Subcommittee on the Automotive Industry in Canada Committee on March 9th, 2009

[Dr. Jim Stanford]

In terms of the trade impact, again, I emphasize that we're not opposed to trade, and we're not being protectionist in that regard. We need trade. A market like Canada is so small that we cannot support a viable auto industry focused on only our own market. It has to be focused on exports, and this is where foreign investment and two-way trade flows are going to be so important. The question is what the rules of the game that govern trade are going to be. We used a very effective trade strategy called the Auto Pact to build the industry, to bring it to Canada, and then we went above and beyond the requirements of the Auto Pact, because we were so successful.

With the free trade agreement, the bulk of the power of the Auto Pact was eliminated, and then in 1999, coincidentally, just as our industry peaked in Canada, the World Trade Organization began to argue that the Auto Pact was illegal. The argument was made at that point that we didn't need to worry about it, because Canada's auto industry was so successful. We said no, in the long run, things can change, and they can actually change pretty quickly. Unfortunately, we've been proven right. Nowadays, we produce far less value-added in the auto industry than we consume. That is why we have a large trade deficit.

We're not opposed to trade, and we're not calling to block trade. What we are saying is that trade has to be reciprocal, and we have to have global companies--it is, after all, the global companies that run this industry--adding as much value to the economy and the industry in North America as they take out with their purchases.

[Robert Vincent, Bloc, Shefford, QC]

If the Canadian dollar ever manages to achieve parity again with the U.S. dollar, do you think GM, Ford or Chrysler will seek additional concessions from workers?

[Dr. Jim Stanford]

Well, obviously, our whole collective bargaining has been tailored by our need to ensure that our plants remain cost competitive, on a long-run basis, with comparable plants in the U.S. and in other developed economies. The exchange rate is a very important part of that equation. When the exchange rate in Canada was undervalued, as it was, say, through much of the 1990s, that provided us with a super competitive advantage, and we actually gained a lot of investment during that period. When the dollar is overvalued compared to its long-run value or compared to its fair value, the reverse occurs: we suddenly look very expensive, and it becomes very difficult to hang onto jobs and investments. That was the experience of, say, the commodities price boom that has now ended.

When we did our bargaining with General Motors, we examined a range of different exchange rate scenarios. At any exchange rate that is potentially feasible on a long-run, sustainable basis, our contract will ensure that our labour costs are fully competitive. Now, there are times, if you look at the Canadian dollar, that it looks like a roller coaster, doesn't it? There are times when, for a short period of time, you'll go above that and for a period of time you'll go below that. Using purchasing power parity, or any other meaningful long-run theory of the exchange rate, our costs will remain competitive.

That being said, to directly answer your question, when the dollar shoots up too high--and at parity, the dollar is very overvalued, according to measures like purchasing power parity--then the industry as a whole is going to feel pain. It's going to make it very hard for our exports to sell abroad and very hard for our facilities to attract new investment.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Stanford.

Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

From time to time, we get some political commentary happening in the committee, and I think we had that a while ago when Mr. Valeriote was talking. I'm going to take a second to answer his question regarding Canada's long-term plan.

We have a plan called Advantage Canada that was put in place a couple of years ago by this government, a broad economic strategy for Canada. Of course, we have a short-term plan, called the “economic action plan”, which we're implementing right now.

Here is some very quick commentary, first from Newsweek:

If President Obama is looking for smart government, there is much he, and all of us, could learn from our...neighbour to the north.

This is from the Daily Telegraph, in London:

If the rest of the world had comported itself with similar modesty and prudence, we might not be in this mess.

The Economist said:

...in a sinking world, Canada is something of a cork. ....The big worry is the fear that an American recession will drag Canada down with it.

And it went on to say:

Mr. Harper says, rightly enough, that his government has taken prudent measures to help Canada weather a storm it cannot duck....

And no less a person than President Obama, just a couple of weeks ago, said:

And, you know, one of the things that I think has been striking about Canada is that in the midst of this enormous economic crisis, I think Canada has shown itself to be a pretty good manager of the financial system...[and] the economy in ways that we haven't always been here in the United States.

That's just a quick answer to Mr. Valeriote's concern.

Now I have a few questions.

There's a lot of talk of restructuring, obviously, as we go through this process, and there's no question that one of the stakeholders at the table is going to be the CAW.

Mr. Stanford, maybe you can give some clarification. According to a presentation that I believe you gave in 2004, paid time off—this is time when people were paid for not working—cost the big three $10 per hour per worker actually on the job. This included regular time off as well as what's called “special paid absence” time off. Is that still about accurate?

[Dr. Jim Stanford]

No, sir, it's not.

In our May 2008 collective bargaining, we reduced paid vacations by about 40 hours, or a week—we lost a week of paid time off. And then in this contract, which we just tentatively reached yesterday, we reduced vacation time again, by another 40 hours.

We have two types of vacation. One is the traditional vacation that you take when you're able to schedule it. The other is a kind of scheduled vacation. That's what you call the SPA. I want to emphasize that it doesn't mean our members go to a spa and have a manicure and sit in a hot tub. That's how some of the commentators have described it. It's basically a different way of delivering vacation time.

So our vacation time has been reduced by two weeks.

Our effort, over the years—it was part of our productivity strategy, in fact—was to capture some of the gains of technological improvements and productivity growth in the form of time off, the reason being, first of all, that it allowed for healthier workers. We have much lower absenteeism in Canada than we have in the U.S. plants, and that's part of our time off strategy. But it was also to preserve the number of jobs in the industry as we move forward, so that technological change didn't result into a continual downsizing of the industry until there was only one person left pushing the start button.

There was method to our madness on the “time off” issue.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Okay. I just want to comment on these SPA days, or “special paid absence” days.

According to Buzz Hargrove, the special paid absences created 2,500 jobs in the 1990s alone. I'm curious. In retrospect, do you think it might have been a better idea to allow the companies to create jobs by building cars and innovating, rather than taking extra paid time off?

[Ken Lewenza]

Well, as GM has already indicated, even with our bargained time off, the Oshawa plant, as an example, is the most highly productive, high-quality plant in the world—in the world, and with our bargained time off.

In terms of labour hours per vehicle, which is measured by The Harbour Report, eight out of the ten unionized plants in North America are the most highly productive workplaces in the world. So even with our bargained time off, we are a highly productive, high-quality workforce as measured by independent analysts.

That's not the “uncompetitive advantage”. In fact, as Jim has indicated, it provides a healthier workforce, so when they are working they're delivering a better product, and that has been seen in the last ten years on a realistic, factual basis.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

In terms of structure again, I believe CAW requires automakers to pay into a CAW legal services plan. On the website, I believe, for the CAW legal services plan, one of the success stories noted talks about CAW-funded lawyers being brought in to keep a CAW member from having to pay back the parents of his ex-wife for a swimming pool they bought him. Would you regard that as a legitimate use of the automakers' funds going into that fund?

[Ken Lewenza]

I would ask the committee not to buy into the theatrics of what benefits are provided workers. The reality is that the CAW legal service plan has been a wonderful initiative and a wonderful benefit. What we do is provide lower-cost, negotiated insurance plans through basically a not-for-profit co-op, which brought legal fees down throughout Canada. The reality is that it's about 7¢ or 8¢ per hour that goes into a legal service plan. Workers still have to pay a significant amount when they see a lawyer. There are some things that are covered up to $80 an hour. This is not significant in any way, and that theatrical rhetoric out there, quite frankly, isn't helpful in preserving the auto industry in the debate in Canada.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

It's not theatrics. I'm asking these questions on behalf of my taxpayers, my constituents. If the automakers are putting money into a fund like that as part of the structure, and we're talking about restructuring the industry, I think it's a fair question to ask when we're asking the taxpayer to step up to the plate, to do their part to save the industry, literally.

Is that an appropriate use of the funds the taxpayer is lending the automakers? That money comes from the automakers.

[Dr. Jim Stanford]

Perhaps I could provide additional detail. The legal services plan is structured like an insurance system. The companies pay an insurance premium into this fund and then there's a specified range of legal services that are covered by the fund. Criminal activity and some of the other ones are not covered, but for your standard family legal bills that you can encounter because of hardship, an accident, or divorce, those are covered.

Secondly, it is the bottom-line labour costs that ultimately determine the competitiveness of our facilities. We are absolutely competitive, even including those.

Finally, in our contract, which was just negotiated, we are reducing the total cost of the various union-sponsored initiatives, including the legal services fund, by about one-third. That has been addressed in this contract.

[The Chair, Conservative, Michael Chong]

Thank you very much.

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you for being here, gentlemen.

I find that the parliamentary secretary's question is nothing short of absurd. When you have people here representing hundreds of thousands of workers across this country, you would think you'd actually understand the fact that these bargained benefits were done through the open market. Ironically, it's a conservative, right-wing think tank that's basically pushing a new settlement from the private sector to negotiate openly.

You don't need to apologize for the fact that you have actually provided benefits for your workers. You have provided a number of different health care services. You have provided legal services for those who are in need. You have made donations. Look at 1973 in my riding. General Motors workers are losing their jobs in 2010 and they actually had the record for donating to the United Way. This is the reality on the ground floor and not some of these things here.

I'd point out as well that back in 2003 it was the CAW that pushed for getting back in gear. The first discussion paper that was actually presented, and the precursor to CAPC, noted that we had to do more than just large corporate tax cuts. A paper was commissioned from the parliamentary research division that showed the corporate tax cuts from 2000 and 2005 were supposed to be $4 billion, but at the end of the day they turned out to be $10 billion, so $6 billion--more than was expected--went out the door.

You just finished a negotiated settlement. Some are criticizing some of that settlement, but you actually reached it in record time. Can you highlight some of the things you've come to the table with, and also in the past? There was other work done in the last collective agreement to close the gap to make sure productivity was very high.

[Ken Lewenza]

Needless to say, in May 2008, four or five months prior to our bargained deadline in which we normally do traditional bargaining, it was the CAW that went to the employers and saw this perfect storm brewing over our heads. We went to them and solicited an early intervention into our bargaining, and that saved the companies, combined, over a three-year period, $300 million per year in each of the three years of the collective agreement. Again, those numbers have been substantiated now in our recent bargaining.

In this particular set of negotiations we did a number of things. Obviously we froze our wages. For auto workers now, our wages will be frozen for five years. Retirees and cost-of-living improvements yearly will be frozen now until 2012. A number of health care benefits that are provided are now co-pay. There are significant dollar savings moving forward.

At the end of the day, I do want to point out that our objective was not to pick this particular issue or that particular issue. Our objective was to make sure that our hourly active labour cost was advantageous in Canada versus those we compete with. You could grab a host of things that we bargained and then take a look at what we were able to let go. The bottom line was to maintain our competitive advantage here in Canada versus talking about issues.

[Brian Masse, NDP, Windsor West, ON]

One of the things the minister has requested is that you match the UAW's commitment when you seek the actual agreement.

Interestingly enough, the United States has the advanced technology vehicle loan program. For those who actually aren't aware of this program, it's a $25 billion loan program, separate from the situation that's happening now, and it was actually passed through the United States energy bill last year. That's $25 billion. Compare that in terms of Canada. We have only a $250 million program over five years, so we haven't done the same thing in terms of government.

As well, too, we haven't done the issues with the trade policy. I'd like to hear your comments on the Korea trade issue, because Ford mentioned it here. We've been having declining market share. We can't ship into other markets because of tariff and non-tariff barriers. Can you highlight that? They've also raised it as a concern.

[Dr. Jim Stanford]

The auto industry in Canada and virtually all the sectors and stakeholders in the auto industry, including the North American producers and including Honda, Toyota, the auto parts manufacturers, and the CAW, are unanimous that a bilateral Canada-Korea trade agreement would be very negative for the Canadian industry.

As it stands, we have a terrible trade imbalance with Korea in manufactured goods and in auto in particular. The Korean market is a sizeable market. It has more people than Canada. It sells not as many vehicles as Canada, but a substantial number of vehicles. For every dollar of automotive product that we sell in the Korean market, they sell $177 worth of automotive products in Canada. That's not an accident, and I don't think it reflects the quality or competitiveness of the vehicles. It reflects deliberate proactive efforts by the Korean government, particularly after the 1997 financial crisis in east Asia, to kind of enhance the economic benefits of their exports while strictly limiting their imports. Our exports to Korea have actually declined by over 80% since 1997, even as the Korean economy grew and developed. That reflects the impact of non-tariff barriers of various kinds to limit imports and also the positive feature of government assistance for investment and technology in Korea. You know that the Korean automakers have come massively forward in terms of the quality and innovativeness of their product. That is all done with dramatic government help and support for exports.

That's the kind of imbalance that has undermined the strength of the North American industry, even before the current financial crisis hit. I don't think it makes any sense whatsoever for government to be proactively trying to help the North American industry survive with one hand, but then to be making life considerably more difficult by liberalizing trade even further with Korea, because it would clearly exacerbate that imbalance. I would be very much in favour of basically shelving those negotiations for the Korea trade agreement.

[Brian Masse, NDP, Windsor West, ON]

Isn't it true that even though we have an integrated market with Canada and the United States, even the United States has tariffs on certain vehicles coming in? For example, it's 25% on trucks in different jurisdictions. At the same time, we don't do that over here in this country. Also at the same time, we don't even negotiate for new market access to at least balance things out.

[Dr. Jim Stanford]

We have our tariffs on vehicles that come in from outside of NAFTA. They're about 6% and a bit. The Americans have a smaller tariff than we do on cars, but a much higher one on trucks. That's the 25% rule.

The thing the Americans do that we haven't done in recent years is kind of behind the scenes. It's the sort of arm-twisting, the sort of negotiating, and the sort of proactive outreach.... Again, it's using carrots and sticks, as I said before, to encourage those companies globally to locate in the United States, first of all, and to build up more production facilities there, and also to limit the amount of their exports to the United States.

Again, this is where I think we would be well advised to play a more proactive role in trying to manage trade flows and attract more foreign investment to Canada. That won't happen just by kind of rolling out the carpet and saying, “We play by the rules.”

[The Chair, Conservative, Michael Chong]

Thank you.

Ms. Hall Findlay.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

Thank you very much, Mr. Lewenza and Mr. Stanford, for coming here today.

Before I begin, I would like to suggest to my Conservative colleague across the way that asking key witnesses about a long-term plan, or the lack thereof, for the auto sector in this country is not at all partisan politics and is in fact exactly why we are here.

I will also say that no arrangement can be perfect, but I applaud the spirit of compromise that the CAW and General Motors just showed. I find it completely inappropriate that a colleague here proceeded to attack that arrangement. Again, I stress that we are in a time of crisis and we need to be applauding, not attacking, efforts at compromise, and we, everyone around this table, regardless of our parties, should be working together, not alleging partisan politics and playing games.

Having said all of that, I do have a couple of tough questions I wanted to ask.

First off, in regard to your negotiations, we've looked at material from General Motors and we've looked at the material Ford has given us. In terms of forecasts for auto sales in this country, were you using forecasts in your negotiations about what we expect to see in overall industry units being sold and what we're looking at in 2009-10 compared to 2008?

[Dr. Jim Stanford]

We don't forecast the number of sales as part of our bargaining. We recognize that as something that's determined outside of the bargaining table context.

They give us kind of a base-case forecast of the total amount of employment that they expect in our plants, moving forward. That is relevant information for us to design the costing of some of our plans. But in terms of the vehicle sales in the Canadian market or the U.S. market, that isn't explicitly considered in our bargaining.

[Martha Hall Findlay, Liberal, Willowdale, ON]

I ask the question because I'm trying to get a handle on the consistency of the forecasts.

I mean, everyone has acknowledged that no one can predict for sure, but clearly, at the very front, if somebody's coming to the government asking for a lot of money, obviously there has to be numbers being crunched and different alternatives being considered. We're looking at what the different companies are saying they expect the sales to be. I'm curious about your views on this in terms of the legacy costs.

I understand, Mr. Lewenza, your comments about auto workers here in Canada being competitive. I appreciate those comments. But we do also understand that there are some significant legacy costs.

If we had 1.7 million unit sales in 2007 in this country, there would have been a certain amount attached to the legacy costs per car. I want to have a sense from you--this had to have been part of the discussions--what those legacy costs were in that circumstance per car; what you think they will be, going forward; what part of the arrangement you've just concluded with General Motors that may affect the legacy cost per car; and what that amount might be.

[Dr. Jim Stanford]

With regard to measuring per car, we would measure per vehicle produced in Canada, not per vehicle sold in Canada. It is the cost of production that this enters into.

We have analyzed the impact of health expenses per vehicle in our Canadian facilities. On average, across the big three industry that we represent, about $150 to $170 of health costs are built into each vehicle that's assembled in Canada. That's dramatically lower than the situation in the United States, where it's over $1,000 per vehicle. That reflects both the obviously superior public health system that we have in Canada and the proactive efforts we've been taking, in partnership with the companies, to limit the increase in the health programs they provide.

I can give another illustration of that. In recent years, the rate of increase in total health benefits spending by a company like General Motors and the others has been growing at about 2% per year. This reflects our efforts to do such things as mandatory use of generic drugs in the prescription program and strict spending caps on the different types of health benefits. That's how we can help to control legacy costs.

The legacy cost is the cost that's paid as the result of workers who have done the work in the past--

[Martha Hall Findlay, Liberal, Willowdale, ON]

Right. I don't mean to interrupt, Dr. Stanford; I understand and I appreciate your efforts to control legacy costs. There are, however, existing costs now in terms of that difficult topic of pensions and other aspects of compensation in the overall auto sector.

To go back to my question, we have legacy costs per car produced in this country. If we have a significantly smaller number of cars produced in this country, then the legacy costs per car go up. How much of an increase would there be if we had, say, 1 million instead of 1.7 million?

As well, in this most recent deal that you've concluded with General Motors, has there been a reduction in that overall legacy cost per car? And if so, can you give me an idea of what it is?