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.
