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

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Beatty.

The last member for this panel is Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

I think it's important to clarify something. When you're asked--maybe in the community around Woodstock or wherever--how you compare an employee at Toyota's compensation to that of an employee of the Detroit three, what would you say to a question like that, if someone were to ask?

[Adriaan Korstanje]

If you're asking about the Detroit three in Canada, the answer is different from what it would be for the Detroit three in the United States.

[Brian Masse, NDP, Windsor West, ON]

I mean in Canada.

[Adriaan Korstanje]

In Canada it's a little different from the States. We've all tried to be very competitive on total compensation, which means on base rate we may be pennies apart, but that's inconsequential. On value of benefits, we may administer them differently--one may be more flexible and one may be more rigid--but they're pretty competitive. In Canada we've maintained a closer competitive relationship with the Detroit three, and in fact with the whole OEM segment in Canada than perhaps....

[Brian Masse, NDP, Windsor West, ON]

Now, given that they've been directed to lower their compensation and reopen their collective agreements--and the details will be coming forth in the analysis--will you at any point in time be going to your employees asking for a reduction in their base rate or benefits during this time right now or in the future?

[Adriaan Korstanje]

Our commitment to our team members is that we're going to protect the core of what we have. That doesn't mean every day off and every benefit that may be a little esoteric or really not cost-effective is going to stay, but we realize our people need a certain number of hours of work and dollars per hour to maintain what we have, and that's what we're trying to work together to protect.

[Brian Masse, NDP, Windsor West, ON]

Okay, but you are going to be looking at what they did and then looking at your workforce.

[Adriaan Korstanje]

We've already taken many measures. We're at zero overtime, and in a company that has worked overtime the whole time we've been here, that's a change for people. We've had several days when we had non-production. For our contract or flexible workforce, that meant they were home. For our full-time permanent workforce, they could come to work for pay, or not; they could stay home. We've taken many measures. Executives have taken pretty significant reductions in compensation. So we're doing things, but we're doing them within a value base that says there's a certain core that's required to be an auto worker at the level we are at now, and we're going to try to maintain that.

[Brian Masse, NDP, Windsor West, ON]

So it would be fair to say, then, if you were asked to compare the ordinary worker in the plant in Windsor at a mini-van plant and a worker in Woodstock, that their compensation at the end of the day would be relatively comparable and equal. Is that correct?

[Adriaan Korstanje]

That's how we've always designed it to be, on an overall compensation base, and not cherry-picking one element over another.

[Brian Masse, NDP, Windsor West, ON]

There seem to be a lot of suggestions that the solution to this problem is to consistently lower workers' wages and benefits. Would you argue that's the solution to the situation?

[Adriaan Korstanje]

I think part of that confusion comes from the fact that compensation is modelled differently in the States. In a Toyota plant in the United States, your base rate might be 10% less than a Detroit three base rate, but your variable compensation, if the plant does well, might bring you up to a total compensation of 5% more than the Detroit three total compensation. Your plant has to do well. There has to be a performance element.

If you forget about all that and say, “I just want you to drop to that base rate”, that's not a very sophisticated approach to force people to take. I wonder if when people say they want the Detroit three to drop to the rates of companies like Toyota, they're just cherry-picking a little bit about one situation like that.

[Brian Masse, NDP, Windsor West, ON]

I think you're correct, and it's led to some complications in getting a solution to the situation. It's also been a distraction from the real problem here, which is that the financial markets are really the core problem of where we're at today. It's not the men and women who are making the vehicles, whether they be in Woodstock or Windsor. It's not their fault. I worry about the fact that if we continue to erode their base, it defeats the whole purpose of economic stimuli, because when you look at Windsor now, we have lost another shift; or if you look at Woodstock, if you have to cut two or three dollars off their wages, or something like that, they'll no longer be able to contribute to the local economies, which is necessary to maintain the systems that we're trying to sustain right now by doing this massive borrowing. I find that particularly difficult to deal with.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Masse.

Thank you to our witnesses, Mr. Korstanje and Mr. Beatty, for appearing in front of us tonight. Your testimony will help us in formulating a report and recommendations to the House.

We'll suspend for six minutes to allow a change in witnesses, and we'll reconvene at 7:45.

[The Chair, Conservative, Michael Chong]

Good evening, members, and good evening to our two witnesses.

We have in front of us for the second panel tonight Honda Canada. From Honda we have Mr. Jerry Chenkin, who is the executive vice-president, and Mr. Louis Gaetan, who is the director of government relations.

Welcome to you both. Thank you very much for appearing in front of us. Your testimony will help us in formulating a report and recommendations that will be sent to the House of Commons by the end of March.

So without further ado, we'll give you the floor for a ten-minute introductory statement.

[Jerry Chenkin, Executive Vice-President, Honda Canada Inc.]

Good evening, Mr. Chair, committee members, ladies and gentlemen. It is a great pleasure for me to be here this evening to talk to you about Honda Canada.

Thank you for inviting Honda Canada to participate in this hearing on the crisis facing the auto industry in Canada.

Mr. Manabu Nishimae, president and CEO of Honda Canada, wanted to be here tonight, but he is unfortunately unable to do so because he is out of the country at this time. He asked Louis and me to represent him. He sends his regards and his congratulations for undertaking such an important mission to find potential solutions to the crisis affecting the automotive industry in Canada.

As a way of introduction, let me give you a quick background of Honda Canada and maybe explain some things about our company that you maybe have not heard before.

First, tomorrow, by coincidence, on March 11, we will celebrate our 40th anniversary in Canada. So we're going to be heading back for a big party tomorrow.

In 1969, when Honda came to Canada, we were a small company with a big dream. We started with motorcycles and power equipment, and in 1974 we started the automobile business. In fact those of you who remember the first Civic that we launched in 1974, we sold a total of 747 units that year.

But we worked hard to gain the confidence and trust of Canadians, and over time, through the development of our strong brand image, our products earned the respect of the marketplace. And we grew. In 1986 we built our first factory in Alliston, Ontario, the first automobile manufacturing plant opened by a Japanese company in Canada. By 1991 we had sold one million vehicles in Canada, and in 1998 we built a second manufacturing plant, again in Alliston, based on our company's philosophy, which is to produce products as close as possible to the markets where they are sold.

Following that same philosophy and based on our steadily increasing sales, this last year, in 2008, we invested in our third manufacturing facility in Ontario, this time a state-of-the-art engine plant to supply our Canadian factories with fuel-efficient, low-emission four-cylinder vehicles.

But the investment hasn't stopped there. Last year we began the construction of our new, environmentally friendly head office in Markham, Ontario, which is designed to be LEED gold-certified. Our new facility will accommodate 700 associates. And as you may know, we also have regional offices across the country, in British Columbia, Alberta, Quebec, and Nova Scotia. All these investments now exceed $2.6 billion that Honda has made in Canada. These were all made without direct governmental aid or subsidies, as we believe that to be sustainable, an investment has to make sense on its own financial merit over a given period of time.

I'll come back later in my presentation on this point, as we believe that governments have an important role in creating stability in the market to make such investments viable and recurring.

So what is Honda in Canada today? Honda is a company powered by Canadians for Canadians. In fact, more than 22,000 Canadians work either directly or indirectly for Honda, in the manufacturing, sales offices, and dealerships across the country, generating $12.5 billion in sales annually. You may ask, why such a large number of people? It's because Honda Canada distributes more than just cars and trucks under the Honda and Acura brand names. We also sell motorcycles, ATVs, power and marine equipment, and soon, small business aircraft with our new fuel-efficient Honda jet. Anything with an engine is good for Honda.

In terms of production, with just over 383,000 cars and light trucks built in Alliston last year, Honda Canada was the third-largest automotive manufacturer in Canada, behind GM and Chrysler, and the second-largest manufacturer of passenger cars, behind GM. Based on recent announcements about production from some manufacturers, it could well be that Honda will be the number one manufacturer of automobiles in Canada next year.

It's also worth noting that later next month, our Alliston plant will be manufacturing their five millionth vehicle—a very important milestone for any manufacturer, but this means so much more for a company such as Honda, which is often referred to as a foreign company rather than a new domestic manufacturer.

Furthermore, the Honda Civic, one of the models manufactured in Alliston, has been Canada's best-selling car for eleven years in a row. Because of its success, Honda Canada is proud that 45% of all the Honda and Acura vehicles sold in Canada last year were manufactured in Canada.

Behind all those successes and numbers are what Honda Canada is all about, our people and our customers. That's why we're here tonight. We want to continue to thrive in Canada so that our associates, our dealers, our suppliers, and our customers continue to enjoy the benefits that come from a solid automotive sector.

We believe that government can help in these difficult times, and we would like to cover some of the initiatives we propose that can be undertaken for that purpose. Before I do so, however, I'd like to briefly explain what Honda Canada believes are our responsibilities as a company that Canadians want to exist, as indicated in our global mission statement.

As a responsible member of society, Honda is making every effort to ensure that our associates continue to enjoy working in a secure and pleasurable environment; that our dealers and their employees continue to benefit from the investment and dedication they have made, both in their dealerships and our products; that our suppliers expand their business further through technological advancements; and that our customers continue to be the primary focus of everything we do.

At Honda, we have always considered it our responsibility to ensure blue skies for our children. That means ensuring the preservation of the global environment in every phase of our corporate activities. That's why Honda Canada introduced in 2000 the Honda Insight—North America's first gasoline-electric hybrid. We made sure that our plants in Alliston have zero landfill waste and our engine plant uses molten aluminum made from 100% recycled scrap.

We're studying how to commercially sell the Honda FCX Clarity, a zero-emission, hydrogen-powered fuel cell vehicle, in Canada.

We're just as proud that more than 1.2 million Canadians have benefited from charitable programs funded by Honda Canada and the Honda Canada Foundation, which focuses on environmental activities.

So while Honda will continue to be governed by these basic principles and philosophies, the onset of the recession has created widespread concerns among all of our stakeholders. I know that the association representatives that were here before you yesterday covered the state of the automotive market in North America extensively, so I will not go into any details on that topic. But as far as Honda Canada is concerned, suffice to say that while enjoying record sales in Canada at the beginning of 2008, our sales, just like the majority of other manufacturers, have decreased substantially in the latter part of the year and during the first two months of 2009.

While those month-to-month percentage differences are reflective of the record months we had last year, it's important to realize that even a company such as ours, with a wide range of product, which we can quickly adapt to shifting consumer demand, is in fact suffering. The major reasons for our rapid decline in sales are primarily due to lack of credit availability and faltering consumer confidence. We believe the government can and should play an important role in those two main factors in order to create some market stability, and as a result regenerate an atmosphere where people feel good about shopping.

Dealing with access to credit, even though you've heard this before, let me once again explain the impact on our business. With the rapid deterioration in the economy and resulting higher cost of borrowing funds, Honda had to adjust quickly by tightening credit granting for consumer loans. At the same time, our dealers saw their cost of operations increase dramatically due to that same lack of availability.

We were very encouraged to see in the last budget the government's efforts to backstop credit for the industry with the $12 billion secured credit facility, and we look forward to a speedy implementation by the Business Development Bank. However, we would have preferred that the government made those funds available directly at a preferential rate to the existing OEM financial institutions so that they could securitize their portfolios and thus make more affordable financing available to our customers.

With more than 65% of all Honda and Acura customers seeking some kind of financing or leasing support for their vehicle, quick access to credit by dealers and customers would provide an important boost to help the Canadian industry to at least maintain its production.

In terms of retail initiatives, while Honda is not asking for any assistance for our company from the government, we believe the government can and should help restore consumer confidence. We would recommend programs aimed directly at the customer. In fact, we believe the government has a unique opportunity to create a win-win situation by enhancing its existing scrappage program to help stimulate new vehicle sales in Canada while having a substantial positive impact on the environment, for example by quickly adopting a progressive successful scrappage program similar to that of British Columbia and a number of European countries.

Honda Canada fully supports these concepts, which provide customers with a sliding financial incentive based on reduction of greenhouse gas emissions compared to their previous vehicle. In addition to this program we believe that government should also consider other economic stimuli for customers, such as timely sales tax reduction or exemption for new vehicle purchases; allowing RRSP withdrawals without penalty for car purchases, similar to the housing program; or reducing all import tariffs from 6.1% to 2.5% to harmonize with the U.S., thus reducing the cost of all imported vehicles.

In the same vein, we also believe that financial stimuli provided to some manufacturing companies should be closely monitored to ensure the money provided is used for what it was originally intended. We are concerned that if taxpayers' money assigned for one purpose is then diverted into customer loan financing or other similar types of incentives, this introduces unfair competition for those firms who are not requesting government assistance.

To ensure that our investments continue to be profitable, and if we are to create new investment in the future, we feel it's crucial that our government ensures a level playing field among all companies when it comes to policies and programs that affect consumer purchasing decisions.

Let me wrap up by thanking you on behalf of the 5,000 Honda Canada direct associates who I represent here this evening. I thank you for your time, and I have the confidence that you all will create an environment where we can continue to grow, invest, and provide secure jobs over the long term.

Thank you very much for your attention.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Chenkin.

We'll have about an hour of questions and comments from members of the committee.

Mr. Valeriote.

[Frank Valeriote, Liberal, Guelph, ON]

Thank you, Mr. Gaëtan and Mr. Chenkin, for coming this evening to speak to us. It's important for us to understand the industry and what is happening with each of those participating in the industry, because each of your experiences is valuable. We have, and this has been said before, and I know you know this, a fiscal responsibility to the taxpayer to make sure that any money that may be given to the industry to buoy it up or support it is spent wisely, with a reasonable expectation of its return. On the other hand, we also have an awfully huge obligation to preserve jobs for hundreds of thousands of Canadians. I know you know that.

It seems to me that we are continually reacting to situations and crises rather than being prepared for them. To what degree, if at all, before this year, has Honda been involved in discussions with the government to give them ideas on how to stimulate sales, how to help you grow the industry and protect jobs?

[Jerry Chenkin]

That's a little difficult for me to answer, because I've only been in this position for just over a year. But either individually or through the associations we belong to, we have been discussing openly with government. To the best of my knowledge, we have not requested anything from the government in terms of stimulation for the business until now, because up to last year the business was going very well for us.

[Frank Valeriote, Liberal, Guelph, ON]

I'm talking about the scrappage-fee idea for vehicles, harmonizing standards for emissions, efficiency, and safety--those kinds of issues that have been brought to our attention by the Canadian Vehicle Manufacturers' Association.

[Jerry Chenkin]

There has been a significant approach. I have had several meetings in the last year and a half with various ministers relating to those kinds of things.

[Frank Valeriote, Liberal, Guelph, ON]

Are you aware of any discussions that may be going on between the Canadian government and the American government about dealing with common interests between our countries, given the severe integration of our industry?

[Jerry Chenkin]

During those several meetings we had, one of the major issues we talked about a lot was harmonization with the U.S. We were recently assured by the government that the general direction is to do everything they can to harmonize those regulations with the U.S.

The major point is that as long as the regulations and specifications on safety equipment in vehicles, for example, between Canada and the U.S. are different, the customer is required to pay more for that product. So we see a huge opportunity, through harmonization, to reduce the cost of our vehicles, which means the customer will benefit.

[Frank Valeriote, Liberal, Guelph, ON]

We understand that Honda is not asking for money. They must be in a better financial state than General Motors and Chrysler. In that vein, by making a comparison, are you aware of the employee compensation package that General Motors and Chrysler might be offering their unionized employees? If so, could you compare it to the compensation package that Honda offers its employees?