Finance Committee on April 30th, 2009

[Pierre Major, Canadian Recreational Vehicle Association]

Sure.

The Canadian banks have been financing retail business for a while. Many banks are still involved, but they've started to be more difficult about granting loans.

All the banks, even the caisses populaires in Quebec, are doing retail financing. I'm not sure if GE is still involved in that business. The source for retail paper is still available, but it's more restrictive.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

What you are telling us this morning affects business financing for production and marketing much more than consumer financing. The recommendations you are making are to do with business financing, if I understand correctly.

[Jeff Hanemaayer]

That's correct.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Okay.

I have no more questions. Thank you very much.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Monsieur Laforest.

Mr. Menzies, seven minutes.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

Thank you to our witnesses.

This has proven to be a most fascinating study that we've gotten into, but a very critical one. You folks represent the people whom we represent as well--the dealers, the auto dealers, the RV dealers, the financiers who back these operations--so it's good to hear from you.

We keep hearing this recurring theme about the difference in financing. We still have bank financing. The Canadian Bankers Association will come in and tell us that their numbers are up; they're lending more money. It's the non-bank financing that has disappeared from the market, and that's what has created the pressure on all of you folks. We recognize that.

We're dealing with taxpayers' money here in this secured lending facility, so we're trying to make sure that we protect taxpayers' money. We've given the business, if you will, to BDC to get this out, knowing that they haven't had to push this much money out, and report back to government, report back to Canadians, that they've done it the right way.

There was an interesting article in the Globe this morning that quoted Mr. Richard Gauthier:

But even Mr. Gauthier acknowledges that Ottawa must tread carefully as it wades into this area for the first time.

“There is no infrastructure, there's no mechanism in place in Canada at this stage to accommodate this kind of credit facility, so they've basically got to start from a clean piece of paper with [BDC] and all of the stakeholders and invent the process.”

So we appreciate your patience. We're hoping that BDC can get it right but get it moving. That's our concern, I guess, and I'm sure it's yours as well.

StatsCan figures show--I just got this note on my BlackBerry--that auto sales and auto manufacturing and parts manufacturing are up 19% this month over last. I guess I'm a little surprised that it's up 19%.

Mr. Campbell, perhaps you would comment on that. Your model, of having skin in the game, to me makes a lot of sense. That's maybe not the right way to term it, but you folks are the people who are involved in this, and you're doing some of your own financing.

How do we deal with this AAA rating that has to be met?

[Joseph Campbell]

That's exactly what we proposed to BDC. We appreciate that they are starting with a blank piece of paper and have to develop the model from scratch. It's not something they can pull out of the air and say, “Here's what you have to do.” We are very encouraged, by the comments we've gotten back, that we are working toward that solution with them and Finance.

But as Mr. Rodd can attest to, the key thing with our model, the way it has worked in the past, is that in the private sector, we in essence took the components that would have been in a rating--that's what the funder looked to do--and verified that those were there rather than waiting for a third party to do it.

That's more or less what we're asking BDC to do, to take a role that has worked in the market for the last number of years and duplicate it.

I don't know, Brian, if you want to add anything.

[Brian Rodd, President, Securcor Corporation, Tricor Automotive Group]

Thanks, Joe.

I think the rating issue is something we've all talked about around this table. We've been through the rating process, all of us, over the last number of years, certainly the last 10 or so.

When we started Securcor, our objective was to have a privately funded facility that really got into the details, that knew the contracts and knew the customers. We spent a ton of time up front on understanding the business being invested in before we actually went out and did any funding.

As well, we track the transactions on a very transparent basis all the way through, cradle to grave. Back then it was a negative for us, but today transparency is certainly something that is the buzzword on Bay Street and Wall Street.

That's what we add to the pie for the private funders; we're in between Joe and the funder of one of our conduits. We've provided that service with extremely good results for nine years.

[Ted Menzies, Conservative, Macleod, AB]

Has the AAA rating changed, with all the companies represented here, from where everyone was a year ago, with the downturn, with your asset values, with your increased liability? Is that the issue?

[Joseph Campbell]

In terms of our facility that we're using right now, our credit has not deteriorated in the last year. We're experiencing the same results. A lot of it has to do with our unique model, where the originator of the contract, the automobile dealership, has a financial interest in the contract all the way through to the end.

In essence, it's going back to the old way of doing it, where the dealer takes responsibility for their actions and doesn't just sell the contract to somebody else and is then absolved of any financial risk.

We have the skin in the game, as you referred to it, so we have a vested interest. That's why we have not seen a deterioration in our book at all in the last year.

[Ted Menzies, Conservative, Macleod, AB]

Okay. Very good.

So you've been in discussions with BDC? You've been part of the process all along?

[Joseph Campbell]

Yes.

[Ted Menzies, Conservative, Macleod, AB]

To everyone here, what kind of reception have you had at BDC? I guess that's our concern. We've had BDC here, and we're all hearing concerns from our constituents.

[Jean-François Bertrand]

As we mentioned earlier, they work as fast they can. We're working pretty well with them. It's new for them. They've inherited a new mandate. We are collaborating with them and they are collaborating with us. We are in the process of answering their questions. I think they are at the phase of allocating the amounts at this point in time. We expect to hear from them pretty soon.

[Ted Menzies, Conservative, Macleod, AB]

Are there any other comments?

[The Vice-Chair, Liberal, Massimo Pacetti]

I think it's an important question.

Ms. Anghel, can you answer that? Has your organization been negotiating with BDC?

[Sara Anghel]

No, we have not directly. As I said, we look forward to BDC working with GE to make it more accessible for our dealers.

[The Vice-Chair, Liberal, Massimo Pacetti]

So you would be represented through GE?

[Sara Anghel]

No, we're just looking forward to GE getting the access to what is needed in order for the financing to become available. The organization itself has not been interacting with BDC at this point directly. We'd be happy to do so. The opportunity perhaps has not presented itself, or we perhaps have not approached them.

[The Vice-Chair, Liberal, Massimo Pacetti]

Mr. Hanemaayer.

[Jeff Hanemaayer]

As was mentioned earlier, BDC's current mandate does not include RV dealer floor plans. That's one of the changes we'd like. To say how well they worked, then, for us really doesn't apply.

Perhaps I can add a comment to an earlier question to Jeff. In terms of interest rates for our floor plan throughout the RV industry, it has increased significantly since last year. Our experience would mirror the boating dealers.

[The Vice-Chair, Liberal, Massimo Pacetti]

You're over your time, Mr. Menzies, but I took up a little bit of it, so....

[Ted Menzies, Conservative, Macleod, AB]

That's okay; new chair.

[The Vice-Chair, Liberal, Massimo Pacetti]

Mr. Maloway, seven minutes.

Ignore the part about the new chair.

[Jim Maloway, NDP, Elmwood—Transcona, MB]

Thank you, Mr. Chair.

My question is probably for Jeff--or for Pierre, or for anyone else who wants to answer it.

I'd like to know what the risks are of floor plan lending. When I hear that the banks are not interested in it, and they're in the business of lending money, then why would they be shy?