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

[Brian Masse, NDP, Windsor West, ON]

Maybe I misunderstood then. I just want to make sure that it's clear. The $12 billion that some suggest has to go up to $60 billion, how would you prefer that be created? Would you prefer it be created as a separate entity, or would you prefer the injection into your own credit facilities for lending? Obviously there would be rules and structures put in place for everyone. Would you prefer it as a separate backstop, or do you want a percentage to go into your own lending capacity or for purchasing?

[Jerry Chenkin]

I'm not a financial expert, but I could say that all we're looking for is for those funds to be used in the best way possible to open up the credit markets.

[Brian Masse, NDP, Windsor West, ON]

I thought in your comments you said you wanted it to go into your own credit facilities.

[Jerry Chenkin]

I think it's accessibility that's the issue.

[Brian Masse, NDP, Windsor West, ON]

I appreciate that. I really wanted to clarify that.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Masse.

Thank you very much, Mr. Chenkin.

I just want to note that there have been other witnesses who have appeared in front of us who have declined to provide certain information that they think is proprietary to their operations. We as a committee have allowed that. I think in light of that, if the committee wishes to compel certain figures from certain companies later, we certainly can have a debate about that. I think for now and based on past practice, we'll allow them to not divulge information they feel would be of a competitive or proprietary nature.

Ms. Hall Findlay.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for being with us here in this increasingly late evening.

I have been refraining and I cannot resist any longer. My colleague has talked about what a great financial situation this country is in, and I have to say I'm extremely proud of the financial situation this country is in and has been achieving over the last decade and a half. I would like to point out that it was your colleague, Stephen Beatty, managing director of Toyota, who in the earlier testimony acknowledged that Canada's financial situation is strong thanks to the effort of governments over the last many number of years. I am very proud to be part of the government that in fact did take us out of deficit spending to a surplus and did pay down a significant amount of debt and turn our debt-to-GDP ratio around, which is regarded as one of the strongest aspects of the Canadian economy.

So I just wanted to reinforce with my colleague that we are all extremely proud of the economic situation that Canada has been in for the last decade and a half.

I will reiterate this for every witness. We are very concerned about jobs as parliamentarians. We are also very concerned about taxpayer money. You have talked a bit about recommendations, and I appreciate that very much. I understand the recommendations from the consumer and market perspectives. As with your colleagues earlier, there is not a specific recommendation there to bail out General Motors or Chrysler, but you have said in response to a couple of questions that this would be problematic for Honda.

You can say that at the high level, but I am curious, because we have to know in terms of alternatives, what might happen. We don't know yet. If in fact General Motors and/or Chrysler were to go into CCAA restructuring, our equivalent to chapter 11, could you elaborate a little bit--and pick the following six months--on what that would eventuality do to Honda that has you concerned? You can talk about what effect that would have on your supply chain, your own manufacturing, your own level of sales, etc. If you would elaborate a little bit, I would appreciate it.

[Jerry Chenkin]

Let me try. It's obviously very difficult to try to speculate what might happen, because we're heading into uncharted waters, so to speak, with the possibility that these things might happen.

Our number one concern is to get consumers back into our dealerships. As we've already pointed out, there are two or three things that need to happen to enable that. First of all, people have to feel good again, and right now people don't feel good. Unfortunately, if any other major manufacturer were to end up in CCAA, then the question is what effect would that have on the Canadian consumer?

[Martha Hall Findlay, Liberal, Willowdale, ON]

I don't mean to interrupt, but we have a pretty good understanding of what effect that might have on the consumer. That's at the high level. But my specific question was, if that were to happen, what would that do to Honda? What would that do to the supply chain, for example, that you share? Would that create a problem for your source of supply? Would it enhance people's desire to buy Honda cars? Would that be offset? Would factory capability potentially be available for a competitor to acquire?

It's that level of granularity I was looking for.

[Jerry Chenkin]

I'm sorry, I misunderstood you.

Basically, again, it comes back to the consumer. What we don't know is what the consumers will do in the event one of those companies goes into bankruptcy protection. Will that be considered to be the bottom, in which case people will go out and say okay, it can't get any worse than this, it's time to go shopping, or will it create more fear? Nobody knows.

As far as the supply chain is concerned, as I mentioned earlier, we are studying right now what the impact will be on our suppliers, because we have 271 major suppliers in Canada. So it's not a case of a very few suppliers.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Chenkin.

Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

And I thank you, gentlemen, for joining us here tonight.

We've heard lots from different individuals. There is the idea of allowing a withdrawal from your RRSP for a car purchase. That's a program available for home purchases, but I don't think it's been considered for automobile purchases—though I may have missed this—so I appreciate the suggestion. There is a slight difference in the end value of a home, hopefully, from that a vehicle, but it's something to consider.

Your financial arm is up and running, I'm assuming, and still loaning and leasing for new car purchases. Is that an accurate statement about Honda financing?

[Jerry Chenkin]

It is running, but nowhere near the same level as it was before the financial crisis started.

[Mike Wallace, Conservative, Burlington, ON]

Can you tell me how much of your automotive business is leasing?

[Jerry Chenkin]

It depends, product by product, but somewhere between 30% and 40% is leasing.

[Mike Wallace, Conservative, Burlington, ON]

Okay, so the $12 billion in the secured financial facility we're offering will be helpful. It's one portion of the piece.

The other thing we're really discussing around here, after hearing from everybody that credit is an issue.... And we have a facility for that. Whether it's enough or not, that's been up for discussion, there's no doubt about it. But there is another side of the coin, as there may be a company or two who come to see us about an actual loan—not a gift, but an operating loan to keep them in business—for which the taxpayer will expect repayment.

From a fairness perspective, since you're not likely to be one of those companies coming to see us, do you have a set of criteria that I, as a member of Parliament, should be looking at in terms of how that money could be used, so that it doesn't give them an unfair advantage over those who haven't asked for it?

[Jerry Chenkin]

That's a good question.

First of all, you're absolutely right: we're not asking for anything. But what we are requesting is that anything the government does, or any kind of program created by the government, should create, as best you can, a level playing field at the end of the day.

For example, we have several situations where the funds that have been injected into competitors of ours have been used for retail incentives. So in effect we are fighting in the marketplace against another company that's using taxpayers' money to fund an incentive program that we're competing against. In the meantime, we have a factory in Alliston producing 390,000 vehicles a year. We need to protect those jobs.

[Mike Wallace, Conservative, Burlington, ON]

Okay.

Everybody has come to see us—Toyota, Honda, the Association of International Automobile Manufacturers of Canada—and many of them have said, well, we're not asking for anything. But still, if the Government of Canada, the taxpayer, is putting up money to support asset-backed commercial paper, for instance, it is still contributing to the availability of credit, so you're still using the government in a way to ensure that money becomes available for you to make loans and offer leases.

Is that not accurate?

[Jerry Chenkin]

Again, I'm not a financial expert, but I can say that the system is frozen. Once it becomes unfrozen, everybody benefits, not just Honda or any other company. Right now we have a total lack of confidence from the major financial institutions around the world and in Canada. Something has to trigger the unfreezing of this, and it's been tried in many countries, but nobody's managed to make it successful yet, because there are still more and more shocks happening every day.

[Mike Wallace, Conservative, Burlington, ON]

How much of your product that's made in Canada is sold south of the border in the United States?

[Jerry Chenkin]

It's about 80%.

[Mike Wallace, Conservative, Burlington, ON]

So you need consumers south of the border to buy vehicles in order for our manufacturing on this side to be successful. Would that be an accurate statement?

[Jerry Chenkin]

Absolutely.

[Mike Wallace, Conservative, Burlington, ON]

Do you know what the federal administration in the United States is doing to loosen up credit to consumers there?

[Jerry Chenkin]

I'm not familiar with that.