R and D related to assembly, innovation, new vehicle development, alternative fuels, and vehicle safety every year.

Now, I cannot emphasize enough that the current automotive downturn will have a ripple effect in every community in Canada. The cold reality facing decision-makers today, you yourselves, is that if Canadian-based manufacturers are not provided a bridge across the current economic crisis, then Canada's 3,500 small business dealers located in every community of the country will bear the brunt of that downturn.

The retail automotive sector employs over 140,000 people in Canada and directly contributes a huge portion of its gross domestic product. As economic cornerstones of almost every community in the country, the pain of auto dealers will be felt on main streets and in other small businesses and households from coast to coast.

Parliament needs to remember that dealerships are not company stores. Dealers are independent businesses that make significant investments in land, buildings, equipment, and personnel and provide manufacturers with a retail presence in thousands of communities across the country. Dealers do not take cars or parts on consignment from their manufacturers. Dealers assume the risk of financing that inventory. No manufacturer has the resources to internalize the costs that dealers bear every day.

It will come as a shock to no one in this room tonight, I'm sure, that given the huge costs of financing dealer floor plans and operations that can run into tens of millions of dollars per store, predictable and accessible credit is the oil in the retail auto industry's motor. In my daily contact with dealers from one end of the country to the other, without a doubt, the number one problem facing their businesses today is the deterioration in credit conditions. Not only is this happening to dealers on the brink, but this is happening to sound, solvent businesses, often with decades-long relationships with their financial institutions and the very communities represented at this table this evening.

Given what's going on in the credit markets in the past year, I'd like to congratulate the government on the $12 billion Canadian secured credit facility announced in January's budget. CADA communicated the need for such a facility in the pre-budget period, and the government delivered.

But as parliamentarians, you will know that the easiest part of any program is announcing it. Dealers across the country are still facing tight and unpredictable credit conditions from captive finance companies and chartered banks. While we recognize the need for diligence in designing any program that allocates tax dollars, we must stress the urgent nature of the problems facing Canada's auto dealers as we speak.

The government has to find a way to get credit flowing again and to do so as soon as possible. Credit is the biggest problem facing our dealers, and the government has recognized this. We will continue, as we have to date, to work closely with the government in its implementation of the $12 billion secured credit facility, but there are also other ways to stimulate the industry and, with it, the entire economy.

Canada's car fleet is older than that of its American counterpart. As you all know, old cars are much less efficient, more polluting, and less safe than new vehicles. This committee is charged with addressing the crisis in the auto sector. Drastic times call for bold measures and bold but targeted economic stimulus. This is the approach taken by other G7 countries. Vehicle scrappage or vehicle retirement programs have been adopted by several countries throughout the world, including Canada, over a number of years. In recent months, these programs have taken on added momentum as economic woes cripple vehicle sales worldwide.

Scrappage programs have existed in this country in one form or another since 1996. Simply put, a scrappage program offers cash incentives to consumers who retire old vehicles and purchase new ones. These incentives serve a much sought-after dual economic and environmental policy objective, since on average a 20-year-old car pollutes 37 times more than a new one. Providing incentives for purchasing new cars drives the economy and helps the environment.

The current economic challenges facing the automotive industry present an opportunity for an effective national vehicle scrappage program to complement other economic stimulus initiatives. With roughly five million vehicles on the road that were built in 1996 or before and with new car sales in decline, there exists today a powerful opportunity to enact a scrappage program that has real teeth. Today's program, worth only $300 per vehicle, does not provide enough incentive to get any more old cars off the road than would occur anyway through natural attrition.

Canada can look to other countries for models in designing such a program. In fact, it was mentioned a little earlier in previous testimony that in Germany, for example, consumers are given incentives worth €2,500, or roughly $4,000 Canadian, for retiring old cars and buying new cars or cars that are less than one year old. The program works on a first-come, first-served basis. Funding for the program is capped. Once the cap has been reached, the program will be terminated.

This measure is expected to increase light vehicle sales by 200,000 units for 2009 and should push the German car market just above three million units. Now, applied to the Canadian market, which is about half its size, a similar program could increase sales by more than 100,000 units this year.

Let me add that the members of this committee should also recommend that the government take a very simple step to stop the dumping of high-polluting older vehicles into the Canadian market. This is an easy common-sense fix. Members may not be aware that we have seen a recent rise in the number of older right-hand-drive vehicles on Canadian roads. These vehicles are imported under a current loophole in the Canadian regulations allowing vehicles more than 15 years old to enter the country without complying with the Canadian motor vehicle safety standards or national environmental standards. These vehicles pose a risk to Canadian citizens and undermine the pursuit of our country's safety and environmental goals. We urge government to close these loopholes in order to ensure safer roads, stronger new vehicle sales, and not further undermine our collective desire to clean up the environment.

Now let me turn to another issue of great concern to our dealer network, the so-called right to repair issue. As you are aware, Bill C-273 is currently before Parliament. This bill would effectively require auto manufacturers to share all diagnostic and repair information as well as equipment with the aftermarket. This is unacceptable to CADA. This information represents intellectual property developed by manufacturers at a cost of billions of dollars. Forcing them to disclose this information on a non-voluntary basis would destroy the value of this property and inhibit the innovation that drives the country.

There's currently healthy competition for car owners' non-warranty service work, with aftermarket repair facilities receiving the bulk of the business, even after the introduction of proprietary onboard diagnostic computers almost two decades ago. The aftermarket has the lion's share of the business with 75% of that market, and this is due to the fact that, for all but the newest of vehicles, repair information is readily available from a variety of sources, be it for a small, independently owned garage, a national aftermarket chain, or even do-it-yourselfers.

I understand that you're trying to move this along, so I would just like to address one final consumer concern. We must not let the current market conditions facing manufacturers and dealers distract consumers from the fact that it is a very good time to buy a car in Canada. In fact, the two sides of this situation are closely related. Cars have not been as affordable as they are today in a generation. In fact, Statistics Canada has just reported that the price to buy or lease a car has declined to its lowest point in 24 years as a ratio of disposable income. Add this to the fact that all manufacturers are aggressively seeking new business, and the end result is a very favourable set of conditions for consumers in the marketplace. Quite simply, there's never been a better time to buy a car, and I have been in this business for 40 years.

I'd like to thank the committee for giving us an opportunity to speak with you this evening.

Thank you for your attention. I will be happy to answer your questions, if time allows. Thank you.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Gauthier.

Next we have Mr. Gerald Fedchun, who is the president of the Automotive Parts Manufacturers' Association.

Mr. Fedchun, you have about 10 minutes to give your opening statement.

[Gerald Fedchun, President, Automotive Parts Manufacturers' Association]

Thank you.

I have appeared before the full committee a few times and certainly have represented suppliers. We represent the suppliers for the assembly of new vehicles, so we are not related to the aftermarket problem. So don't ask me questions about aftermarket--I have no idea what's going on.

Most of our facilities are in Ontario and Quebec. About two-thirds of the parts that are manufactured in those facilities are exported directly as parts, and one-third are consumed by the assemblers here in Canada.

First of all, I want to say we do appreciate the measures that have been taken to stabilize the assemblers—they are our customers. Also, the liquidity provisions in the budget, which have not quite been passed yet, are very important to us. We really look forward to that being passed, because we need to deal with that. Since our first presentation to the government over a year ago, when we were starting to face difficulty, things have gone from bad to worse. Even over the last couple of months, things have deteriorated even more. The February statistics released today, simply put, are another disaster.

So I have to say we have three requests of the government, and we don't usually come asking very often. Usually we're simply contributing billions of dollars in taxation to government, either through the companies or the highly paid employees who work for us.

Our first is simply to ensure that our customer, the assemblers, are around to pay us in the normal course. Financial assistance to them is the first lifeblood of suppliers, and we support what is necessary to make sure all the assemblers are healthy. As is well known, our industry supports one job in seven in Ontario, and about 10,000 employees in Quebec.

Our suppliers are the web of the spider web, and what I mean by that is that they are the connecting links between all of the suppliers.

I was going to hand this out, but I'm told I can't because it's not bilingual. You don't have to read the writing anyway, because the picture says everything. For the Chevrolet Equinox, which is assembled in Ingersoll, Ontario, it shows where the parts come from, where the modules come from that feed into that. It has a number of flags. Some of the flags are Canadian, and some of the flags are American. The Equinox is assembled in Ingersoll, and then about 80% of them are sent to the United States. So this web of parts makers is involved in that.

If one of our major customers, such as General Motors, goes down, it will take a number of suppliers with it. When those suppliers go—and those suppliers also supply almost everybody else in North America as well—they then take all the other OEMs down. In about a week's time, all North American production of vehicles comes to a grinding halt. That is simply a fact; it's not a doomsday scenario. That is the way the industry works. That's how integrated we are. It will then take months and months for the ones that still survive to be able to get back up and running again, and some that could have survived by that time have lost so much money that they fail as well. So you end up with a huge cost then of rehabilitating suppliers, if you can, or else importing more vehicles from overseas. The end result is that you've spent way more money resuscitating the industry than you ever would have spent if you put the money on the table in the first place to keep the original companies alive and healthy. That's why I'm here--because we are the ones who will suffer.

The other part that we need is to have good suppliers, but what's happening is that our good suppliers are running out of cash. We were practically shut down in North America from mid-December until the end of January because of a lack of sales and therefore inventory adjustment. Our payday is the second day of the month, so for January production, we were paid Monday of this week. That was an awfully slim paycheque for most suppliers, because there was no production in January. We were paid everything that we were supposed to be paid--almost nothing. Come April 2, we're going to be paid for February, and February was a very low month, so again there will be a very slim paycheque in April, which means that now things have gotten very poor. So now we have suppliers in the same position as our assemblers: they're simply out of money because they've had no cashflow. So if they have no cashflow, they have to close their doors.

An example is Bauer Industries in Kitchener. It has been around since 1886. It had up to 300 employees a few years ago, and then it went down to 30. Now it has closed its doors. I know those people. They are good operators. They just couldn't survive this lack of production.

We have lots more examples of those. I'd able to pull them out from all over. You people from the communities of Guelph and Kitchener, you can see them too. They're in the record; they're just there, unfortunately. A lot of smaller guys are going under because they don't have the wherewithal to continue.

We can say to the bank, well, maybe we could use our receivables. But the bank won't take the receivables as collateral. They don't trust it. They don't know if it's going to go on. So we need receivables insurance. Then at least we could take those receivables to the bank. That could come from government, EDC and BDC. We would very much like them to have the ability to put receivables insurance in place.

Then we have the good suppliers. Our latest production figures list 9.5 million units for 2009. It's usually around 16 million. Next year it may be 10.5 million to 11 million. So this is a very low ebb in the stream. Most companies could never have predicted it would get that low.

We have to get through 2009. We need some patient capital to get good companies through 2009 and the beginning of 2010. Without that patient capital, even for companies that do survive, when things start to pick up they won't have enough money left to buy raw materials and pay their people in order to take advantage of the increased production. We need some patient capital for that. Again, we believe the money is available through the government program of EDC, the Canada Account, administered by BDC. Out of that will come the ability for viable companies to survive.

In terms of giving companies money, we've always said to simply look at that exactly as you've looked at the assemblers. The simple question is this: can the company emerge from the current market crisis as a viable, sustainable company and repay the Canadian taxpayers the funds lent to it? If it can do that on the longer term, then it deserves to be considered for a patient capital loan. If in the longer term it doesn't have the business plan to do that, we cannot ourselves support government funding to that company.

But we believe there is a position to do that. We also believe EDC and BDC have the capacity, the financial wherewithal, and the ability to analyze companies to be able to make that decision on behalf of government. Certainly they have been in the auto industry for a long time. EDC currently has a couple of billion dollars in outstandings, so they are experienced lenders in this industry and are the perfect vehicle. We certainly would not want to see a new agency set up. By the time it got set up to lend money, no suppliers would be left to lend the money to.

So that is what we really are looking for. We need to be able to re-emerge.

The other thing is to take a look at the industry as a whole. I have to say that people in North America are not changing their transportation habits. They will continue to buy and use personal transportation. There will be many changes in how that transportation is powered, but there will be very few changes in the actual vehicle. Right now 90% of the vehicle is still the same, and it will continue to be the same for many, many years.

The motor power might change in some cases, but even that will be only fractionally changed. After all, a hybrid car is a smaller gasoline engine with an electric motor. It is not a brand new form of transport. Even if we get into doing more advanced electric cars, everything is the same except for the fact that they have a very large battery, or maybe a fuel cell to power the battery. It still has windows and doors and headlights; it still has a steering wheel, air bags, and all the other things that parts suppliers make.

We want the Canadian parts suppliers around to be able to make all those for us.

Thank you very much.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Fedchun.

We will now go to questions and comments by members of the committee.

We'll begin with you, Mr. Valeriote.

[Frank Valeriote, Liberal, Guelph, ON]

I thank each of you for coming this evening on such short notice.

My first question is for Mr. Fedchun, and it's with respect to suppliers.

We have approximately 37 auto parts suppliers in Guelph, for close to 9,000 or 10,000 jobs. I know that I and others around this table who come from auto parts communities are really concerned about the loss of those jobs.

We've heard from General Motors that the money loaned to them would indeed trickle down to the auto parts suppliers. They gave us those assurances. Do you see any need for any oversight at all of the auto sector, the D3 in Canada, to assure that the money does trickle down to the suppliers? Or is that a concern at all?

[Gerald Fedchun]

It certainly has not been a concern. I have to say that we have been paid on time all the way through the financial crisis. Every second of the month, everyone has got the cheque they were supposed to get. We have no complaints. If they have the funds, they certainly have been paying.

The reality is that our customers have a vested interest in making sure the suppliers are paid regularly, because they know we're not in really good shape financially. They don't want to lose suppliers. When a supplier goes down, it's very expensive for the customer to replace that supplier, and they're very aware of that. Our tier one companies are also very concerned. Our best tier one companies don't need any money, but they are actively working with us on this because they're worried about their suppliers.

There are about four tiers in the industry. It's very important that all of them have enough cash to stay healthy. So far we have not seen a need for any kind of assurances. They've kept up to their commercial terms as they stated they would.

[Frank Valeriote, Liberal, Guelph, ON]

I talked to the larger suppliers like Linamar, and they have diversified what they produce to the extent that they're satisfied they will survive. I'm grateful for that; they're a good company and they employ a lot of people. But there are a lot of smaller suppliers that may not be able to withstand the pressure.

Can you talk to us about the percentage of companies that would likely collapse if there were a collapse with the industry versus those that are likely to survive?

[Gerald Fedchun]

I don't have a number now, but this week I've been working with Industry Canada to see if we can put a survey together to come up with some numbers for government. Because we have hundreds of members and hundreds of suppliers, it's very difficult to come up with a number. Usually the smaller the company the greater the liquidity problem. A lot of smaller companies have very small capital bases. Their owners have put money in and have run out of money themselves to put in. They also have more difficulty getting bank financing. So the smaller the company, the more difficult it is. They are the ones that are running at the end of the line. If we don't get money to them right away, I can certainly foresee 20% to 30% not being able to survive through the summer.

My friend Mr. Atul Bali is a small supplier and would be quite helpful.

[Atul Bali, Member, Automotive Parts Manufacturers' Association]

Thank you very much, Mr. Chairman. Bonjour tout le monde.

I represent a company called Maxtech. It's an automotive parts manufacturer...[Inaudible--Editor]...over the last 31 years in the country. We have interests in Ontario and Quebec.

I want to make three fundamental points, if I may, to this august committee. Thank you very much for this opportunity.

The first is that there are two major acquisitions one makes in life, as you all know--a home and a car. When you build a home, the wealth typically remains within the community. That is commonly understood, it's logical. When you buy a car that is not made in the country or you buy parts for a car that are not made in the country, a lot of money is being thrown out of the country. It is very important, therefore, that this industry be protected, because otherwise a lot of wealth will leave our Canadian shores.

The second point I want to make is please appreciate, as Gerry was pointing out, that the real innovation and value-added in our country lies with the parts manufacturers more than with the assemblers of cars. It is a very important point.

In a technology park in Quebec, there is a company that pioneered the stainless steel exhaust systems used in cars worldwide today. In a small town, Waterloo, Ontario, is a company that pioneered a yearly saving of $50 million in the exhaust systems for leakage of greenhouse gases, which are used in cars today. Our country, through the University of Waterloo and the University of Laval in Quebec, has really pioneered innovation in the automotive sector. So protecting the parts suppliers who are innovative and have demonstrated innovation comes from two areas: their SR and ED credits, and the number of utility patents they have to their credit. These are vitally important.

The third and last point I'd like to make to the point you just made, sir, is the following. Yes, Linamar has diversified. Linamar can afford to diversify. We know them very well; they're our neighbours. The more important point is, can these smaller tier two suppliers manage to diversify? Do they have the engineering beachhead? They sure want to diversify, but there are two things holding them back. One is having engineering services provided. They don't have a beachhead left anymore, with the erosion of equity in these companies. The second is market access for new products that will be marketed with diversification.

We were very honoured that Minister Clement gave us time during a breakfast meeting. We showed the Honourable Minister Clement, the Honourable Minister Flaherty, Alison Tait, and Deputy Minister Louis Lévesque in the Department of International Trade a very interesting innovation that we've created for the APMA. It's called the facility of redeploying assets to fundamentally reduce the dependence on one sector.

If you consider February, ladies and gentlemen, you will see that North America produced fewer than 700,000 cars. China produced nearly 800,000 cars. The installed capacity, as Gerry points out, is 16.5 million cars. You have 9 million cars chasing 16 million capacity, so the critical mass doesn't exist to sustain the parts manufacturers anymore.

I'd just like to say that there are three very practical suggestions we've made. There is a $5 million pilot that we want to get funded. It will help the smaller companies, the innovative companies, to remain alive by redeploying their assets. It's called FRAES, the facility to redeploy assets, engineering, and market service. We request that you look at the number of utility patents that the automotive parts manufacturers have and give dollars, holding patents as security—it could be about $250,000 per patent—as bridge capital or patient capital to take care of the 2009 and 2010 distressed times.

The last point we'd like to make is to think about how to consider the whole idea of using patient capital if a company is viable. And BDC, which is our own national bank, actually has made a template available, through working with the APMA, that understands the viability and the feasibility of parts manufacturers. If they declare a company to be viable based on their diversification plans for reducing dependence on the automotive sector, give them bridge capital of $1 million for every $10 million of sales, for example, as patient capital to overcome their immediate tooling needs, etc.

These would be our three suggestions.

Thank you.

[The Chair, Conservative, Michael Chong]

Thank you very much for those suggestions, Mr. Bali.

Monsieur Vincent, vous avez la parole.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chair.

Thank you for coming here at this late hour. I too believe that it is important for you to be here.

Mr. Fedchun, I'm listening to you speak and I'm trying to understand how best we can help you, because the $2.7 billion that the federal government is freeing up for the auto sector will certainly impact the auto parts industry, when auto sales recover. However, what kind of support do you need right now? Earlier, Mr. Bali put forward three arguments and referred to a pilot project. What would be the best way to help your sector? Do you have any recommendations for me?

[Gerald Fedchun]

I think the first thing to do is to pass the budget, because in the budget there is increased funding for EDC and for the Canada Account. We look to EDC and the government to use the Canada Account to be able to fund directly the parts suppliers who need money, those that are thinly capitalized now and don't at the moment meet the current financial criteria as they have done in the past. We certainly have had companies go to EDC and ask for $15 million, for example, but because their financial situation had deteriorated, they could only get $5 million under the normal financing. So we would need to look to the Canada Account for the other $10 million.

The other part of this is that EDC and BDC have had what I think is called their contingent liability section increased, and that's where accounts receivable insurance is a contingent liability. So with that, again, we would need the contingent liability insurance from EDC employed in the parts sector.

If those two things could be done, they would allow the industry to get through 2009 and be able to react and increase production when things get better—which we expect to happen in about a year's time.

[Atul Bali]

But, sir, money needs to flow very quickly, and that's the reason for our idea of using patents as collateral, or of looking at BDC's feasibility template that we've developed together. There needs to be an immediacy, a sense of tremendous urgency. Last week in Kitchener-Waterloo-Cambridge alone 600 people lost their jobs, and this is recurring every hour of every day as we speak.

So you need to have the budget passed, of course, as Gerry pointed out. And we need to have something simple to monitor; we need to have a program that is not cumbersome, for which is easy to look at performance metrics. And you must create this patient capital to protect Canadian innovation.

In Mississauga, a company with 400 people has decided, because it's a foreign-owned company, to close powder metal plant. That company uses home-grown Canadian technology to create gears out of our metallurgy, for example. They gave the world the first ever cost-saving gear, saving General Motors $82 billion in one year, in transmission technology.

So the point is that you cannot afford this. If any technology is leaving Canadian shores, you must step up quickly on a case-by-case basis and get BDC involved—if it's viable—and get the competitors among the APMA membership in Canada to carry on with that technology.

So using patents, using the viability report, and giving patient capital of maybe $1 million for every $10 million in sales, and getting this redeployment of assets created are three immediate priorities. They are easy to monitor, simple to implement, and there's not too much money involved, at the same time.

So we really request that you understand this. I'm from the trenches and have no prepared speech here. We honestly are struggling every single day in this country.

[Robert Vincent, Bloc, Shefford, QC]

Earlier, you mentioned a $5 million pilot project. Exactly what pilot project would that be?

[Atul Bali]

The pilot project, sir, has been created by the University of Waterloo, Conestoga College, and five automotive parts manufacturing members. We are one of them. We've spearheaded this. For example, golf carts are not made in our country. Did you know that? Golf carts are used by you—I'm sure by us as well—every single summer, but not one golf cart is made in our country. Why not? There's a Bauer automotive plant right where we are, and it's going to close down. The same stamping presses could make golf cart side cars, for example. You have to redeploy your assets to products that were not thought of before.

This pilot project is to show people how an automotive company in Guelph or in Cambridge...for example, the stamping houses.You need stamping for trusses in warehouses. Why don't they make those?

We've shown Minister Clement a complete presentation of how we can create 120,000 jobs in Canada by December 2010. This pilot concerns 1,000 jobs just in this area of Brampton, Mississauga, Cambridge, Waterloo, and Kitchener. So we need to show the government that the pilot works.

Alison Tait from Industry Canada, surface transportation, spent an hour with me this morning to walk through this pilot. They're all very excited. Minister Flaherty wants to put up money for it. The issue is that we need to implement it; we can't just talk about it.

The next phase of that, then, encompasses every municipality in this country, so the pilot can mushroom itself, with the fundamentals being created for training, for sales training, market research for new products, and redeploying of assets.

The way it works, very simply, sir, is this way. I have plastic injection moulding equipment making plastic bumpers for cars. My plant is 30% occupied today. I now look at rain barrels instead, for rain water collection. The exact same equipment is needed. In our industry, $1 million in capital investment creates $2 million in sales, which creates 10 jobs. In this example of redeploying assets, no capital investment is required and $100,000 for new tooling will create the same 10 jobs. So you've tenfolded the use of the taxpayers' dollars.

This is the idea of redeploying assets with the University of Waterloo's engineering service.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Bali.

Mr. Lake.