Subcommittee on the Automotive Industry in Canada Committee on March 10th, 2009

[The Chair, Conservative, Michael Chong]

Good evening to members of the committee and to our two witnesses. Thank you very much for coming to appear in front of us today.

We are undertaking a study of the Canadian automobile sector and some of the challenges it faces, and your testimony will help us write our report and recommendations that will be submitted to the House of Commons by the end of March. So thank you very much for coming.

Today we have Stephen Beatty, managing director of Toyota Canada Inc., and Adriaan Korstanje, who is the general manager, external affairs, of Toyota Motor Manufacturing Canada Inc. Thank you both very much for coming.

We'll start with 10-minute opening statements. Then we will proceed to comments and questions from the members of our committee.

Please proceed.

[Stephen Beatty, Managing Director, Toyota Canada Inc.]

Thank you, Mr. Chairman.

I'd like to start by simply thanking you and the members of the committee for the opportunity to meet with you this evening.

As you mentioned, I have with me Adriaan Korstanje, who is general manager of external affairs for Toyota Motor Manufacturing Canada in Cambridge, Ontario, or, as we refer to it, TMMC.

TMMC builds Toyota and Lexus vehicles in Canada. Toyota Canada, the company I represent, is responsible for the marketing, distribution, sales, servicing, and warranty activities of Toyota in Canada. We have a sister company, Toyota Financial Services, which offers dealer business financing and consumer purchase financing and leasing.

The issues the subcommittee has been asked to investigate are certainly serious and far reaching for the Canadian auto industry and for the Canadian economy as a whole. You, of course, already know that the auto industry is a significant contributor to the Canadian economy, but I would say that in Toyota's 45-year history in Canada, we've also become a significant contributor to the auto industry itself, and in turn to the country.

Over the past four decades we've committed billions of dollars to establish manufacturing facilities, hire and train employees, create a dealer and service network, and more. We now employ thousands of Canadians directly and provide indirect employment to tens of thousands of Canadians at our various suppliers and partners.

Our capital investments include a brand-new, state-of-the-art assembly plant in Woodstock, Ontario. When this plant officially opened last December, it became the first greenfield assembly plant in Canada in 20 years. Our contribution includes the fact that TMMC builds some of North America's most popular and fuel-efficient vehicles in their classes, including the Toyota Corolla, Matrix, and RAV4, and the Lexus RX 350.

That manufacturing mandate is significant for two reasons. First, Canadian-built models will account for roughly half of our anticipated sales volume in Canada this year. In fact, it is fair to say that if people aren't buying a Toyota, there's a pretty good chance they're not buying a Canadian-built car this year. Second, Toyota is a net exporter of vehicles, which supports our investment in Canada. Last year our plants in Cambridge and Woodstock, Ontario, exported approximately 70% of their production, compared to roughly 85% of the production exported on average from Canadian plants operated by other non-Asian automakers. As such, sales in Canada of Canadian-made products are major contributors to the success of our Toyota assembly plants.

Beyond this, on a global scale, we're creating the technologies that are charting the future course for the industry in helping societies. Our world-leading hybrid vehicles are the most visible examples of this, but it's no accident that Toyota offers the most fuel-efficient passenger car fleet in Canada.

But like every other company in the global automotive industry, Toyota is being affected by the unprecedented decline in the world economy, and that decline is led by the collapse of the consumer marketplace in the United States.

While our investments in infrastructure and technology are positive accomplishments, Toyota is also mindful that everything starts with the customer. We need a market to buy our products, plain and simple, and that, in our view, requires two things: first, consumer confidence, and second, access to credit.

These issues are particularly important right now. Approximately 43% of the 2008 total Toyota and Lexus Canadian annual sales of passenger vehicles were made in the months of March, April, May, and June. In effect, then, if dealers and manufacturers miss this important spring market, they've really missed the year in Canada.

For Toyota, these months coincide with our annual red tag days event. This year, for the first time in our history, we're offering 0% financing on our core Canadian-built models and have added a free job-loss credit protection program on those same models. It's our effort to stimulate economic activity here in Canada and help bolster consumer confidence for those core vehicles.

I would tell you today that the single most important request Toyota has of the Canadian government is this: open access to credit now. The inability to obtain access to credit is bigger than any individual company. Traditional sources of credit for vehicle financing and leasing, including but not limited to the financial arms of auto companies, need access to large amounts of money in order to do business. The normal sources of this credit—asset-backed securities, commercial paper, short-term loans, bonds, and so on—are not available these days even to creditworthy financing operations.

We applaud the government for stepping into this gap in the last budget with the proposed $12 billion fund. But we do have some concerns in that respect.

First, we worry that with the continuing state of the economy, $12 billion, while substantial, may not be enough to cover the needs of those financing arms operated by the various automakers, let alone other independent sources of credit.

Second, if that $12 billion isn't enough, how will the government allocate what is available? We encourage the government to establish a mechanism to ensure that this money goes to those financing operations that are committed to actually getting the money into the pockets of consumers as opposed to those looking to use it to cover their own business requirements.

Third, it must be recognized that not every source of vehicle financing is created equal. Some financing operations are not as creditworthy as others, and if the government treats every applicant equally, without considering their credit quality, the government will have to include a premium on the interest it charges those who take advantage of the facility, and that in turn means the interest rate charged to consumers will have to be higher, which may deter some consumers from purchasing or leasing a new vehicle.

Finally, the fund provides the opportunity to kick-start consumer confidence, but to be effective the money needs to be made available immediately. As I noted, the key selling season is under way in Canada. We need to unlock those funds immediately or consider other timely approaches to stimulate consumer spending.

If the government can't create a market where access to credit is available, there are other programs that can be considered and that in fact have been proposed to this committee. Those proposals include such things as a sales tax holiday, right through to an overhaul of the scrappage program that encourages Canadians to retire old vehicles and purchase new ones. Certainly, each has its benefits and trade-offs.

For example, a temporary sales tax holiday on new vehicles would be relatively quick to implement, and for this reason it might be the easiest way to stimulate the market. But it has lasting costs that would be borne by the government in a period of deficit financing. Meanwhile, an improved scrappage program would deliver environmental fuel efficiency, pollution control, and safety benefits as well, but it needs to offer a larger monetary incentive to retire an old vehicle than it does currently, and it needs to tie the size of the consumer incentive to the gains made in environmental performance. But it has to be done sooner rather than later if it's going to have the benefit in the spring market.

It's important to note as well that to date the debate has been focused at the manufacturing level, and that overlooks the fact that approximately 50% of the employment in the Canadian auto industry is in sales, distribution, and dealerships. Incentives to consumers help to clear dealer lots and reopen the manufacturing pipeline, providing the financial resources that everyone in the supply chain needs to ensure the economic health of the sector. This certainly doesn't negate the specific cashflow requirements of those parts of the supply chain, such as vehicle and component manufacturing, that are dependent upon U.S. exports, but it does underline the fact that in an integrated North American market, Canada has to do its part to address the economic forces that have caused new car purchases to stall.

We can't lose sight of the fact that to remain competitive for continuing investment in Canada, an assembly plant must provide the highest quality and productivity levels. Quality is dependent on constant training and improvement of skills, while productivity relies on capital investment in equipment and technological innovation. Government can continue to support with incentives and a favourable tax structure that recognizes achievements and training, research and development, and capital expenditures for equipment and technology.

The current market conditions are temporary, but they are very real. They have painful consequences for individual Canadians, so this is not a hypothetical debate. We shouldn't lose sight of the fact that there are other important national objectives that have been set aside as we all concentrate on short-term adjustments. For example, the need to address safety, fuel economy, and emissions standards remains. The U.S. administration is poised to introduce new fleet fuel economy and emissions targets for 2011 and beyond, and Canada, of course, has pledged to set complementary standards, but the industry needs both the time and the resources to be able to successfully meet those requirements, adding further urgency to dealing with the economy so we can move on.

This also suggests that if consumer incentives are to be considered, they should help to move the market in the direction of those future standards, improving the demand curve for vehicles meeting the highest standards in safety, fuel economy, and environmental performance, and thereby ensuring that manufacturers are able to quickly and profitably pursue new technologies.

In summary, then, this is what Toyota is doing to address the current situation. We're building a full range of fuel efficient, high-quality, and safe products that Canadians actually want to buy, and we're building a high percentage of those right here in Canada. We've already invested in Canada at all steps of the automotive sector supply chain, and we will continue to support those investments. We're creating attractive pricing and financing offers and other incentives to encourage Canadians to purchase new vehicles. We're investing in R and D globally to ensure Toyota's products continue to meet or exceed society's demands for fuel efficiency, environmental performance, safety, and other standards.

In turn, our recommendations to the subcommittee are these.

Focus on programs that encourage Canadians to buy new vehicles, because this will support every step of the auto sector's supply chain.

If the government wants to help the manufacturing activities of the auto sector, the best way to do that is to ensure that there's a healthy market for our products. The fastest and most effective way to do this is to create immediate access to credit. A second-choice option may include offering Canadians a temporary tax holiday on new vehicle purchases, because this can be implemented quickly and help the industry to capture sales in the current and crucial spring selling period.

Finally, you could follow this with programs that encourage new vehicle purchases that also help the government achieve longer-term policy objectives. For example, a new scrappage program incorporating the ideas that Toyota has outlined would encourage environmentally responsible, fuel-efficient choices while taking the older, less safe, more polluting vehicles off the road.

Thank you for your attention. My colleague and I look forward to your questions.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Beatty.

Before we begin with questions and comments from our members, I want to first indicate to members of the committee that General Motors of Canada has indicated that it will submit another brief to our committee to supplement the testimony of last week--Wednesday--in light of the recent deal negotiated with the Canadian Auto Workers. So I'll have the clerk follow up with General Motors of Canada to ensure that brief is submitted to all your offices.

Without further ado, we'll begin with questions and comments from Mr. Valeriote.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you so much, Mr. Beatty and Mr. Korstanje, for coming this evening.

The more we hear, the more I'm beginning to feel that this is like trying to land a plane on the Hudson, to be candid. From what I'm hearing, everything that's required to bring some resolution to this has to be in as equally perfect alignment as those things that have caused the problem in the first place.

You spoke of a number of ideas that might promote sales, might help the industry. Frankly, we've heard those ideas before. I'm aware that when you opened your plant in Woodstock in December, rather than two shifts that had been planned, it was down to one shift, and rather than 2,200 or 2,300 people, it was 1,100 or 1,200 people. I'm under the impression this is not just a recent phenomena, this downturn. It has been ongoing for a while, for a number of years. Then I found a document dated October 2007 that the CVMA had produced, with certain features in this document, recommendations to help the industry.

My question is this. Have you been aware of this oncoming problem for a while, and if so, how long? Have you made representations to any government--the previous Liberal government or this government--for a national auto strategy, indeed a North American auto strategy, given the integration of the industry?

[Stephen Beatty]

As you know, the Canadian Automotive Partnership Council has been working over a number of years in order to frame up a proposed policy. It worked with the Canadian government as well as with the provinces in the development of those strategies. So there's been a lot of work done in terms of setting the broad policy framework to move forward.

What I would say, though, is that I don't think anybody anticipated the specific nature of, if I may call it, the perfect storm that's hit us over the last 12 months or so. To have the U.S. marketplace collapse as rapidly and completely as it has, has certainly affected the ability of any manufacturer in Canada to be able to plan their production mandates properly, on an orderly basis. It's not terribly surprising that the Canadian economy is following, perhaps not as deeply or as quickly, behind the U.S. because of that close and tight integration of the North American economy.

Our submission is focused very directly on this issue of opening up the credit markets for consumers. It was consumers who led us into the current global crunch, and ultimately it's going to be those same consumers who lead us out, not just for the auto industry but for many other sectors. Arguably the best approach to take is one that backstops good-quality credit because it doesn't set up a long-term obligation for the government.

[Frank Valeriote, Liberal, Guelph, ON]

You've made that point. But my question specifically is this. Before now, last year, based on this document I've looked at in 2007, where they spoke of scrappage and they spoke of incentives to stimulate purchases, had you made these presentations or representations to the government?

[Adriaan Korstanje, General Manager, External Affairs, Toyota Motor Manufacturing Canada Inc.]

Under the CAPC, presentations were definitely made to the government, but not really under the auspices of the current crisis. We were talking at that time about the Canadian dollar changes, and we were talking about hours of productive work available per person in Canada versus in the United States. We were talking about the types of large incentives we might get from a state versus the investments from here, and the need to promote investment. In other words, we were still talking about the option of investing in Canada if we could create the right scenario. It was a surprise for TMMC that we did not achieve our second shift in Woodstock. In fact, when Woodstock was conceived, it was conceived to be much grander than just the one plant, if everything continued to work out. We bought double the size of lot there that we need. Close to our announcement of starting with only a first shift, we had only days or maybe weeks of notice for how to strategize that. Indeed, we were hiring full steam ahead to deliver Woodstock at two shifts. In September, for Corolla Matrix, as management, we were still trying to strategize how to get our people to work more overtime. Things have happened very quickly and for reasons that are different from what we were talking about a year ago.

[Frank Valeriote, Liberal, Guelph, ON]

I have another question.

Seven to ten billion dollars invested in the industry is a lot of money. We have an obligation around this table to weigh, frankly, the preservation of valued jobs--up to 500,000 jobs--against our requirement to be fiscally responsible with taxpayers' money when faced with the possible risk of losing that money, I suppose, at some point.

Have you assessed, from where you stand in your position, whether that amount of money is enough? How quickly do you think, in your opinion, if you have one, General Motors and Chrysler would go through that? What would you do if somebody came back later and asked for more?

[Stephen Beatty]

I don't think we're in a position to assess the business plans of our competitors. I'm sure they will give you the necessary detail to be able to evaluate their plans as they bring them forward. No doubt you will want to make sure that you get all necessary assurances when you're dealing with public funds.

I will say, though, that the catastrophic collapse of any major manufacturer is likely to have implications for the sector as a whole. There clearly is a crossover, not just in the supply chain, but also in the dealer networks of all of the car companies. Anything that causes significant further downturn in the economy or a loss of jobs has a general economic impact, which surely can't be good for the Canadian economy or for the auto sector in particular. We're very mindful of the fact that this is an unusual circumstance. The types of restructuring that are taking place in many parts of the industry are certainly necessary. The marketplace today is different from what it was 10 or 20 years ago, and that restructuring had commenced before the current market conditions hit. The speed with which these current market conditions hit was the thing that was unpredictable, and that has caused, I think, this committee to have its mandate.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Beatty.

Monsieur Vincent, vous avez la parole.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chair. Welcome to the witnesses.

You have made three proposals: provide access to credit, exempt new vehicles from the sales tax for a period of four months and introduce a scrappage program. These would all be part of the government's effort to help automakers like Toyota, Honda and GM rebound from the economic crisis.

Nonetheless, I'd like to hear some of the details of what you've committed to do to weather this crisis and the changes you want to make to entice consumers to buy your vehicles.

[Stephen Beatty]

Thank you.

Just to be very clear, as opposed to there being three distinct proposals, it really is one proposal on consumer credit, and in the event that's not possible, then there are alternatives. It's not one on top of another.

From the standpoint of what we are doing to respond to consumers, it's very much what we've done in every other significant economic crunch that we have encountered, going back to the oil crisis of the 1970s and forward.

Toyota's position has been that consumers in troubled economic times tend to turn to quality. They're looking for the lowest possible price, with the least inconvenience, they can possibly obtain in the marketplace today. So they're looking for an affordable car of high quality that won't leave them with unusual maintenance costs, and they're looking for high levels of fuel economy.

As I mentioned in my remarks, we have focused very directly on putting our own corporate resources behind promoting our Canadian-made products that fall exactly into that category. So vehicles like the Corolla, like Matrix, like the RAV4, are all fuel-economy leaders in their class, and all are very highly rated for quality.

As I said, for the first time in our history, we're providing 0% financing, as well as job-loss credit protection, and a number of other measures designed to try to help consumers find their way into a new car purchase.

But beyond that, as I said, we're very mindful of the fact that the world is going to change one more time. So in 2011 and beyond, as we move to new fuel economy standards and new emissions standards, we have to move very rapidly to introduce new technologies. For example, later this spring we'll be introducing the third generation of our hybrid technology to Canada, a vehicle that not only provides extraordinary advances in vehicle power and fuel efficiency, but also moves the needle on safety and a number of other features. This new car introduces new materials technology into the automotive marketplace; it introduces things like a solar powered moon roof, which helps to ventilate the car using no other external energy; it has advanced pre-collision systems, which read the traffic in front of the vehicle and help it to avoid collisions; and it has new innovations in the human-machine interface.

So Toyota is not holding back at all in the face of a slow market. We are in fact, to the contrary, moving as quickly as we possibly can to bring new technologies out and, more significantly, in the current market, to support our Canadian operations.

[Robert Vincent, Bloc, Shefford, QC]

I understand that the revolutionary hybrid vehicles that you intend to manufacture will carry a certain price tag. Will these vehicles be affordable? As I was saying yesterday to another manufacturer, given the current economic crisis, many people are losing their jobs and taking pay cuts. Consequently, what's needed right now are more affordable vehicles.

The situation is not about to change, because even if the economy does recover, wages and purchasing power will have decreased so dramatically that the consumer will be looking for a vehicle that matches his purchasing power. If the crisis continues until 2010 or 2011, salaries will not increase during this period. Hourly wages will have been slashed by $3, $4 or $5. Workers will not have recovered these lost wages when the economy rebounds in two years' time. Their purchasing power and their creditability will have suffered tremendously. They will still be in debt, but their ability to repay their debts will have taken a hit.

We need to adopt a new approach, like we did in the 1970s. We need to build cars that have the bare minimum in terms of features, that is a motor, a transmission and doors. In order to compete, these cars should be as affordable, as low-cost, as possible.

[Stephen Beatty]

Thank you for the question.

Of course, the obvious difference between the seventies and today is much higher levels of safety and emissions requirements—and those systems are costly. But I think we take considerable pride in the fact that throughout that period, Toyota has been introducing new small cars to Canada; in fact, we brought the hatchback back to Canada with the Yaris hatchback, which is very popular in Quebec. And we have managed, as we have done so, to bring car prices down.

I'd like to turn it over to my colleague, because I think he can talk to you about the fact that the number one job in Toyota manufacturing is really to focus on those questions of how to bring the most affordable products to the marketplace.

[Adriaan Korstanje]

Of course, our company is based very much on the principle of how to build the best product at the best price. There are any number of elements in the Toyota production system of making vehicles that strive to do that, first by pulling vehicles only as they are needed by customers so we don't have excess inventory or waste that impacts cost. But waste isn't only in excess inventory. Toyota looks at seven categories of waste. So every Toyota team member is trained to think about how to streamline their process and have less waste, but at the same time how to add in their ideas for quality. Because quality can come from design to quite a large degree, but once a vehicle is being made, the build quality and all of the knicks and knacks that control the cost happen right at the interface.

The Toyota production system has spent 50 years making a system that can respond to those three needs: to have top safety, top quality, top productivity. And top productivity, in the end, delivers the best car at the best price.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Korstanje.

The floor goes to Mr. Lake.

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

Thank you, Mr. Chair.

And thank you for coming before us tonight.

I want to start with a little bit of context, if I could, just speaking a little bit about the global context. Of course, as we all know, there's a global economic downturn that's had a significant effect on the industry. But as we look at what commentators around the world from outside the country have said about Canada's system, we see Newsweek, for example, talking about the World Economic Forum ranking our banking system as the healthiest in the world, whereas the Americans, I think, are number 40. They actually noted in the same Newsweek article a couple of weeks ago, “If President Obama is looking for smart government, there is much he, and all of us, could learn from our...neighbour to the north.”

We have The Daily Telegraph in London, in the summer, saying, “If the rest of the world had comported itself with similar modesty and prudence, we might not be in this mess.”

We have The Economist saying, “...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.”

I think we're seeing what's happening in that regard right now.

The New York Times just recently noted:

There is no time to waste. Reconfiguring the American banking structure to look more like the Canadian model would help restore much-needed confidence in a beleaguered financial system. Why not emulate the best in the world, which happens to be right next door?

There is a lot of commentary in terms of that global context. I'd like your feedback on that in terms of your experience in the auto sector. Is the experience in the Canadian auto sector similar to that in other industries, where we're really, relative to other countries--particularly the United States--much stronger, but there's nothing we can do to avoid what's going on in the States and the impact it's having on our industry?

[Stephen Beatty]

There are two sides to this, and again, perhaps I'll ask Adriaan to comment on it in a moment. But let me start off by saying that certainly there's no other country I'd rather be in. The Canadian automotive marketplace last year grew, so it is unlike every other industrialized nation. There has been some fundamental health in the Canadian economy. And that's been the result of hard work by government and by industry over a great many years.

That said, the analysts and others are right, that we are in an integrated global economy, and when other trading partners begin to decline, it has an impact on every aspect of the Canadian economy. Specifically since the mid-sixties, in fact just about the time that Toyota first started doing business in Canada, we decided as a country that we wanted to create an integrated North American marketplace for vehicles, with manufacturing established to work on a north-south basis.

The plus for our Canadian facilities is that Toyota has decided to put vehicles into production in Canada that are popular with Canadian consumers. So if 50% of my sales this year come from our plants in Cambridge and Woodstock, that's a very big plus, and I think that helps those plants in a time of challenging economic conditions in the U.S. But there's no question, the plants could not exist without access to the U.S. marketplace, so any impact in the U.S. is going to take its toll on the Canadian auto sector. We are a little less exposed to it, but it's measured by comparators.

Adriaan, perhaps you can speak to the manufacturing side.

[Adriaan Korstanje]

If your question is on whether Canada has done, or is doing, all the right things to secure automotive manufacturing and investment, I think Canada offers a great deal in terms of workforce, and easy access and a cooperative nature with governments and communities, but there are points that we've talked about and struggled with over the years, whether they are points of incentivizing capital investment....

Our industry has to retool every four or five years--virtually rebuild our plants from the inside out to produce a new model. It's an enormous capital investment. There are many jurisdictions in the United States, and in the world, that offer immediate return on such capital investment. For us, that's usually a negotiation.

We built Woodstock at a time when plants were being built in some of the southern states. Woodstock was well supported with a $55 million, interest-free loan and $85 million of incentive support from Canada and Ontario, in return for $1.1 billion of investment and a guarantee of maintaining 5,000 jobs--all TMMC--for seven years. We're doing that.

That investment by Canada was almost minuscule compared to the investments some of the states were willing to make in terms of property tax relief and other moneys. If the North American head office has to look around at where it's going to put its next plant, and the people are relatively equal, and the access to government is relatively equal, and it's integrated, and there's North American free trade, and there's more incentive here and less incentive there, it doesn't become a complicated decision.

I'm not saying that Canada has to do more significant incentives along the line of the States, but be aware, for our plants to stay fresh in this country, we need to train our people to a very high level so they can produce quality...and we need to have modern equipment and technology. Fresh plants, with trained people, don't get shut down, and those things need incentives.

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

Could you take a moment to clarify your position on the loan package offered to GM and Chrysler?

[Adriaan Korstanje]

We're neutral on the loan package. We need a healthy auto industry.

Our auto industry is integrated. We immediately feel the outputs of failings in other segments of the auto industry, so we need a healthy auto industry to survive. Being neutral, we might ask that you think about how to do this in a way that doesn't give a competitive advantage. There may be other supports, but think about what might give competitive advantage and try not to go there.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Korstanje.

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

And thank you, gentlemen, for coming here this evening.

I don't know if it's the curse of having institutional knowledge at this place, but I remember the days, back in 2002, when John Manley wanted to basically deregulate our banks and it was us and the Bloc who had to fight that off. I find it interesting, the bragging rights about the bank situation right now.

But I'm not so pleased with them. It's good that they are making profits right now, but at the same time there's a real functional problem. You mentioned your solution is for the advance credit. We've heard that consistently here, with anywhere from $13 billion being suggested by the government, up to $60 billion being suggested by some industry analysts.

I think there needs to be some type of a working mechanism here. If it's just going to come from the public sector, that's one thing. But when you go to the bank's lending programs right now, they're at 8%, if you have good credit--up to 14%. For someone in my riding, who doesn't have as good a credit rating, it's 30%. Some of these costs are outrageous.

Is that the reason you went into your own financing and offered these attractive programs? The financing seems to be making the most money right now. You look at some of these scheduled payments, and after five years they still owe thousands of dollars. It's past the warranty time and you haven't paid off your vehicle yet.

[Stephen Beatty]

Mr. Chairman, as you can imagine, it's not just consumers who borrow from the marketplace. Certainly, our financial arms do as well. For us to be offering 0% financing on vehicles like our Toyota Corolla and Matrix, it means we're subventing the rates that are available to us. In a tightening credit marketplace, those rates are climbing all the time. It's sort of the hidden cost of the auto industry.

But the reality of it, and for me the most important thing, is that we're a consumer-facing industry. If we can't find a way to put customers behind the wheel of a new vehicle, then we really don't have a business model at all. So we are going to the markets to find the credit that powers our ability to turn those incentives over to consumers.

As I said, whether you're Toyota or someone else, the credit market generally is tightening. As that happens, the costs of doing business in Canada are rising quite rapidly and restricting the ability of the market as a whole to stimulate consumer demand.

[Brian Masse, NDP, Windsor West, ON]

If we just simply provided the $13 billion to start with and then didn't do anything else, would it be unacceptable for Parliament to consider some type of restriction on the interest payments that banks put on vehicles? To me, if we're not going to be able to provide equity necessary to move the industry along, why let it be stymied, essentially, by borrowing rates that are way above the Bank of Canada rate in any means? That's one issue that I think should at least be examined. If not, we might not have the credit available.