Thank you.
Mr. Chairman and honourable members, thank you for the opportunity to present before you today.
As you indicated, my name is David Adams. I am the president of the Association of International Automobile Manufacturers of Canada. My association is made up of 13 manufacturers, importers, and distributors of light-duty passenger cars and trucks whose head offices are located outside Canada and the United States. Those members are BMW, Honda, Hyundai, Kia, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Porsche, Subaru, Suzuki, Toyota, and Volkswagen.
In 2006 AIAMC members sold over 733,000 new vehicles in Canada, representing approximately 45% of Canada's new vehicle market. AIAMC members have invested over $6 billion in manufacturing facilities, and annual production from those facilities reached a record 900,839 new vehicles in 2006, out of the 2.54 million vehicles produced in Canada; over 77% of those vehicles were exported out of the country.
Member companies with production facilities in Canada include Honda, Toyota, and Suzuki, with General Motors in a 50-50 joint venture in Ingersoll.
With respect to the automotive industry, the 20% appreciation in the Canadian dollar against the U.S. greenback has adversely impacted various components of the industry: vehicle assembly, parts manufacturing, and vehicle sales.
For AIAMC members Honda, Toyota, and Suzuki, who assemble vehicles in this country, the fact that they are very vertically integrated and have brought with them key suppliers to the country to ensure the local supply of critical components means they have not been able to take advantage of the natural hedge arising for other assemblers who import significant quantities of vehicle parts from the United States. So the appreciation of the dollar is a real issue.
Given that we turn around and export about 80% of vehicle production to the U.S., the economics of that market are critical to Canadian producers. There are other significant factors impacting vehicle sales in addition to the higher Canadian dollar, namely higher energy costs, the fallout from the reset of adjustable-rate mortgages, tighter lending standards, and overall lower consumer confidence. All these factors are converging to produce lower sales volumes currently in the United States. There was a 2.4% drop through October, and significantly lower volumes in 2008 are forecast, with some forecasters suggesting that a 9% drop from this year's sales figures is not out of the question.
With respect to the parts manufacturers in Canada, the currency appreciation is one more factor making them less competitive with their American counterparts and is contributing to the 11,000 job losses, the 41% reduction in profit, and the 4.5% reduction in production this year, according to a recent Conference Board of Canada report. However, there are other factors impacting parts makers over and above the appreciating currency, namely higher energy and commodity costs, decreased production from primary customers, lack of adequate capital investment, and globalized sourcing by all OEMs for parts. I would encourage the committee to invite Gerry Fedchun, president of the Automotive Parts Manufacturers' Association, to appear in front of this committee to more fully elaborate on the impact of the dollar on this critical segment of the automotive industry in Canada.
With respect to vehicle sales, it's not lost on manufacturers that with ready access to television, newspapers, and the Internet while the dollar is at par or above, Canadian consumers can readily compare prices for what they believe are identical vehicles in both markets and are justifiably concerned when advertised prices in the U.S. are lower than they are in Canada. It is, however, important to note that vehicles offered for sale in the U.S. are rarely exactly the same as the vehicles in Canada, due to different standard equipment packages and different regulatory standards. Not the least of these is the unique immobilizer standard in Canada vis-à-vis the United States, as reported in today's papers. Those differing standards contribute to higher costs.
That said, if vehicles were equipped exactly the same and if our regulations were fully harmonized, different cost structures exist for business in Canada versus the United States. For instance, the U.S. has greater purchasing power, lower distribution costs, lower hydro costs, and lower levels of taxation than Canada. With respect to our industry specifically, Canada has a 6.1% tariff on imported vehicles, versus a 2.5% tariff in the United States. That differential adds about $1,000 to a $30,000 vehicle.
But consumers really don't care about structural costs and regulatory differences. They are focused on price. By strictly looking at the market price, it would appear that manufacturers understand this and are responding. If they were not, highly discretional vehicle purchases would not have been made while consumers waited for lower prices, or they would have headed to the United States in droves for cheaper vehicles there.
There has been a worrying uptake in vehicle sales imported from the United States, but, importantly, there have been robust domestic sales, with October sales up 2.1% over the same period last year; and year-to-date sales are up 3.8% over last year. And it should be noted that last year saw the second-best vehicle sales in history.
The appreciating dollar is a concern for all components of the industry, and in this regard we would make the following recommendations:
We would encourage the immediate announcement of the 2008 eligible vehicles for the ecoAUTO rebate program. While the criteria have been set for that program, the list of eligible vehicles for 2008 has not been announced. Those rebates, as many of you are aware, can put $1,000, $1,500, or $2,000 into the pockets of consumers, giving them another reason to purchase vehicles in Canada.
We would also argue for the temporary tariff reduction on vehicles from all sources, removal of the excise tax on air conditioning, addressing unique Canadian standards as a top priority, appropriate funding for a vehicle scrapping program, investment tax credits, and clear signals from the government concerning the fair value for the Canadian dollar.
I look forward to answering any questions you may have.
Thank you.