Industry Committee on Nov. 22nd, 2006

[David Paterson]

There are a number of things that industry can do to advance innovation. We're very proud of the efforts we're making right here in Durham region with an automotive innovation network, joining universities together with suppliers so that we take the best in Canadian R and D and transfer it right through not just the major manufacturing industries but their supply chains as well. So those are things that we can take as businesses, as initiatives. We're proud of that. In instances we were able to do some of these things because of some of the support we have from the government in terms of being able to proceed forward. So those are important, and the measure I just indicated with respect to certain tax advantages for people who are making machinery investments and investments in upgrades to the types of things that are fundamental, the innovative advances that we require to be at the cutting edge of manufacturing.

We're never going to compete globally in the manufacturing sector based on low wages in Canada. We have to compete on having better products, faster products, lighter products, more innovative products, and more fuel-efficient products, those types of things. They're very important to us, and it's what goes on between our ears rather than our brawn that is going to get us there--so innovation. And you can make a huge difference at the federal level through tax policy and through a variety of the other types of things we talked about.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go now to Mr. Carrie.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

I would like to thank all the witnesses for being here today.

I have only six minutes to ask you questions; I'd love to have sixty. I have three questions in particular, and one is for the mayor, since you're the only mayor who will be officially presenting to the committee.

I wonder if you could expand on your opening statement. You said a few things about the challenges with municipalities attracting other industry. Do you have some specific ideas on that?

The other question is for Dr. Rosen on the Beacon Project. I was so thrilled to have that investment here in Oshawa. What are some of the results you're going to be seeing with this joint project, and what is it going to do for the manufacturing sector, not only here in Oshawa but across the country?

The third question is for Mr. Paterson. You talked about the economy of scale and trade policy. There has been a lot of talk about environment and emission standards, and some people are pushing to adopt California's standards. What effect would that have on the economy of scale we now enjoy in Canada?

I know it's kind of quick, but if you could answer those three questions that would be wonderful.

Mr. Mayor, will you start?

[John Gray]

Thank you very much.

As far as incentives, I'll first of all give you some background. As you know, in Ontario, municipalities are precluded from providing financial incentives to locate manufacturing or get investment into our communities. That's probably a good thing, in the global sense of Ontario municipalities. You don't want rich municipalities to be able to offer the best incentives, so the rich get richer and the poorer municipalities continue to starve for economic development.

But I think we have to understand the environment we live in today. In the United States, particularly the southern states, they seem to have either state or local incentives they can offer to locate manufacturing in their jurisdictions. That has a significant impact. In some cases municipalities can offer up to ten years of no property taxes. We can't do that in Ontario.

On what I think we need to have, the federal government could take on this responsibility, and somehow an analysis would be done on the merits of somebody locating in your municipality. Then we would be given the ability--probably through the provincial government--to allow that so we don't continue to see this drain of investment to the southern United States. Once those jobs are gone to the southern United States they're gone forever.

We have to understand that municipalities are also trying to position their communities for economic investment. That's why I'm advocating some sort of incentive program that recognizes that we still need to level the playing field for all municipalities across Canada. But there has to be some way for us to give something to keep them here, because economic development is about retention and growing, so I don't want to see them bleed off to other jurisdictions. When we lose them from Canada, obviously the economy of Canada suffers.

That's the idea. I hope I haven't been too long-winded.

[Colin Carrie, Conservative, Oshawa, ON]

Dr. Rosen.

[Dr. Marc Rosen]

Thank you.

On the effects of the investments going on in the university and the region, because it's all beginning at this point, the plans are really long term and short term.

In the long term, we're looking to set up a facility with the ability to provide paradigm-shifting research to come up with the next new major leap in innovations--the next new steps that create a whole new technology or a whole new way of putting technologies together.

On the other hand, in the short term we definitely want to work with industry to help solve the day-to-day challenges they face that require development, research of a form, innovation--whatever it is to help us stay competitive now. So we're looking for the short term and the long term, and we think we have the type of partnership set up that is different from any other university. It will allow industry and the university to work much more closely together to achieve both of those goals.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you.

Mr. Paterson.

[David Paterson]

With respect to emission standards and the like, I would say a couple of things. One really critical thing to underline is that for us to continue to reduce greenhouse gas and other emissions from the automotive sector, we always have to keep in mind that an integrated strategy is required between vehicle technologies, fuels, and the way we drive.

Canada is far behind the United States in terms of alternate fuel promotion. We don't have any E85 ethanol networks growing in Canada. This is something the federal government can influence through tax policy, as has taken place in the United States. For example, the Chevrolet Impala, which we produce down the street, runs on cellulosic ethanol and is the lowest greenhouse gas producing vehicle on the road in Canada by a long, long distance. If the fuel were available, we could have dramatic reductions in greenhouse gases from the vehicles we have; the technology is in place and ready to go.

We are proud at General Motors in Windsor that we're producing, down the street, transmissions for hybrid vehicles; we're producing North America's largest fleet of fuel cell vehicles with no emissions; we are producing the next generation of hybrids for General Motors down the street in our engineering centre; we have the lowest greenhouse gas production vehicle in North America being produced on the factory line down the street. And our new pickup trucks have the best fuel economy, with an engine that shuts down half the cylinders. They will save more fuel and therefore reduce more greenhouse gas, because of their sales volume in Canada, than all hybrid sales by all manufacturers in Canada on an annual basis. There are great things that can be done with technology, but we need to have an integrated approach.

You asked about California standards. The California standards were developed without technological collaboration with the auto industry. Our current look at the real impact of that is, first of all, that those greenhouse gas standards in California are under court challenge right now by the auto industry and the EPA. They don't go into effect until 2008—they don't exist for greenhouse gases until 2008—and the industry's examination is that by 2011 a significant portion of vehicles produced today could not be sold in California; therefore, they will flow into the state from outside the state, just as we talked about before. So Californians would still get the same vehicles, but their standards wouldn't allow them.

If we did have California and Canada join together and put those standards in place, we would have certain vehicles that couldn't be sold. The largest vehicles are heavy-duty pickup trucks, which we make down the road. We have four of those plants in North America for General Motors. If we took a fourth of the North American marketplace out, then the company would have to decide which plant we no longer needed. So the decisions to be made with regard to the standards are phenomenal; they're very important.

We can make incredible progress if we have an integrated approach of vehicle technologies, fuels, and drivers. That's what we would like to see taking place.

[The Chair, Conservative, James Rajotte]

Okay, thank you very much.

Thank you very much, Mr. Carrie.

We'll go now to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you for coming here this morning.

I'm glad to hear about the border. If you think you're frustrated, I've been saying this since 1997. Kids in my community go to school with air monitors in their backpacks to study the particulate matter they've been affected by from the trucks going through the neighbourhoods.

I'd like to ask a question. I'll start on the issue of the Korean trade deal, because we're on that right now. What will happen and what type of analysis has the industry done if the deal goes ahead? Right now the minister has indicated that is going to be the case. I recently asked a question on the deal in the House of Commons, a deal they are pursuing at this time. What will be the net effect of it on the Canadian industry?

[David Paterson]

I'll take a quick stab at that.

Normally when one undertakes a major trade agreement, an economic study is done in advance. I think that was done by the government. Unfortunately, the government had several rounds of discussions with the South Koreans before we had a chance to look at that economic impact study. We have very significant disagreements with the conclusions to that study.

Let me illustrate it this way. As one company that also produces vehicles in South Korea, we are producing a wonderful vehicle down the road in Ingersoll called the Chevrolet Equinox. We would love to sell that vehicle in South Korea. I was in South Korea about month ago. I can tell you there's every bit as much buying power in Seoul, and every single different segment we sell in Canada is on the road in South Korea. We would love to take our centre of excellence--we design and build that car right here in Canada--and fill up those boats that come to Vancouver and send those vehicles back to South Korea. We can't take those vehicles and sell them in South Korea because of the non-tariff barriers that don't allow us to get in. The negotiators are looking diligently at removing those non-tariff barriers, but in our judgment, they have not been successful in terms of being able to make a difference in removing those barriers.

The net for us is that we can't expand our production here and sell those vehicles from here into South Korea, and we'd very much like to do that. However, our own company is designing a very similar vehicle in South Korea, so one of the things we'll have to decide is if we can't get access to that market, do we start to build that vehicle in South Korea and bring it here. If we do, then what happens to the plant that makes them here? When we look at economic impacts, we need to look in the real world in terms of how investment decisions are made, not just in terms of economic models that don't necessarily get down to understanding how those types of investment decisions can have huge, profound effects on an industry.

We're very, very worried about the economic impact if this deal goes ahead, unless the deal can get genuine access. We'd like a deal, if it gets genuine access. Right now we don't see that it's doing that.

[Brian Masse, NDP, Windsor West, ON]

Mr. Gray, I enjoyed your presentation. You noted several incentives to help municipalities. As a former city councillor, you're often left with few tools to be able to do some of the grunt work that's necessary to bring the investment. Later on, you bring in the province and the feds as the groundwork has been done.

You commented on a national energy strategy. Could you give me more specifics in terms of what you're looking for there? You mentioned stabilized prices. How do you envision that taking place?

[John Gray]

We're a great fossil fuel producer here in Canada, and of course we have our technologies. It's about the energy of the future, whether it be nuclear or fission, whatever: it's making sure we channel those resources. I mentioned the energy cluster in my presentation. Putting investment into technology development is going to be very wise for us, because we have to understand that one of the competitive pressures industry faces--for example, General Motors--is you consume a vast amount of electricity in the production of a vehicle. If we can have a policy that can help encourage low-cost energy, mainly through electricity, then that will give us, as a nation, a great competitive advantage over many other nations.

I'm seeing the brainpower in this country, and certainly Canada has been well known for the Canatom, our nuclear program. That's where we have to channel some of our energy and excitement and create more low-cost energy. That's not to shut out our current fossil fuel production in Alberta--that's vital to us as well--but in the meantime, let's find ways to create some other energy.

[Brian Masse, NDP, Windsor West, ON]

Dr. Rosen, how difficult is it to get students involved in your programs? I was a little bit concerned about your comment saying it was hard to keep them as well. Can you elaborate on that?

[Dr. Marc Rosen]

Probably the same factors that would affect students, attraction as well as retention. The attraction is would they even consider manufacturing? If it is viewed as dirty assembly line work of the past, that's not exciting to them, and they'll run to other areas and they'll go to other engineering fields where they see much more advanced technology at work.

On the retention side, once they get to know the field a little bit, they start to hear of the issues you're discussing here: I got into it, but will there be a job for me, or are all the jobs going to be out of the country? That scares the daylights out of students. They may want to go and work internationally in time, but that probably was not their objective when they got into a program, that they were signing, basically, their immigration papers and they would have to leave. If they don't see a future in the field in Canada, they're not going to go into it and you get into that spiral. You can't get into the service sector because no one wants to get into it, but with no one there, you can't beef up the sector.

[David Paterson]

I was just going to add: kudos to UOIT. We are delighted that this university has been the first in Canada to create a degree in automotive engineering; ironically, with all of our history in the automotive industry in manufacturing vehicles, UOIT is the first to create this degree. We will now be able to have students work together with our suppliers, and those students will have insights on developing electrification systems for automobiles, fuel cell systems for automobiles, and on testing parts. It will be very exciting. These are the kinds of things we think will help draw people into these programs and really give us a cutting-edge advantage in Canada because of our excellent engineering capability.

So a pat on the back to these guys for being leaders.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Masse.

We'll go to Mr. McTeague again for five minutes, please

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you, Chair.

I guess one of the conundrums of being Canadian right now is that you want the best-paid jobs and a standard of living, but you also want to pay the lowest prices for all of your products. So while Canadians want manufacturing to be able to provide them with the standard of living we've become accustomed to, there is also the prospect and problem of those who will seek the lowest price at any cost, which of course becomes a bit of an irony for some people. The challenge for us, as legislators, is that we play a very small role in terms of the instruments we might be able to provide to offset that.

How difficult a task is it to try to inform Canadians that while they may want the best or lowest price for things, it may be a self-defeating prophecy? That's not a philosophical question.

[David Paterson]

I can illustrate that by putting it in terms of the automotive manufacturing context. For instance, there's no question that the entire automotive industry in North America will increasingly be sourcing certain low-cost items from offshore, and bringing them in. We do that now. It is a matter of competitiveness, to get at just what you're raising: the customer wants to have an affordable vehicle. Price in the marketplace is not only critical for us to compete against our competitors here, but if we want to export our vehicles and be competitive, it's also absolutely critical to that.

Now, there are some aspects of things we do better in Canada, because of our intellectual added value, that surpass a price differential. I'll give you an example. In the province of Quebec, we happen to be world experts in the development of resilient lightweight materials, which happen to be a byproduct of companies like Alcan and companies that have serviced the aerospace industry.

What we've tried to do in General Motors is to tap into that intellectual capability, and that's why we're working with four great universities in the province of Quebec, who will help us develop new lightweight plastics and new lightweight resilient metals. For instance, magnesium is now a replacement metal for a lot of different steel products that were formerly going into our cars; it reduces the weight and makes them more fuel efficient. So with these types of things we're trying to create niches of real expertise so that we can, as I say, develop something better, lighter and faster, and make up for a cost disadvantage.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I watched a commercial this morning about the razor blade called Fusion, and it dawned on me that in this particular state-of-the-art Fusion there are the very kinds of metals you're referring to, in a niche market. The product—the component or plastic—can be made anywhere around the world for pennies, but the high-value-added product or specialized machines and ingenuity needed to build those particular razor blades are 80% of the cost, and therefore the value-added remains within Canada.

Mr. Malcolmsen, in concert with what Mr. Paterson suggested, we've heard from some witnesses in the past couple of days who have suggested that business is obviously looking for the bottom line. Often you will see manufacturers close or scale back their Canadian operations—I don't know if this is the case here in Oshawa—where the margins may be very skinny, at 5% to 10%, but by going to China, for instance, they may be able to increase their profits and of course drop the cost of the inputs and bring them back to the market with similar quality.

How much of that is a challenge to manufacturing here in the Durham region and to your organization in terms of promoting growth?

[Bob Malcolmsen]

That's a difficult question to answer. In the manufacturing sector, if business says you can make a better profit offshore, it's private enterprise and they have a right to do that.

People want quality in their products. When you're looking at the manufacturing sector, what we have to appreciate is that we have to keep the intellectual properties here in Canada. We actually had a gentleman speak at our economic conference who was basically saying the exact same thing. He holds the intellectual properties on his manufacturing product. He can maybe take it offshore, but he still holds the intellectual property; he's not selling that, but keeping it. That's the way he remains competitive against China and the other foreign countries that are competing against him.

So I think we have to be innovative in Canada. If manufacturers are closing their doors because they're not competitive, it's probably from the fact they're not trying to be innovative and competitive, which brings in the comment Mr. Paterson made in regard to the UOIT. With the Beacon Project being done at the university, they're allowing not only the manufacturers of the automobile, but also all of the suppliers.... Those suppliers may not necessarily just be producing an automotive part, because I know several tier-two and tier-three suppliers in Oshawa who not only produce automotive parts, but also are being smart enough in their industry sector to be pulling off other products. There's one business here in Oshawa, for example, that does aluminum parts for the automotive sector and that took its ingenuity and design and is now producing aluminum docks for cottages. So they're taking their innovation and intellectual properties and understanding where they're going and saying okay, if I can do this in the automotive sector and keep being competitive and keep upgrading my products through research and development and innovation, what else can I do when I'm in a slow time, or how else can I add to my product? And they take a look at another design.

We have another industry here in Oshawa that was producing light parts for automobiles, which also ended up producing all the lockers for schools, though they're no longer around at this point. We can do this, they said, but we can also do something else.

So we have the smarts to do it.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll now go to Mr. Shipley for five minutes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair.

Thanks to the panel for coming out this morning.

First to Dr. Rosen, in terms of the university of 4,300 students—and I congratulate you on your comments—I don't know what your goal or your maximum can be there. I'm hoping that some of the things you talked about in terms of incentives, scholarships, apprenticeships, and employment incentives are actually doing something to help with the output of your students and the end result. In the last budget we tried to do some of those things.

I now also want to deal a little bit with the education part and the image, and we hear this. We heard it with a panel that came and talked to us in Ottawa, and we've heard it today, and other days also. Talk to me about how you are going to market this. Obviously when I say “you”, I think there's a partnership that has to come, and which has to involve.... But talk about the education sector and government—though I think it's bigger than that. I'd like to hear your comments on who should be in it. Obviously the industry needs to be very much in it. Help us on how we can bring about or change that image. McDonald's and some other companies changed the image things around. We would be interested in hearing how you're going to do that or what thoughts you have on it.

[Dr. Marc Rosen]

Thank you very much.

Yes, certainly incentives, scholarships, and the like that have been provided have been very helpful. An additional comment from me would be to have some targeted incentives, if there are certain sectors you want to support, rather than across-the-board incentives for students. There's no harm in giving better incentives in certain areas.

When it comes to image, we're a middle person. Students are going to choose. Industry is going to hire. They usually have to go through some educational program to get to industry. If industry isn't attractive in a particular area like manufacturing, there's very little we can do to lure a student. They know if there's anything on the other side. So industry of course has to make the image of what manufacturing is more appealing, more attractive to youth, that it isn't all grunt work, working with your hands. The technology is as exciting, as advanced as any sector around. Kids love iPods. You name the technology. It's that same technology applied in the relevant context. The message isn't hard to get out. But what's there now is a 1930s movie of an assembly line, and that's very hard to overcome.

Government can help too. Any industry speaks and it's viewed as biased, self-motivated. Governments can help across the board. One attempt was made by the Canadian Manufacturers and Exporters to put a commercial together manufacturing guitars. It was really exciting. They had a rock group doing the background. They never had the money to launch it. I've seen a version of it. I'm using it in trying to attract students. But the nuclear industry is doing this very well lately, getting commercials out and promoting benefits. The image can be improved in getting right out there, even with commercials. And other measures could help.

[David Paterson]

I might add this. Over the next two years, as we bring forward this new automotive centre of excellence, one of our great objectives in this venture as General Motors is to do just what you're talking about and let people know about it. We have a very self-interested reason. Our objective is to have suppliers from all across North America know about what we're doing here right in the Durham region. Because what we'd like them to do is to come and not only work with Marc and his students and the great technology that he's going to have, but work with us because we buy stuff.

We'd love to have you come down to our engineering centre sometime, because when you open up a car you suddenly realize it's not just one product, it's thousands of products, and each one needs innovation. So if we can not only bring students into the centre, but also bring this enormous supply community that we have in Canada into the centre and also become involved, perhaps locate engineering centres around here in the Durham region, open new businesses.... And as perhaps some businesses do go to lower-cost jurisdictions, new ones come into this country and this province and they're based on innovation and technology. That's the vision. So we're literally producing new businesses out of this centre. We want to appeal not only to students but also businesses to be part of this venture as well.