Finance Committee on March 10th, 2008

[Phil Vinet]

Every nickel helps.

[Mike Wallace, Conservative, Burlington, ON]

My last question is for Mr. DesRosiers. He had indicated....

[An hon. member]

[Inaudible--Editor]

[Mike Wallace, Conservative, Burlington, ON]

Thanks for supporting the budget, boys.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

I have a point of order on the permanency of the gas tax.

[Mike Wallace, Conservative, Burlington, ON]

There's no point of order here. Nice try, Ken. You still have a private member's bill to get passed, don't forget.

Mr. DesRosiers, I'm on the auto caucus for us. You indicated that some companies, mostly Nissan, Toyota, and so on, are doing pretty well. The big three North American manufacturers are not doing so well. I have an opinion on why that is. Why do you think one side is doing better?

[Dennis DesRosiers]

For the first hundred years of the automotive sector, the entry barriers to competing in automotive were so high that GM, Ford, and Chrysler were largely protected from international competition. In the last 15 or 20 years, those entry barriers have dropped and these global companies have had the capabilities of jumping into the market where they never were before.

If you go back into the 1960s and 1970s, you had three companies that could indeed have 90% or 95% of the market. Today you have at least eight, or perhaps ten, companies that have to share the same market. I don't care how you cut it, it doesn't matter whether GM, Ford, and Chrysler screwed up or didn't screw up, if you have eight companies sharing the market instead of three, the original three are going to be smaller.

The mistakes that GM, Ford, and Chrysler made—and they made many—got them smaller faster; that's all. They were going to be smaller.

They've gone through a three-part process. The first was to resize. That's largely done. They've closed up 3.5 million units of capacity. There might be a plant or two or three left. Unfortunately, one is still left in Canada to be dealt with.

Now they're in the restructuring. They're redoing their labour agreements in the United States; they're redoing their supplier agreements. This fall, they're going to redo their Canadian labour agreements, and Canadian labour is going to have to face the music on that.

Now we're in the earliest stages of reinvesting. GM, Ford, and Chrysler have committed billions, along with Toyota and Honda, to reinvesting in Canadian plants, and many, many billions tomorrow, into the next 10 years. With the climate change agenda forced on them by the U.S. government and with all this restructuring, it's creating a huge amount of capital. These companies will be investing an unbelievable amount of money into two things: new plants for new products, and new technologies to make these products a lot cleaner.

That's where Canada's opportunity is, to make sure we're well positioned from a policy perspective and from a competitive position to get our fair share of investments in the new plants and to get our fair share of investments in all those new technologies that are coming. The amount of investment is going to be three, four, or five times what it has been in the last decade, and we have a huge opportunity to take advantage of that.

[Mike Wallace, Conservative, Burlington, ON]

I appreciate that. Thank you.

Thank you, Mr. Chair.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now go to our last questioner, Mr. McKay, unless he doesn't want to....

[John McKay, Liberal, Scarborough—Guildwood, ON]

I could go on forever.

[The Chair, Conservative, Rob Merrifield]

Go ahead, Mr. McKay. You have five minutes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

Mayor Krassilowsky, it's good to see you again. I didn't anticipate that it was going to be so soon, after a nice visit with Dryden a couple of weeks ago. I think the Prime Minister and I have one thing in common, at least; neither of us had cheques.

But I did want to talk to Mr. DesRosiers about the wage issue that's coming down the pipe. The UAW has given back a huge amount of money to the big three. I would anticipate that Canadian unions, CAW in particular, are going to be under huge pressure to rescind some of their wage gains. I'd be interested in your thoughts as to how you see that playing through on the automotive side.

[Dennis DesRosiers]

It's not necessarily wage, but compensation.

Briefly, there are two portions. You have a hard wage and then there's a non-wage benefit—health care, pension plans, and things like that.

Because of the structure of our health care in Canada primarily, but other benefits as well, Canada historically had about a $25-an-hour advantage over the American competitor in terms of investing in automotive. What our unions did in the last three or four negotiations is they went to the companies and said, “If you want labour peace, you'd better give us some of that advantage.” So they did that for particularly the non-wage side of Canadian compensation. That whittled down to the U.S. average, total, all in, wages and non-wage compensation in the United States, at about $75, and in Canada it was about $70. So we still had an advantage of about five bucks. It was in the high sixties, maybe $6 or $7.

What the UAW did was allow the vehicle companies in the United States to offload all their health care cost to the unions, and that picked up $18 to $20. Then there are two-tier wages and a variety of other things. They lowered their compensation from $75 down to $50, and we're still in the high sixties. So somebody has to face up to that in terms of competitiveness. Right now, Canada is the highest-cost jurisdiction anywhere in the world for manufacturing vehicles, whereas we used to be competitive with the United States...well, lower cost than the United States.

The problem the CAW faces is that we don't have health care to deal with because health care already is government paid. So where do they find $15 or $20? Two-tier wages might give you $5. Eliminating contract language and all the feather-bedding can go quite far.

When General Motors approached CAW for their new investments in the Camaro plant in Oshawa, without touching wages and compensation, they found $100 million of cost savings just by eliminating all the feather-bedding the unions had put into the contract.

So is it there? Possibly, but it looks like we're going to have to touch base wage, and if you try to touch base wage, you're looking at war. So get ready.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So you anticipate that this is going to be a rough season—

[Dennis DesRosiers]

It's going to be real rough, and so far the unions—obviously there's a political side to the unions that's showing its face and kind of carrying the day. There's a non-political side, where these labour union leaders in automotive are some of the smartest anywhere in North America. You would expect them to try to find a way through this that could benefit everybody. But it's going to be very nasty.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Hargrove might take a bit of an exception to that.

[Dennis DesRosiers]

Well, Mr. Hargrove is going to blame Korea. Unfortunately, it's not the fact that the Koreans aren't buying Canadian cars; it's the fact that Canadians aren't buying his cars.

So you can do anything you want about Korea. They don't buy big gas guzzlers in Korea, and that's what we make over here.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I wasn't referring to Korea, but your point is well taken. I think Mr. Hargrove might take exception to your characterization as feather-bedding.

Second question, while—

[Dennis DesRosiers]

He took me off his Christmas card list many, many, many months ago.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Well, I'm off the Prime Minister's Christmas card list, too, so I think we're a pair.

[An hon. member]

We'll get you a card.

[John McKay, Liberal, Scarborough—Guildwood, ON]

These guys can get an in-and-out thing going.

The president of Ford said recently, and I believe I'm sort of roughly correct in the quote, that to put a plant into Ontario is about $800 million, into Tennessee about $450 million, and into China, $160 million. What's your view on that?

[Dennis DesRosiers]

Boy, I don't know where he came up with those numbers, but numbers along those lines are all over the map. You can easily spend $1.5 billion on an assembly plant in any of those jurisdictions. China is probably the least expensive, but China is a completely different entity. Realistically, Chinese vehicles aren't going to come to North America for a long, long time.

We're competing with the U.S. for investments. You've got to look at U.S. jurisdiction to Canadian jurisdiction. On most accounts we're not that bad, with the exception now of the labour front. So when you actually get into all those other competitiveness issues that companies look at, most of the U.S. states' locations fall behind Canada.

Now we've got to deal with the labour one, and that's going to be the warfare we have this fall.

[John McKay, Liberal, Scarborough—Guildwood, ON]

You take the view that—

[The Chair, Conservative, Rob Merrifield]

I want to thank you very much for coming in as witnesses. He can get that question in afterwards on his own.

I do want to bring one more thing up to the committee, but I did want to formally thank the witnesses for their presentations. They were very good. The questions and answers gave us some good insight into the industry and the problems it's going through, and also the opportunities that are perhaps before you at the same time.

With that, I want to just let the committee know that we have a request from a delegation through the Canada-China legislative strengthening program, the parliamentary centre. They're asking us to meet. They're here trying to study our democratic process, and they would like to talk to the finance committee. April 3 would be the ideal time, which is the Thursday of the first week back. I'll leave that with you, unless there's a decision here that that's okay.