Thank you, Mr. Chairman.
Greetings, honourable members.
On behalf of the Canadian Association of Moldmakers, and in my capacity as vice-president, I want to say thank you. We appreciate the opportunity afforded to us by your committee to offer our input on the current state of the tooling industry in Canada as it pertains to the automotive industry, and we thank you for that.
To state the obvious, our toolmaking industry is in crisis. What may, or may not, be surprising is that we have been dealing with this situation for several years; it's not just due to the current financial crisis. In effect, the rest of Canada is just now feeling our pain.
The initial root of our problem has been inequitable payment terms from the Detroit three—the PPAP payment terms—who are traditionally the largest customers of tool shops. Traditionally, a car maker or OEM would place a production program with its preferred tier one supplier, who in turn would place a tool to be built with their preferred tool shop. The tool would be built and the parts that are produced from that tool would be approved for installation in cars by the OEM. The tier one supplier would receive moneys from the OEM to pay for the tool or the mould. This could typically take from 18 months to 48 months, depending on PPAP or delays. In this timeframe, the tool shops are not paid any amount of funds for their work.
Unfortunately, due to the pricing pressures on program costs by the Detroit three, many moulders and tier one suppliers encountered financial difficulties and either chose not to pay the tooling moneys to the tool shops and/or went into chapter 11—again keeping the funds.
We therefore consider this payment model to be broken and are requesting that a portion of any loans given out by our government be directed to the tooling companies, not as a loan to them but as a payment for work already completed on the OEMs' behalf.
We believe this must be pushed with the weight of government, because this payment plan is unfairly stacked in the favour of the OEMs, and they will not willingly desert this payment strategy as it affords them the ability to kick off tooling and keep the costs off their balance sheets. This payment strategy must be stopped for the future health of the small to medium-sized businesses, which cannot afford to finance the Detroit three. We believe this is an opportune moment for this endeavour, as there is currently a similar effort by the American tool shops that is being viewed seriously by their elected officials.
The mould/tool/die enterprise must be viewed as an independent sector of the automotive business. We are major suppliers to the automotive industry by virtue of its presence in the market, but we could in fact have a robust tooling sector supplying non-automotive industries, such aerospace, medical, wind energy, solar power, fuel cell, nuclear, and houseware products. But we need to be paid for our work so that we can reinvest in new technologies and pursue these opportunities.
Currently we're hindered by the following financial constraints. The majority of tool shops are currently owed significant amounts of money by the automotive sector. Banks are lumping the tool shops in with the automotive industry's difficulties and are therefore restricting credit.
Many banks will not offer accounts receivables coverage for a customer without that customer being approved for EDC coverage. Currently the EDC will not offer coverage for the Detroit three and most of their suppliers, which is in effect forcing the tool shops to refuse work from the Detroit three.
As an example, Chrysler, which is requesting loans from the Canadian government, cannot obtain coverage from the EDC and has recently announced that it will be releasing approximately $500 million in tooling for new models, which most Canadian tool shops will be forced to refuse to quote, given this situation.
This current situation could likely create the following scenario: Chrysler could be approved for loans and receive loans from the Canadian government; EDC, a crown corporation, could continue to refuse to offer receivables insurance to Canadian tool shops for Chrysler; Canadian banks would then refuse to margin Chrysler receivables without EDC coverage; the mould/tool/die sector would then be forced to refuse Chrysler work; Chrysler could then place their tooling either in the U.S. or overseas, where they honour progress payments, in effect paying foreign firms with Canadian taxpayer funds; Canadian companies would then be forced either to downsize or to close, and then would also draw down on whatever EDC-covered receivables they currently had, in effect promoting a type of double-dipping of taxpayer funds.
Therefore, we respectfully suggest the following for your consideration: that any funds have a portion earmarked to pay off critical suppliers, and that the mould/tool/die sector be designated as a critical supplier.
The PPAP payment term system must be discontinued. If the OEMs must pay progress payments to their Chinese suppliers, they can pay them to the Canadian suppliers.
The EDC must increase their credit coverage of the Detroit three in conjunction with the loan strategy. As a government corporation, their non-coverage of the Detroit three is inconsistent with the government's strategy of providing funds to the Detroit three.
The industry is doing its part by participating in various organizations, such as the Canadian Association of Moldmakers. Our particular association promotes the country's toolmakers through efforts such as our recent successful trade fair and our attendance at various trade shows in the U.S., England, and Germany, where we hand out members' trade magazines, meet with various trade representatives from other countries, and obtain sales leads to be distributed to our member shops. As well, we're working with various government MPs and MPPs, such as the Province of Ontario, which recently organized a hugely successive “Powering the Future Summit” at Windsor's new casino, which had in excess of 800 people in attendance. We are also working with agencies such as the Windsor-Essex county's development commission and with our trade commissioners and ambassadors to assist us in procuring out-of-country projects, because most tool shops are primarily export-driven concerns. We also maintain close ties with our local colleges and universities.
In conclusion, we've not come before you to request any loans, but only timely payment for services already rendered to the OEMs and a return to fair practice payment terms so that we can move forward and invest our own money in our own future. The typical Canadian small and medium enterprise shop owner is an aggressive and sometimes fearless and innovative business person who has the drive and desire to survive and prosper, as evidenced by the strong attendance at the “Powering the Future Summit”, which was promoting alternative manufacturing opportunities. It's also evidenced by the fact that most are still surviving in spite of the current formidable challenges described earlier.
Thank you for the opportunity to express our beliefs.