Finance Committee on April 30th, 2009

[Joseph Campbell]

Yes, assuming we get to where we have the liquidity and there's a recognition that this is a different risk model and there's an income potential for taking the risk. Where there's risk there should be reward. So yes, I think the market's going to go. Those people who are qualified to take the risk, who are willing to take it, are willing to put their capital up in order to be the first line of loss.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

So you believe investors will remember the history of what we've gone through over the last few months and not make the same mistakes again going forward?

[Joseph Campbell]

I don't think I'm willing to go that far.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

But you don't think there's something the government should be doing proactively to ensure that doesn't happen?

[Joseph Campbell]

From a regulatory standpoint, I don't think so. I think that's one you let the market deal with. If as a dealer I have a cost of funds of 5%--and I'm just making these sums up--and if I'm willing to take the risk or if I want to transfer it over and my cost of funds is 6%, I have a economical decision I have to make. If somebody else wants to take that risk, they get the return. So you almost let the market decide it.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Dechert.

Mr. Maloway.

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

Thank you, Mr. Chair.

My question is a general question to whichever one of you would like to answer it. I'm wondering if there are any actions that any foreign jurisdictions have taken that you're aware of that could have enhanced the credit that could be usefully implemented here in Canada. Is there anybody out there who's doing a better job than we are at this point?

[Jean-François Bertrand]

In the document we bring to your attention today, we're just saying that the Bank of England is doing interesting things and that we could inspire ourselves from their example. By buying commercial paper—ABCP paper as well as mid-term notes—directly in the market, we think the government could help bring liquidity, because the investors are nervous to be stuck with paper that they cannot sell if they need liquidity. If the government were there, it would help; it would bring confidence that those investors could sell the paper when they needed to.

This is one of the problems we have right now. It's a question of confidence, when the market is losing confidence and you are close to market failure, if not in market failure, and you see it with the decreases in those markets that we have experienced recently.

In terms of exit strategy for the government, the government, like any normal player, could sell that paper when the market is better and confidence is back to normal; that's something important for the government. This is what is interesting. It's not a commitment for years. The government would act just by buying it; the stability comes back, then you can let it go later on—slowly, not all at the same time. That would be the exit strategy.

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

Does anybody else have any comments?

Jeff.

[Jeff Hanemaayer]

The U.S. government has a tax holiday for state and excise sales tax on recreational vehicles up to $50,000. That can save, depending on the price of the vehicle, typically upwards of 7% or 8% on the purchase price until the end of the year.

Secondly, the U.S. government is considering including vehicle floor plan in their TALF program, which has some similarities to the CSCF program here in Canada.

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

Is there anybody else?

[Joseph Campbell]

On the TALF program and on the inventory—and I applaud the efforts that are being made to address the actual retail piece, because that's what we have in place right now—I think the looming potential problem is the one on flooring, which is good to hear everybody.... It's not just an auto issue, because the TALF program is running into the same issues as the BDC up here, in that it calls for it to be AAA. There's no way, with a GM or Chrysler covenant behind it, that you're going to get anything rated up to AAA if they're responsible for buying it back. That's one thing that I think needs to be addressed from a government standpoint to get things going, because if dealers can't carry the inventory, it doesn't matter what consumers are going to want; they're not going to have it in stock and be able to get it.

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

Jeff mentioned earlier a need for legislative changes regarding the RV situation. Could you give us some further update as to what sorts of changes you are looking at and what stage it's at right now? Have you been discussing it with the government, and what have they told you?

[Jeff Hanemaayer]

Specifically, it was a recommendation to the CSCF program to include dealer floor plan, which at this stage the government is not including. That particular program is being managed by BDC. We have, as a more general recommendation, suggested that BDC, whether it be under the CSCF program or not, simply include floor plan loans as part of the type of product they'll support.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

Mr. McKay.

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

On thin capitalization.... I'm trying to remember the rationale behind the thin capitalization rule. I thought it had something to do with declaring the expenses in Canada and the income in the U.S., because the U.S. is a lower-tax jurisdiction, and this was why they were only going to allow you 2:1, but I may be wrong on that. Can you refresh my mind as to what the rationale is behind the thin capitalization rule, from the government standpoint?

[Jean-François Bertrand]

I'm not a tax expert, to start with. I think that's the idea behind it, but if you look at the current environment, it is completely changed from that. You get the funding where you can, and right now where we can get funding is across the border, not here. It's directly affecting us; that's why we're telling this committee that it would be a good measure to revise those rules, because it's a different environment right now.

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

It sounds good now, but in 10 years—

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. McKay.

If the witnesses have anything to add, you can always provide something in writing through the clerk. The committee members would appreciate your input.

Thank you for coming today. It was very much appreciated, and it was enlightening as well.

Members, we're going to recess for a minute because we're going to go in camera, but we have to be out of here by 11 o'clock, so it's a one-minute break and that's it.

Thank you.

[Proceedings continue in camera]