Industry Committee on Nov. 23rd, 2006

[The Chair, Conservative, James Rajotte]

Mr. Bernard.

[Ed Bernard]

I'd be happy to start.

Echoing the comments that have been made, the financing is a tremendous challenge.

I'm using the adjective “tremendous”; you were asking if this is a crisis. This is definitely a crisis. It's not a typical downswing; this is not a pattern that's been repeated previously, such that we can predict how we're going to come out of it. This is definitely a crisis situation, and we stand to lose our manufacturing prowess if we don't deal with it in a very quick manner.

What can be done? We use the banks, as has been said, to finance doing business. The debt-to-equity ratios, the different covenants we're held to, are impossible for us to satisfy with the demands our customers are putting on us. The level playing field is not something we expect the government to be able to straighten out for us, but we expect it rather to assist us in straightening out ourselves.

We are being asked.... In fact, this is one of the reasons why Bernard Mould, although we were prospering and were turning a profit, could not go on financing the large automotive companies. We had a large Magna program that we had just landed. Payment was based on 45 days after PPAP—you've heard the term PPAP, production part approval process—and PPAP was scheduled to occur next April 8, which means that sometime in the middle of June we would be getting paid, if we got paid on time.

This means that our first tryouts on these tools were to be in the middle of December—next month, a month from now—and then we'd be carrying that financing cost for a year and a half. That's impossible for a company that's only doing between $5 million and $10 million a year in sales.

If the banks could somehow be guaranteed by the government—and EDC comes very close to being able to do it, but it's still not good enough in meeting the covenant—if there were some way the government could assure the banks that the manufacturing companies could work with different debt-to-equity ratios or different financing, that would work.

[The Chair, Conservative, James Rajotte]

Okay.

Monsieur Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

I would like to hear from the other three Ministers of Industry.

[Dan Moynahan]

The problem we find ourselves in today, I believe, is a short-term problem. We're looking for short-term relief for the automotive industries. They are heading to China. That's where they see their growth markets. The tier ones are instructing us, the tool, mould, and die industry, that 30% of all tools are to be built in low-cost countries over the next year.

The reason for that is they want us to give them all the technology we have. That technology was developed over many years and as a result of the Canadian R and D facility we have, and that is paid for with taxpayers' dollars.

I don't agree with taking our technology and just giving it away to these people. We must stand up and fight and keep that work here in Canada.

[The Chair, Conservative, James Rajotte]

Mr. Parent; then we'll go to Mr. Persichilli.

[Gary Parent]

Thank you very much.

First of all, yes, we are in crisis in Windsor and Essex County. There's no question about it. As I stated earlier, with just that one local union representing Ford workers facing the potential loss of 2,200 jobs within the next year, I would dare say it is a crisis. Not only are those jobs going to be lost to this community and to this country; there's also going to be a spin-off effect down to the mould shops and to the other parts plants that will also affect that industry.

How do you fix it? You have to level the playing field, as I said earlier. If it's good for Chinese workers, Korean workers, Japanese workers to be protected by their governments, why is it not correct to protect the Canadian auto workers and the manufacturing sector jobs as well? Why is it okay for us to export all our expertise over there, when they're allowed to ship back those products because of the expertise we're sending over there?

Thus comes the absolute need for an auto policy that's going to put in protection for Canadian jobs. That is lacking, and has been lacking on the federal level, for far too long.

So I share our MP for Windsor West's passion in the House of Commons when he's trying to get this committee and the federal government to understand what the need is.

I know that in the province of Quebec, as an example, when we lost that Sainte-Thérèse plant, it had a tremendous effect on the General Motors' side in relation to that particular province, as far as being competitive in relationship to auto jobs was concerned. It's an absolute necessity that we level the playing field and put in an auto policy that's going to protect Canadian jobs, as our offshore competitors are protecting theirs.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Persichilli.

[Patrick Persichilli]

I'll be brief on this one. I'm not sure if “crisis” is a strong enough word to describe the state of the manufacturing sector, not only in this province but in this country. It's a myth that this is a cyclical-type downturn. It's a structural problem, and this is something that I think needs to fundamentally be addressed.

There are three things, and I'll reiterate what I've already said. We're not looking for handouts. We're not looking for the government to fund a corporate welfare system. We're looking for the government to step in as a partner and share the risk with us financially as an investment vehicle to help us not only in manufacturing but in automotive, the MTDM sector, and the manufacturing industry in Canada in general. We need to invest more in R and D to leverage our strengths. That will help us create those niche high-performance products that we need to compete globally.

Again, Gary has talked a lot about training. Training's critical. We need an abundance of highly skilled people with the tools in their toolboxes who will help us to compete globally.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Monsieur Crête.

We'll go to Mr. Carrie now, for six minutes.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

I'd like to thank all the witnesses for coming here today.

I represent Oshawa, which has a huge automotive industry. I definitely see the challenges. Another one of your representatives, Jeff Watson, actually chairs our auto caucus. We're very much involved in looking at this industry and the challenges that are facing it.

As we've travelled across Canada so far, we've heard a number of consistent things coming forward. There was something brought up today, though, by Mr. Bernard and Mr. Moynahan, which is something a little different from what we've heard up until now. I was wondering if I could ask you to expand a little bit more on this. It's something I've heard in the past. It's about the financing that businesses have to do for other companies out there. I've had the opportunity of speaking to an aluminum window manufacturer and he told me how he would build it, ship it, and all the costs he would put into that for the research, everything, and he would be financing for 90 days and sometimes he wouldn't get paid. The law is you have to put a lien between 45 days—

I was wondering if you could talk a little bit more about how government could help that, or any ideas you have as far as helping the finances with small businesses so that this isn't such a big challenge, including the ideas of these liens, the GST, how you do business. You mentioned that, Mr. Bernard. Could you expand, both of you, those concepts you brought up today?

[Ed Bernard]

Sure. There's no lien law in Ontario that we're aware of, and we have done research, that provides us with security protection unless we get our customer to agree to signing the lien. So we're somewhat limited there.

EDC has again--and EDC is a fantastic tool--been very careful not to step on the toes of the banks they work so closely with. EDC insures our receivables only for exports, and anything that's considered automotive they can't insure. They can't actually, or they haven't been able to, fund us to build these projects. It's very common, and Dan will agree to this, I'm sure, to see the vehicles on the road. You can go down to the dealership and buy the vehicle that has the parts made from our tools in it, but we still haven't received a penny for the design of the tools or for the R and D that's gone into them.

The concept is good. PPAP stands for production part approval process, and the idea is that the tool has to be verified in the production environment, not in some super machine that we have here in Windsor that we can make good parts from it, but a machine in the OEM or the tier one's plant can produce production quality parts. So that's a good concept. The moulders and the tier ones have dragged it out then, so that they can postpone PPAP. Parts are being made, parts are going on cars, cars are rolling off the production lines, cars are in the dealership parking lots for sale, and we still haven't been paid, because PPAP hasn't occurred. It's a way for them to extract financing from us.

[Colin Carrie, Conservative, Oshawa, ON]

When I found out that this was going on, I was amazed. I don't know how you do business.

Could you expand a little bit more on what you were saying, Mr. Moynahan?

[Dan Moynahan]

We compete with about the same sized shops, and it's true, we're the banks. The people that can least afford it are forced to be the banks for the big three and the tier ones. If you really look back and analyze it, up until about five years ago we used to build prototype moulds, and then if you built the prototype mould, chances were you'd build the production moulds later for the vehicles. With technology and the computers today, there are very few prototype tools that are built. What they've done is move the production tools ahead and at the same time they're making us finance them. They're saying if you want to do this business, you're going to get paid in 18 months.

Ed mentioned EDC. I do have Canadian customers who are EDC-insured up in Belleville. You have to maintain a certain portion or ratio that has to be exports to domestic. We need more programs like EDC. Those are the things that are helping us get by, but the margins are tight. Nobody is making money in this town, and jobs are being lost.

[Colin Carrie, Conservative, Oshawa, ON]

Is it something that all the companies are doing, or just specific ones? Is this the status quo--this is how the business is run?

[Ed Bernard]

Even the non-automotive customers have learned now. Engineers from moulders that do custom moulding for tier ones or for automotive plants move to the Rubbermaids of the world or the Scotts in Ohio. And now Temecula, California, which we used to build for, is exercising PPAP as well. Why should they pay within 60 days of delivering the tool if their counterparts in the automotive industry are getting away with it? This is now something that's beginning to spread out of automotive.

Yet if we purchase a tool in China, which we've been forced to do by our customers as well, as Dan was saying, you have to pay 100% before it leaves China. We're now being used to make it possible for them to buy the cheaper tools offshore that are putting our people out of business. It's absolutely ludicrous.

[Colin Carrie, Conservative, Oshawa, ON]

Do you have a comment, Patrick?

[Patrick Persichilli]

I would echo the same thing that Ed and Dan have both said. It's the proverbial squeeze play. This isn't something that's new. I come to the MTDM sector from one of the big three. It's always been a way for us to push back on our supply base. If you look at the dynamics of global programs right now coming into shops like Dan's and Ed's, there is an emerging market component on most vehicle programs. Ford, GM, and DaimlerChrysler are pushing out the supply base that is requiring them to invest or have sourcing of 5% to 10% in emerging markets.

These gentlemen and my company as well are trying to put together programs, products, and services in very tight financial circumstances, or we can't gain financing to fund our projects. We know we're not going to get paid 18 to 24 months out and we're being forced to lay our people off because our customers want us to buy parts, machines, equipment, and tools from emerging market sources.

[The Chair, Conservative, James Rajotte]

Mr. Carrie, I'm sorry, we're out of time.

[Colin Carrie, Conservative, Oshawa, ON]

Perhaps they could write some solutions down and present them to the committee. That would be great.

[The Chair, Conservative, James Rajotte]

Mr. Carrie is right. I know you have presentations that we're having translated, and all committee members will get them. Specifically on that point, if you want to submit something, not only in terms of what actually occurs now, but in terms of how EDC could perhaps be expanded to deal with this, or if another financing model is required, you may want to suggest that as well.

We do have to move to Mr. Masse now. Mr. Masse, you have six minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you to the committee and also to our guests here this morning.

I'll be quick, because I don't have much time. I first want to publicly acknowledge Mr. Bernard. During his difficult times he was part of an effort that commemorated our Dieppe soldiers by a new monument in Dieppe and should be recognized for that effort during his difficult times. It's a beautiful obelisk that now stands for perpetuity.

I know I won't get all my questions in, but I would ask the committee's indulgence to ask Mr. Mike Vince to be able to come to the table here. I think one of the myths we've heard is that labour does not come to the table and work with industry. I think Mr. Vince can illustrate some of the things he has done with his employees to bring new work to this country on the challenges facing us. If that would be appropriate, I would certainly ask if Mr. Vince could provide testimony.

[The Chair, Conservative, James Rajotte]

We have been given notice. It's Mr. Mike Vince, president of Local 200, the Canadian Auto Workers Union?

[Brian Masse, NDP, Windsor West, ON]

Yes, Local 200.

[The Chair, Conservative, James Rajotte]

We have a name tag for him.

Mr. Vince.