Sure.
Thank you very much, Mr. Chairman and committee members.
I'd like to thank you for inviting me to this forum to present the views of the Association of International Automobile Manufacturers of Canada on the current state of the automotive industry.
By way of background, the AIAMC is the national trade association that represents the Canadian interests of 14 international automobile manufacturers that distribute, market, and manufacture vehicles in Canada.
In 2008, AIAMC members sold over 839,000 new vehicles in Canada, representing 51.2% of Canada's new vehicle market, the first time ever that AIAMC members have comprised more than 50% of the Canadian market.
While our members' sales have grown, so has their Canadian investment. AIAMC members have invested over $8 billion in manufacturing facilities alone. Annual production reached 796,000 new vehicles in 2008, or 38% of the 2.078 million vehicles produced by the three member companies that have production facilities in Canada.
While the majority of vehicles produced--75%--are exported out of the country, almost exclusively to the U.S., each of these companies sells more of the vehicles it builds in Canada to Canadians. For instance, 48% of Honda and Acura vehicles sold in Canada were produced at Honda of Canada Manufacturing. Thirty-seven percent of Toyota and Lexus vehicles sold in Canada were built at Toyota Motor Manufacturing Canada. Additionally, 3% of Suzuki sales in Canada were built at CAMI, and although I didn't mention it earlier, 1% of Volkswagen sales in Canada are actually built at the Chrysler facility in Windsor. Further, compared to other companies producing in Canada, these three companies have a higher percentage of their NAFTA production in Canada: Honda has almost 27% of their production here, Toyota has 26.3%, and CAMI has 100%.
While many would view the membership of the AIAMC as importers, in the context of NAFTA, over 50% of AIAMC member sales in Canada in 2008 were produced in the NAFTA region. And when Kia's $1.2 billion plant in Georgia opens for full production, Porsche and Jaguar/Land Rover will be the only two of our 14 members not producing vehicles in the NAFTA region.
The North American production-to-sales ratios bear out the fact that import penetration has not increased. Since 1990, the North American production-to-sales ratio has ranged from about 78% to a high of 93%, with most years being in the low 80% range. In 2008, the production-to-sales ratio was 80%. So while more consumers may have been buying our members' products, more of them were also being made in North America, providing jobs both in automotive assembly and in the affiliated parts manufacturing facilities.
As you are well aware, things have changed dramatically, as Mark indicated in his remarks, in the Canadian automotive industry in the last eight months, even in the last week. While much of the dire news has been focused on GM and Chrysler, Honda Canada sales were down 42% in February and 39% year to date. Toyota Canada sales were down almost 26% in February, or 15.5% year to date. In fact, only five of our 14 members increased sales on a year-to-date basis over 2008. Overall, sales for our membership are down 15% year to date.
Neither Canada nor the U.S. are isolated cases, either, as Mark previously mentioned. In Canada, from January through December last year, consumer confidence plummeted almost 30 points as Canada moved into a recession that had already started in the U.S. at the end of 2007. The U.S. recession was largely the cause of Canadian production falling almost 20% from the 2007 level owing to the fact that 75% of our members' production is exported to the United States. And that number is higher for the Detroit three.
Canadians became wary of buying major purchases as concern over the economy and their jobs increased. This was clearly evident in vehicle sales. Despite the fact that our sales last year were only down 1.1% from the 2007 level, which represents the third best year on record, the sales were essentially marked by two dramatically different halves. At the end of the first quarter last year, sales were up 7.3% and were tracking for an all-time sales record. By the end of the second quarter, sales were only up 2.4% over 2007, and, as I noted, by the end of the year we were down 1.1%. So the trend is very import to focus on, not the relatively minor dip in overall sales.
As the recession has taken hold, so has the negative trend. Mark already alluded to some of the sales declines in January and February, which were significant. Sales are currently tracking at a rate of 1.3 million units, which would represent a 20% decline in auto sales if it continues at this rate. Most analysts seem to think that the trend will not continue, but even so, it's estimated that sales will be down between 13% and 15%.
Sales decline will be very challenging for Canada's 3,500 new car dealers, who are also feeling the impact of tightening credit. In that regard, we wish to commend the government on the provision of the $12 billion Canadian secured credit facility in the recent budget. We believe this is helpful in ensuring that more credit is available in the marketplace. However, the speed of getting this facility in place is paramount.
Additionally, in a consultation session sponsored by the C.D. Howe Institute last Friday, there was some concern that the $12 billion may not be enough. There's hope that if that is the case, there would be consideration of additional funds being made available. That said, as Mark indicated as well, more credit availability does not necessarily mean that consumers will re-enter the marketplace. In our view, additional consumer incentive is required.
I won't go into too much detail about the scrappage program. You've already heard remarks from Mark. I'll just say in that regard that we are supportive of an enhanced scrappage program as well. We appreciate that the original scrappage program was essentially designed as an environmental initiative, with no direct linkage to the automotive industry. However, we think an enhanced program, as an economic stimulus, is important and it needs to be put in place. In terms of broad parameters, we believe that establishing a $300 million scrappage program with the goal of removing 100,000 vehicles from 1998 or older from Canada's roadways over the course of a one-year period would be something to strive for. This would increase consumer throughput in dealerships, thus shoring up vehicle sales, while providing concurrent safety and environmental benefits.
Given that new vehicles are lasting upwards of nine years and we're heading into a regime of regulated fuel consumption in Canada, a program similar to the BC SCRAP-IT program, which provides a sliding incentive based on GHG emission reductions over a two-year period, would provide the government with a significant measurable reduction of GHG emissions as well.
While scrappage programs would most certainly assist in bringing consumers back to the dealerships, thereby assisting the retail industry in Canada, no amount of sales increase in Canada is going to appreciably increase Canada's production by any of the six manufacturers producing here. The same would hold true for the parts manufacturers in Canada. We saw production fall by 20% last year because the U.S. was already into a recession. It's clear that further production cuts in North America and elsewhere will be necessary to adjust to whatever the new normal of U.S. sales will be.
The $16.8 million seasonally adjusted average of sales that have occurred throughout pretty much the last decade are not realistic and they are not likely to return any time soon. Those sales volumes were predicated on easy credit, high levels of liquidity, and generous incentives from vehicle manufacturers, combined with a growing economy, high consumer confidence, and relatively low unemployment.
Since the end of 2007, the U.S. economy has been in trouble. Consumer confidence has plummeted and unemployment levels have been rising rapidly, with 651,000 jobs in the U.S. vaporized last month alone.
Production capacity in North America has been built up to around 17 million units, which means there is excess capacity right now of about 7 million units, or roughly 28 vehicle assembly plants in North America. New, significantly lower sales volumes have forced all manufacturers to ratchet back production. Most analysts suggest that it will be several years, if ever, before we get back up to 16 million units in sales.
A December 2008 study by the Conference Board of Canada noted that profits last year for Canadian parts makers would be down $1 billion, and an additional 10,800 jobs would be lost in 2008-09, on top of the 12,008 jobs lost in 2007. I suspect that Mr. Fedchun painted a more bleak and accurate picture of the automotive parts industry when he appeared before this committee, so I won't elaborate on that at this point in time.
In our view, the Canadian government, however, should do its utmost to preserve the automotive parts manufacturing base in Canada, as many of its largest parts makers are global innovators in automotive components and subassemblies.
With respect to the provision of public funds and aid to the auto industry, prospects for the automotive parts manufacturers and the vehicle assemblers will not improve, as I noted, until U.S. sales improve. It's important that any aid that is provided to the industry be available on an equitable basis for all who need it, including the parts makers and dealers. Additionally, aid should not confer competitive advantage on those companies receiving it. For this reason, it's fundamentally important that there be a transparent process for the application and receipt of public aid and an accountability structure put in place to ensure the aid is being used for its designated purposes.
Finally, as the economic situation becomes more dire, protectionist sentiments will take hold, and for this reason we believe that a commitment to the maintenance of an open automotive market in Canada should also be a condition of the provision of aids to manufacturers.
I have a bit more, but I'll leave it at that for now.
Thank you very much.