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

[Mike Wallace, Conservative, Burlington, ON]

Small “c”, you say.

So of your business in the past, what percentage of it was leasing?

[Stephen Beatty]

Leasing could run up to 40% of our business. Interestingly, we haven't cut back on the availability of leasing at all, but consumers are looking at longer-term financial instruments now, as opposed to leasing.

[Mike Wallace, Conservative, Burlington, ON]

So for the leasing you're doing now, you're obviously selling that paper; you're selling those. The consumer comes in to lease something and you try to turn that over for cashflow. Who securitizes your leasing now?

[Stephen Beatty]

Now, of course, when you have a captive finance arm, it then turns to the market, and it may often turn to an arm of one of the major banks in order to raise money in the marketplace. The difference, of course, is that in the last while, as the credit markets have generally tightened, the spread has grown and the cost to finance has grown quite dramatically.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Beatty.

Mr. Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chair.

Following up on my earlier questions, what vision do you plan to embrace once the economic crisis is over? Will you take a different approach to manufacturing automobiles? Or, are you telling yourselves that while things may not be going so well for you because of the economic crisis, when things begin to turn around, you will continue to build the same line of vehicles and it will be business as usual? Will you be changing the way you do things once this crisis is over?

[Stephen Beatty]

Much like the oil crisis and every one of those pivotal points in the industry, I think what emerges on the other side is not just a different industry but also a different consumer, who is looking for something other than what they were seeing previously.

I think this is a three-way partnership, frankly. The consumer will be looking for a different type of vehicle coming out of this. Automakers need to look at how to ensure they are competitive in that new marketplace, and particularly, as you're saying, in a situation where people's own budgets are only starting to recover.

Finally, we're looking at a new regulatory system in North America and around the world. All of that will drive changes in vehicles, and you've seen it certainly over the last decade. The move from minivans to SUVs and now back to crossovers...we are seeing massive shifts in different types of vehicles. You're seeing the introduction of mini-vehicles in Canada. You're seeing hybrids and other advanced technology. It's all happening very, very rapidly. A number of products that were unknown 10 years ago are now fairly common on Canadian streets, and the pace is picking up.

[Robert Vincent, Bloc, Shefford, QC]

Since sales of Toyota vehicles are already down substantially in Japan, how do you think this will affect your company and the funding of your Canadian operations?

[Adriaan Korstanje]

I don't think we'll feel that in Canada. We opened RAV4 with a single shift, so we are actually producing 75,000, and there is more market for the RAV4 than that—perhaps not a market for a whole second shift, but more market.

Corolla is lagging a little bit right now, especially in the States. This is challenging us. That's the area where we've had to take some measures to control our line speed, so we make fewer Corollas temporarily. We're very hopeful that with the spring and the summer, a car like Corolla, with its smallness and its fuel utility, will come back more quickly than perhaps some of the rest of the industry. So we're optimistic about the Corolla and our RRX. Vehicles like that don't jump up and down as quickly, and we have a new model that is just a killer. It's a fantastic car that I want you all to go and test drive, because I think it's going to do very well too.

[Robert Vincent, Bloc, Shefford, QC]

Fine then. Thank you.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Vincent.

Monsieur Wallace, monsieur Lake.

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

I want to just touch on something quickly, if I could.

Yesterday, during the committee meeting, we had the CAW before us, talking a lot about the productivity advantage of CAW workers versus non-CAW workers. I'm just wondering if you would comment. Are your workers less productive than CAW workers? If so, why?

[Adriaan Korstanje]

How were they framing their analysis?

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

It would take me a while to go into the evidence and frame it.

To reframe my question, are your workers less productive than CAW workers?

[Adriaan Korstanje]

Absolutely not. Our workers, in terms of hours per unit or cost per unit, are North American and world competitive. That's been proven out in study after study.

I'm not sure whether they found some cherry-picking where they can show a productivity difference. Productivity is apples and oranges, depending on the vehicle you're working on. Productivity on a Lexus is different from productivity on a very simple-to-build truck. So it's a hard number to understand.

But for us, our ability to change tack time, which is our cycle time, quickly and adapt quickly to market and make more or less vehicles without enormous investments in time and resources makes us very competitive in terms of productivity.

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

I don't want to mistakenly leave the impression that any Canadian auto worker is not productive.

I want to ask this question, then. In terms of Canadian auto workers, what is it that makes a Canadian auto worker more productive generally across the board than auto workers in other countries? We hear that time and time again, that we have a real competitive advantage across the board, in terms of our expertise here.

[Adriaan Korstanje]

I'm not sure it's fair to say they're more competitive than other jurisdictions, but productivity is a function of how many man-hours you have to put in to build a vehicle. Our hours per vehicle are certainly very competitive within North America and the world.

As I said, for man-hours per vehicle, if it's a more complex vehicle, it isn't the same calculation.

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

Okay.

Just shifting gears a little bit here, I want to talk a little about, if I could, the current economic position of Toyota. Obviously, there's significant difficulty across the board. We've heard in the news that Toyota, if I'm not mistaken, will experience a loss for the first time in history.

First of all, maybe speak to the extent of that.

[Adriaan Korstanje]

Toyota Motor Corporation worldwide is anticipating in the area of a $5 billion loss, give or take, in this year, by the end of this year that we're in the fourth quarter of right now.

The cash burn has been very quick. We're fortunate that we have more liquidity behind us, so that is not impacting us as immediately. We're taking very strong and immediate counter-measures, in terms of stopping unnecessary capital spending. We're looking at compensation for executives, we're looking at wage freezes across the board. We're looking at every area where we spend money and trying to still keep the things that will give us the future, the R and D, the kaizen, the attention to quality, but we're trying to change the culture of our company, from a cost point of view, because we're very challenged.

If things don't turn around, the cash burn in the auto industry is incredibly quick.

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

This is a really important question for Canadians who might be watching this, thinking about their taxpayer dollars going towards these loans, but if things don't turn around, because nobody really knows how long it's going to take to turn things around, is there a point at which we might see Toyota at the doorstep of the industry minister's office asking for a loan?

[Adriaan Korstanje]

I don't see that as a likelihood in any scenario that we're looking at.

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

To rephrase it to the way I asked it yesterday to the Ford folks, you don't see it as a likely scenario, but the question would be, how long would the economy have to go in the direction that it's going for that to become a necessity, because eventually I'm sure it would happen?

[Adriaan Korstanje]

I wish I were a better economist so that I could answer more accurately, but in terms of our current model cycles and our hopes for those models, I don't see that level of intensity coming out of there.

[The Chair, Conservative, Michael Chong]

Thank you.

Mr. Beatty, go ahead, just briefly.

[Stephen Beatty]

I was just going to say that the investments that need to be made to develop the technologies for the next vehicles have been made. The company is moving very rapidly to change its internal practices in order to conserve resources, in order to carry the business forward. So starting in a better position with greater liquidity, having moved as quickly as we have to address those basic business issues, it's highly unlikely that you would see us at the door. I think you'd expect us to move that rapidly to address the business.