Evidence of meeting #2 for Subcommittee on the Automotive Industry in Canada in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was industry.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

David Mondragon  President and Chief Executive Officer, Ford Canada
Caroline Hughes  Director Government Relations, Ford Canada
Ken Lewenza  National President, Canadian Auto Workers Union
Jim Stanford  Chief Economist, Canadian Auto Workers Union
Mark Nantais  President, Canadian Vehicle Manufacturers' Association
David Adams  President, Association of International Automobile Manufacturers of Canada
Don Romano  Vice-Chair, President and Chief Executive Officer of Mazda Canada Inc, Association of International Automobile Manufacturers of Canada
David Worts  Executive Director, Japan Automobile Manufacturers Association of Canada
Angelo Carnevale  Vice-President, Canadian Association of Moldmakers

8:50 p.m.

NDP

Brian Masse NDP Windsor West, ON

Thank you, Mr. Chair.

You mentioned other countries are doing other things. I know, for example, Germany has a program that supplements the companies so they can pay their workers up to 60% of their wage and 67% if they have a child, because they're trying to preserve their economic footprint in their industries that are in a downturn.

I think we have to go back to the fact that it was the financial crisis and the mismanagement and deregulation that really led to all of this, not the fact of whether or not you had 14 or 15 statutory holidays. That's really at the heart of building vehicles and getting those vehicles into the market.

Have you been following what's happening in Germany and Japan? I know Japan pays a significant investment to their workers as well. Over there it's considered a disgrace if you have to lay off some of your workers. Can you highlight some of the things that are happening in other countries?

8:50 p.m.

Chief Economist, Canadian Auto Workers Union

Dr. Jim Stanford

Compared to Europe, the North American pattern in terms of benefits and vacation and those kinds of social programs is less developed than it is in Europe. Europeans have significantly more paid time off than we do. They have valued that as a desirable social goal, as well as reflecting the same arguments around productivity that I mentioned earlier.

In Japan there's a tripartite tradition, where the company and the union and the government together try to work over the long term to build the industry, and that now includes government subsidies to the companies to help limit the number of people they are going to lay off, because of that tradition you mentioned. So the government is subsidizing auto wages at a number of the companies in Japan.

8:50 p.m.

NDP

Brian Masse NDP Windsor West, ON

Instead of the minutiae of some the holiday stuff, I want to get back to the question of how people get newer, cleaner vehicles on the road to get ourselves recovered. Really, at the end of the day, what we're trying to do here is to get new vehicle sales up. It was good that Ford mentioned leasing. It hasn't been brought up as much here, but we had a significant lease market evaporate overnight.

One of the things that I'm concerned about is the continuation. It's interesting that we run the workers through the wringer, but the banks right now are still making huge profits. I use this as an example because they stopped dealing with the dealers, in terms of investment. I'm looking here at a typical bank loan right now that I just downloaded. They're at 8% to 14%, in this one in particular, if you've got good credit. They're probably the only ones making money off a car right now.

Do you support the creation of a fund or the assistance of a fund for the loan of vehicles to the dealership programs and to the financial arms of the companies to get low-interest loans out there? Is there a consensus on that issue? This is a fleecing. I heard this weekend of up to 30% financing on new vehicles or leased vehicles is being offered to consumers out there right now. I don't know how people can get by with that type of a loan.

8:55 p.m.

Chief Economist, Canadian Auto Workers Union

Dr. Jim Stanford

Yes, and the argument has been that since the automakers' credit arms are in trouble, the banks do the leasing business. But the problem is the terms of that leasing business will be aimed not at selling vehicles but more at making money for the lending institutions.

There's no doubt that the tightening of credit conditions, both the amount of credit and the price of credit, has been a key factor in the downturn of the industry, and anything we can do, especially together with the Americans, to stimulate vehicle sales on a continental basis would make a huge difference.

8:55 p.m.

NDP

Brian Masse NDP Windsor West, ON

Thank you, Mr. Chair.

8:55 p.m.

Conservative

The Chair Conservative Michael Chong

Thank you very much.

We'll go to Mr. Lake for a short question.

8:55 p.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

I just want to get some clarification, if I could.

I think you'd mentioned that you can get us the charts for the PAA, the paid absence allowance, special paid absence, paid vacation weeks and paid holidays, so if you could table that with the committee, it would be great--both before and after the new agreement.

I'm going to actually allow Ms. Brown to ask a question in just a second, but the one question I had was regarding sacrifices made. Obviously, everybody who's come before us has spoken about the sacrifices of the GM employees and management, talking about the 10% salary cut. I was just wondering—and I don't know the answer to this one way or another—if the union executives have taken similar cuts to their compensation plans.

8:55 p.m.

Chief Economist, Canadian Auto Workers Union

Dr. Jim Stanford

Our practice at CAW is that the salary of both our staff and our leadership is tied directly to what the wages and benefits of our auto workers in the big three make. When they take a pay freeze, we take a pay freeze; when they give up a week's vacation, we give up a week's vacation. All of our benefits are tied exactly to what's negotiated in the plan, so it moves in lockstep.

8:55 p.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

In terms of a percentage basis, based on the negotiations that you've just done, what would that translate to?

8:55 p.m.

Chief Economist, Canadian Auto Workers Union

Dr. Jim Stanford

Again, as we said earlier, it's hard for us to put a specific number on the final bottom-line value of those concessions. Whatever it is that happens to our members in the auto plants will also happen to the staff and leadership of the union.

8:55 p.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

Okay.

Ms. Brown wants to....

8:55 p.m.

Conservative

The Chair Conservative Michael Chong

Go ahead, Ms. Brown.

8:55 p.m.

Conservative

Lois Brown Conservative Newmarket—Aurora, ON

Thank you, Mr. Chair.

Thank you, gentlemen.

First of all, I wanted to make a comment about something my colleague said earlier when he was talking about the benefits in the European countries. Indeed, the European countries do have significant benefits and significant holidays. They also pay significantly more taxes and they have far less personal disposable income. Having spent some time in Europe, I know that there is far less choice in their availability of cash.

But I want to just go back to talking about some of these concessions. I don't want to talk about them specifically or what the actual dollar value is, because I hear what you're saying, that it's only 7% of cost in a vehicle. However, I live in a community that has hundreds and hundreds of mom and pop shops. We have many small business people who have no benefits. They have no pension plans, they have no insurance, no dental plans. They don't have any of those benefits, and yet they are paying for all of those things for the union members every time they purchase a car. So they're subsidizing those things in a car. We know that the objective of production is consumption.

Do you think that part of what you're dealing with here is a perception by the consumer, who may be out there looking for a car, but in the back of their mind they know that they are subsidizing these things for the union? How do we overcome that perception in order to move cars off the lot, because that is what we have to be doing?

8:55 p.m.

Chief Economist, Canadian Auto Workers Union

Dr. Jim Stanford

That might be an argument for not buying a car. Saying “auto workers make too much money and have too generous a pension, so, forget it, I'm going to ride a bike” is not an argument for not buying a CAW-made car, because pension and benefits in Japan, in Germany, and in the United States are all substantially higher than they are in Canada. The total labour cost is higher in those jurisdictions than it is here. The benefits that we've negotiated over the years reflect the productivity of the industry. Each auto worker on an assembly line in Canada generates $300,000 of value-added per year, and that is the basis for it being the high-income industry it is. So I don't think there's a connection.

I think consumers will go and buy what they think has good vehicle value. Vehicle prices have been declining substantially in recent years, in part because of the productivity. I think it's more the general consumer confidence and access to credit that explain the downturn in sales today.

9 p.m.

Conservative

The Chair Conservative Michael Chong

Thank you very much, Mr. Stanford.

We'll have one last, short question from Madam Hall Findlay.

9 p.m.

Liberal

Martha Hall Findlay Liberal Willowdale, ON

Thanks very much, Mr. Chair.

We all care about jobs, and we want to make sure that we keep good jobs in this country. We also, as parliamentarians, have a significant responsibility to taxpayers across the country as a whole, so these are very difficult questions.

We have a couple of companies, so far, coming to the government with a very significant request, in terms of money, so my question is very blunt. Looking at the burn rate of, in particular General Motors, but both companies, General Motors and Chrysler, and the request for multiple billions of dollars that's on the table, do you think that's enough, or do you think they're going to be coming back to the government in two quarters, three quarters, four quarters? It's a tough question.

9 p.m.

National President, Canadian Auto Workers Union

Ken Lewenza

No, it's a valid question. The reality is that we hope that General Motors and Chrysler, and potentially Ford, when they present their business plan to the Canadian government, provide stability moving forward. It's not in the interest of the Canadian government or the interest, quite frankly, of our members or the companies to continually ask for more.

I want to point out that we have no idea, at this particular time, of the negotiations that are going on between the government and the employers. We have not been involved in that process. We don't know what they're asking for, and we don't know what they're covering. All we're here to say is that the auto industry is incredibly important. Every government in the world is investing in the auto industry in their particular country, and we would ask Canada to treat our auto industry with the same respect other countries do in terms of providing the economic activities that are generated out of the important auto industry.

To answer your question directly, let's hope the auto industry is providing a stable plan that will put some certainty in the hearts and minds of our members and the communities that rely on the auto industry.

9 p.m.

Liberal

Martha Hall Findlay Liberal Willowdale, ON

Thank you very much.

9 p.m.

Conservative

The Chair Conservative Michael Chong

Thank you.

Thank you very much to all the members.

I have a point of order over here.

9 p.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

I have a brief point of order, if I may.

Ms. Hall Findlay earlier characterized my line of questioning as an attack on the witnesses. I just want to clarify for the record here, if I could, that there is no intention to attack when we're asking some of these tough questions. In fact, I recognize how hard our Canadian auto workers work. I recognize that these gentlemen have been in tough negotiations, and I think it's important for us to be able to ask tough questions without being characterized as attacking witnesses.

9 p.m.

Conservative

The Chair Conservative Michael Chong

Thank you very much, Mr. Lake.

I want to thank all the members of the committee for their questions and comments.

I want to thank, in particular, the two witnesses here from the Canadian Auto Workers for coming to talk to us tonight. In particular, I want to thank Mr. Ken Lewenza for coming. I know that you've just started in your new role as national president this past September, and I wish you all the best as you go forward. Thank you very much.

9 p.m.

National President, Canadian Auto Workers Union

Ken Lewenza

Thank you very much. Thank you all for your participation tonight.

9 p.m.

Conservative

The Chair Conservative Michael Chong

We'll suspend for 10 minutes to change witnesses.

9:10 p.m.

Conservative

The Chair Conservative Michael Chong

Good evening. I want to welcome the witnesses we have in front of us today. We have Mr. David Adams from the Association of International Automobile Manufacturers of Canada. We have Mr. Mark Nantais, who is the president of the Canadian Vehicle Manufacturers' Association. We have Mr. David Worts, executive director of the Japan Automobile Manufacturers Association of Canada. Finally, we have Mr. Angelo Carnevale, who is the vice-president of the Canadian Association of Moldmakers.

I want to welcome all of you to our subcommittee on the study of the auto sector. We struck this committee last week in order to study some of the challenges facing the Canadian auto sector. Your testimony today and your submissions will inform part of the report and the recommendations our committee will report back to the House of Commons sometime before the end of the month.

Before we begin, we'll start with opening statements of approximately ten minutes from each of the five witnesses. We'll begin with Mr. Mark Nantais.

9:15 p.m.

Mark Nantais President, Canadian Vehicle Manufacturers' Association

Thank you very much, Mr. Chair.

Good evening, ladies and gentleman. Thank you for this invitation to appear before you.

By way of background, for over 80 years the CVMA has represented Canada's leading automakers and sellers of light- and heavy-duty vehicles, that is Chrysler, Ford, General Motors, and Navistar Corporation.

Our member companies touch virtually all provinces and territories with their operations. Collectively we have 45 Canadian facilities, including vehicles and parts manufacturing, head offices, and sales and distribution facilities, and over 50% of the Canadian new vehicle dealer network, with 1,750 dealers in nearly every town in Canada. Chrysler, Ford, and General Motors are also the only auto assemblers that have significant research and development facilities and programs in Canada. Most importantly, they directly employ about 35,000 employees and support over 50,000 retirees.

We have thousands of suppliers and business partners across the country, everything from rubber manufacturing in Nova Scotia, mining natural resources and lightweight materials in Quebec, through to steel, chemicals, and high tech in Ontario, petrochemicals in Alberta, etc. So clearly we are national in scope.

These companies also purchase about $24 billion, out of the $30 billion annually, in terms of Canadian tier one auto parts. That's 80%.

Just to move on very quickly, over the past five years these companies have collectively invested $8 billion into their new Canadian operations to establish some of the most flexible, efficient, and greenest manufacturing facilities in the world. This $8 billion in investment represents over 80% of the major auto investment in Canada during this period. If you look at the total industry investment, $10 billion, that represents roughly a 10% return on the investment made by governments through the automotive manufacturing investment supports such as the automotive innovation fund established by the government. The investment made by government was a factor that was absolutely determinant in terms of attracting new production mandates, which are part of the broader effort of these companies to restructure their operations and to maintain competitiveness.

However, today, Canada, similar to other countries, has been hit by a very sudden and sharp collapse as part of an industry-wide and global auto crisis. Sales now register at declined levels that have not been seen in nearly four decades. The dramatic drop in vehicle sales is not a North American phenomenon, nor is it limited to only North American companies. In January, the latest month that detailed statistics are available, sales in France were down 8% year over year. Korea dropped 24%, Japan dropped 28%, Italy dropped 33%, Sweden dropped 34%, the U.K. dropped 35%, and Spain dropped 42%. This is clearly a global problem.

Today all manufacturers, regardless of their home jurisdiction, are taking immediate and sometimes very dramatic actions to deal with the current crisis, including eliminating and scaling back production, employee layoffs, and salary and benefit reductions, much of which you already heard about from certain companies.

The impact in Canada hits the full value chain. Dealers of all makes and models, with few exceptions, are struggling with dramatically decreased sales volumes and revenues. Parts suppliers have dramatically reduced purchase orders for their products. Corresponding with the drop in sales, manufacturers have cut production almost 60% so far in 2009. If this pace continues, production in Canada would fall to just 900,000 units in 2009--a drop in production of over 1.6 million vehicles compared to two years ago.

Given these realities, and recognizing the critical importance of the domestic auto industry to local economies, virtually all governments around the world, including the U.S., Germany, France, and Japan, have been taking complementary action, if you will, to support their domestic industries, by offering an assortment of support to manufacturers, dealers, parts makers, and consumers. Again, it's the full value chain approach.

The Canadian government is definitely playing its key role through the offer of emergency liquidity funding, extension of credit to suppliers through the BDC and EDC, and a secured credit facility, all of which are important, supportive, and highly welcomed measures.

It's critical that these supportive measures be implemented as soon as possible to be effective and that the government policies continue to be implemented to support the industry in a globally competitive manner. This is especially important in three critical areas: continued proportionate support to that offered in the United States, availability of credit, and direct consumer support to help drive vehicle sales--in other words, to help engender renewed consumer confidence.

Maintaining and implementing supporting mechanisms that are globally competitive, and in particular that are proportional to what is being offered in the United States, is absolutely critical if we are indeed serious about maintaining Canada's proportional auto production as we go forward.

Given this tight integration with the U.S., it is critical that the Canadian government implement its stated intention to adopt vehicle fuel efficiency rules like those of the U.S. national standard being developed by the National Highway Traffic Safety Administration.

The U.S. government estimates that the proposed rules will cost manufacturers about $115 billion. In order to minimize the cost to consumers, this cost must be amortized over the largest vehicle fleet possible to create necessary economies of scale. Creating a Canada-only solution would cost both manufacturers and consumers a lot more.

Understanding the difficulties of meeting the new targets, the U.S. government, under its Energy Act, created a repayable loan fund of $25 billion U.S. for the industry to help research and develop fuel-efficient vehicle technologies and vehicles. This will likely be doubled to about $50 billion shortly, we anticipate.

The second issue I want to highlight this evening is the urgent need for the government to implement the actions it announced in its budget, as well as to expand support for consumers as part of future government stimulus action. Mechanisms such as the secured credit facility are critical to allowing finance companies to loan to both business and retail customers, and it must be implemented as soon as possible.

Additionally, as we move forward, given the worsening auto sales collapse, the government should introduce direct consumer stimulus for auto sales in an effort to create greater consumer confidence. Several other countries have introduced a variety of measures to improve consumer confidence and spur vehicle sales, including tax holidays and fleet renewal programs, otherwise known as scrappage programs.

These actions are being credited with lessening the severe downturn in new vehicle sales, where bold, very simple, and direct measures have been taken. Germany is perhaps the most prominent and successful example, where an aggressive vehicle scrappage program is being credited with increasing sales by what is being estimated at 200,000 units for all of 2009, or close to a 10% increase. In February alone that represented a 21% increase.

It is also my understanding that in conjunction with that program, Germany is undertaking to address the freeze on credit issue that we also experience here. The combination of those two efforts has been a tremendous success.

Aside from the immediate economic benefit, we inherently enjoy a triple win with new vehicles that are cleaner—that is, 12 to 18 times less polluting—more fuel efficient, and indeed safer by virtue of some of the most advanced safety systems we are placing on those vehicles.

In addition to the short-term priority issues to ensure the long-term stability of the health of the auto manufacturing industry in Canada, governments must continue to work constructively with the industry on a broad range of business and regulatory issues, which would include the following.

Both environmental and safety regulations must be fully harmonized with the U.S. federal standards. Creating different regulations in Canada simply adds unnecessary costs—and in some cases we can give you examples where the costs to meet these rules are in excess of hundreds of millions of dollars to manufacturers—restricts products that would be bought otherwise in the Canadian market, and increases the prices consumers pay for those vehicles.

Another one is continued manufacturing and investment supports that are globally competitive. This is the automotive innovation fund, which has indeed been responsible for some of these new product mandates that have come to Canada. It needs to continue for the long term.

Streamline border regulations to reduce congestion and delays, particularly at the Canada-U.S. border, and focus on a coordinated perimeter approach with the United States. Customs procedures and transaction costs are very much a part of that.

We are believers in free trade, but free trade must be fair trade. Free and fair international trade agreements level the playing field for Canadian producers and eliminate protectionism in foreign markets, particularly the systematic use of regulatory and non-tariff barriers. The most poignant example of the systematic use of non-tariff barriers to restrict vehicles into domestic markets from every vehicle-producing nation has been that of Korea. Canada should pursue trade agreements that are supportive of Canadian manufacturing and recognize and support our NAFTA history. Canada's ongoing negotiation on the FTA with Korea at present fails to meet these objectives. It's not the right time, nor is the right agreement currently being looked at.

We also need to eliminate unnecessary and unproductive regulatory cost burdens, especially the federal green levy, the program that penalizes manufacturers and consumers.

Those, in summary, are a few things we would ask you to look at in the longer term.

I would very much appreciate receiving your questions.

Thank you.