Thank you very much, Mr. Chairman. Thank you to the members of the committee for the invitation to appear before you today on the question of the impact of the Canadian dollar.
The CVMA represents Chrysler, Ford, General Motors, and International Truck and Engine Corporation. These companies account for 70% of all production in Canada, about 55% of all sales. They employ and have retirees in excess of 150,000. So clearly they're a major force in terms of an economic or a value-added sector of the economy.
On the surface, Canada's auto industry looks to be in fairly good shape when one reads news reports about record levels of new vehicle sales across the country and the very significant recent automotive investments in Canada, the majority of which are from Chrysler, Ford, General Motors, and International Truck and Engine Corp. The reality, however, is quite different. The rise of the Canadian dollar is just one unanticipated event, albeit a very major one. The major challenges impacting Canadian automotive manufacturers and exporters have come both fast and furious.
It must be recognized that the auto companies are indeed taking every action possible within their power to cut costs and invest in productivity enhancing improvements to the extent of their available cash resources. However, the challenge, quite frankly, is bigger than they can reasonably manage alone. There should be no misunderstanding, and on the theme of the perfect storm, I would suggest the auto industry is about to be hit with a category 6 hurricane. This storm has a significant impact on Canada's ability to attract and maintain automotive investment and could severely impact our industry's footprint in Canada.
In November, Canadian sales dropped 5% compared to 2006 levels, and it's expected that 2008 levels will be lower yet. In the U.S., a similar pattern has emerged. With the ongoing housing and credit crisis, the sales this year are off 2.5% from 2006 levels and they are not expected to rebound in 2008.
Already, production cuts have been announced for the first quarter of 2008 that will impact Canadian assembly and parts manufacturers. In fact, more of those were announced today. This is in addition to the already announced production cuts in 2008, which in Canada has resulted in two lost shifts at our most productive, highest-quality plants, as well as a significant reduction in OEM parts and components output, and a commensurate drop in employment levels. The parts sector alone has lost over 20,000 jobs in the last two years.
Canada's situation is unfortunate, given the global realities of automotive manufacturing. Consider what is going on outside North America. Global automotive production is undergoing a significant expansion. That's not the case in Canada. By 2011, global production will increase by nearly 17 million units, to over 80 million units. On the contrary, Canada's vehicle production is forecast to drop by roughly 160,000 units over the same period. That's about equivalent to one good-sized assembly plant that would employ about 2,000 people.
If Canada wants to remain in the top tier of global automotive producing nations, we must do more to attract investment, and we must work together to do so. Canada has already fallen from seventh place in global production to ninth, and is projected to fall to tenth place by the end of this decade. In addition, North America continues to be the only auto producing jurisdiction globally that will continue to be a significant net importer of finished vehicles, with just over 4 million vehicles imported in 2006.
Asia-Pacific manufacturers, specifically those in Korea and Japan, export over 7.5 million vehicles annually to other markets, with roughly 3 million of those vehicles ending up in North America, and Canada, of course, receiving its share.
Without new investment in product mandate, product levels will dry up, plants will close, and Canadians will be unemployed. Canada had a couple of cost advantages to help attract investment, including the lower Canadian dollar compared to the U.S. dollar, and the often-repeated labour and health care advantage. The rapid rise of the Canadian dollar means that the costs of all local inputs have increased significantly. Today, as a result, Canada is the highest-cost jurisdiction globally for many auto manufacturers. Canada, therefore, is at a competitive disadvantage at attracting new automotive investments to remain globally competitive. If we are going to attract the level of investments necessary to maintain a high level of high-value-added auto production in a viable supply chain, along with the associated employment levels, we require a comprehensive automotive investment strategy that as a consequence will help lessen the direct impact of the rise of the dollar.
Our plan includes five critical elements. First, it is essential that Canada ensure a globally competitive investment fund and corporate taxation regime. The recent economic update of the government is directionally correct, but we need to recognize that in the current situation many companies are now operating without profit, especially in the auto sector, and are therefore not able to take advantage of the recently announced corporate tax cuts, accelerated depreciation allowances, or even the traditional SR and ED program, as all these federal policy areas are essentially based on reducing your tax bill.
While we fully agree that tax cuts are a good policy for the broader Canadian economy, we must be fully aware that they do not help manufacturing and exporting companies that are in a tax loss position to adapt and enhance productivity. As such, globally competitive investment funds are critical to help attract new investment, especially the large-scale, multi-billion-dollar investments necessary for auto assembly.
Every auto-producing jurisdiction, big or small, provides investment supports for auto manufacturers. Australia, for example, applies revenues from the vehicle import tariff to support investment in its large domestic industry. That's just one innovative solution. U.S. municipalities and other jurisdictions worldwide continue to offer millions of dollars' worth of municipal tax incentives to auto companies that make large assembly investments and/or reinvestments.
The federal government is clearly not opposed to providing competitive supports directly to industry, as seen in the recently established government incentive programs for aerospace and defence sectors. We must ask, will similar supports also be available to the auto sector?
The second critical element is supporting the auto industry's efforts in environmental sustainability. Canada needs to introduce national vehicle standards, in particular fuel economy standards—these are standards that I call deep-impact standards—that are in line with the dominant North American standard.
The third element is creating a smart, efficient, and cooperative regulatory regime within Canada and with our major trading partners.
Expanding critical trade infrastructure and simplifying border processes is the fourth major element of the automotive investment strategy for Canada. Simply put, it is 27,000 times more difficult and costly, from a customs perspective, to get 4,500 North American-built vehicles into our own market than it is to import those vehicles from offshore. This does not support automotive investment. During the production of a vehicle in North America, parts and components can cross the border six or seven times, each time with the necessary paperwork and security checks, while on the other hand, imported vehicles simply clear customs by the boatload, or about 4,500 units at a time.
The last but not least important element of an automotive investment plan for Canada is opening foreign markets through free and fair trade agreements. Canada's auto industry and Canada as a result have benefited greatly from free and fair trade, especially with our NAFTA partners.
Currently we are negotiating an FTA with South Korea that may result in continued one-way trade in automobiles and no broader economic benefit for Canadians. A complex system of recurring non-tariff barriers has been used in Korea for the past 20 years to keep their market closed. The proposed FTA, as we see it, will not open this vibrant and wealthy automotive market. Meanwhile, Korean assemblers will continue to get unfettered access to our market.
Why does this have an impact upon investment decisions? In today's global industry, companies attempt to maximize production of each of their global assembly plants to maintain a competitive position. If Canadian manufacturers cannot access foreign markets, their production mandates will be placed in other jurisdictions. An FTA with Korea that does not create free and fair trade will result in continued increases in imports with no foreign market access to offset domestic sales and will therefore result in a reduction in local production.
The proposed Korea FTA could undermine all other aspects of an automotive strategy for Canada and as a result must not continue along its current path to completion. Canada needs to focus on negotiating FTAs to help Canadian auto manufacturers and exporters in other industrial sectors gain access to these lucrative markets.
In summary, I cannot stress enough the difficult situation our member companies in the OEM parts sectors are in within Canada. The rapid rise of the Canadian dollar is just the latest strike against domestic auto manufacturers and exporters, with roughly 570,000 Canadians either directly or indirectly employed in the industry.
We urge the government to immediately enter into partnership with industry to develop and implement an automotive strategy, as outlined in the five elements above, to help restore a competitive advantage to investing in Canada's critical auto industry.
Mr. Chairman, thank you. I'd be pleased to answer any questions.