Evidence of meeting #27 for Industry, Science and Technology in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was automotive.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Mark Nantais  President, Canadian Vehicle Manufacturers' Association
Flavio Volpe  President, Automotive Parts Manufacturers' Association

4:55 p.m.

President, Canadian Vehicle Manufacturers' Association

Mark Nantais

I think the R and D is essential to the companies and to the industry, but a lot of it goes on elsewhere. There's so much of this going on, and we're so resource constrained at this point in time, and we have such capacities and universities and research hubs here with such capacities, why wouldn't we do that here? Particularly when you look at Waterloo, McMaster, what used to be AUTO21, these are all examples of expertise that lies here in Canada that we should be exploiting. We need this as an industry, whether it's in Silicon Valley or whether it's in the Silicon Valley of the north. We should do it here because we have so much demand and so much need in the areas that I've mentioned. It only makes sense.

5 p.m.

Conservative

Alex Nuttall Conservative Barrie—Springwater—Oro-Medonte, ON

I appreciate it. In a—

5 p.m.

President, Canadian Vehicle Manufacturers' Association

Mark Nantais

Sorry, if I may, we need to get ahead of the curve here a bit. We have governments at both levels saying, “Why wouldn't we be part of demonstrations of autonomous vehicles”, and things like that. Quite frankly, those decisions were made five years ago. We need to get ahead of the curve here.

5 p.m.

Conservative

Alex Nuttall Conservative Barrie—Springwater—Oro-Medonte, ON

Absolutely. I hope at some point we will be getting into a study on the sharing economy, as well, which we didn't endeavour to encompass where those two worlds mixed.

Mr. Fergus and Ms. Hutchings, I asked a question before about targets. Does the government have targets on auto manufacturing? Are there goals in place that drive policies that then drive programs?

5 p.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

It would be difficult for the government to set policies for what level of manufacturing should be happening. As a result, that is really a decision that is borne by the people who do the manufacturing, the membership of our two witnesses here, and other memberships that were taken through the other automobile manufacturers. To specifically answer your question, no.

What we want to do is to set up the right framework so there would be more manufacturing and more advanced manufacturing in that industry. I can't think of one person who wouldn't think that it is not one of the most valuable manufacturing sectors that we have in our country.

5 p.m.

Conservative

Alex Nuttall Conservative Barrie—Springwater—Oro-Medonte, ON

For sure. We all agree on that.

One of the things that was said was that we don't have somebody who is, for the lack of a better word, attacking the decision-makers or at least those who are recommending the placement of investments, whether it's here, in Mexico, or somewhere in the United States. In the world of finance, where I come from, any time you apply measurements and you apply targets, you encourage people to go and do those things. That's more where I was going at the start. If the government can put in place targets, maybe something we can put into this report.... When governments place targets on stuff, it also encourages the employees. They know what they're measured on, and we have those people going and vehemently putting our case forward rather than putting it on a website and hoping somebody responds.

5 p.m.

Liberal

The Chair Liberal Dan Ruimy

I see an eagerness by Mr. Volpe to respond.

5 p.m.

President, Automotive Parts Manufacturers' Association

Flavio Volpe

May I make a suggestion? The Canadian Automotive Partnership Council, which includes OEMs, parts makers, labour, and academia, has been in place since 2003. When it was launched in 2003, the original letters of invitation—and by the way it has representation in the federal government and in Quebec and Ontario—they set as a notional target the maintenance of 20% of the automotive footprint in North America. At the time, that number was probably a reflection of where it was, and it said “Let's have a floating target”. Different governments, different stripes, and different years have floated, but I think the concept of finding a number was one that was helpful to frame the discussions that resulted initially in those 2003 to 2005 major investment targets that we've all floated away from. They were original principles that the members of CAPC, and many of the original members who are still part of it, would probably see some value in.

5 p.m.

Liberal

The Chair Liberal Dan Ruimy

Thank you.

Mr. Masse, you have seven minutes.

October 17th, 2016 / 5 p.m.

NDP

Brian Masse NDP Windsor West, ON

I was part of that original CAPC meeting. It was well done. We brought not only the industry together on a competitive level, but we also brought together the parts people, the tool and die makers, the mould makers, and basically everybody involved from producing a vehicle to actually selling it and servicing it. Allan Rock created that.

Since then, though, I don't think CAPC has been very active, not in the last 10 years anyway, in my opinion. It's had some goals, and it's had some things. You could go on the website. Some governments have not really had any meetings at all.

The reality is that we can't actually create our own strategy. Many have. There's ProMéxico. I was in China, and I met with their auto industry. They had over 100 companies. It was similar to when Canada created the industry. We had over 100 automotive manufacturers at that time. You mentioned Walkerville. It is interesting how one of the first manufacturers got free hydro to produce their vehicles in Windsor. You also have the whole strategy behind the United States right now, with Obama and also with some trade restrictions, even on the border, that have made it more difficult to compete within the realm of our integrated market.

We have training. We have patents. We have R and D. We have a skilled workforce. We have safety productivity that's through the roof in terms of our competition. It's very attractive. We have the history. We just don't have a game plan when we get down to the 10-yard line. It's like we get down there in a football game, and we decide to spike the ball before getting a touchdown because we don't want a greenfield site anymore.

I think what's really important is to see us come out of this with specific things. One of the things that hasn't been touched on is the extension of the capital cost allowance. We're going to review that, and I think it's one of the things that this committee came to a good resolution on before.

Back in the original plan, I argued for a 10-year window, five years with the potential for a five-year renewal. I wonder what your thoughts are on that. I know that we keep getting about two-year renewals, and so forth. Those are some of the investment strategies that have already had decisions made on them.

What I'm looking for are the mid-term to long-term ones. Would extending the capital cost allowance to five years with a five-year renewal, for a total of 10 years, at least help?

One of the reasons I like that strategy, and it does have its detractions, is that it's harder for those who take advantage of the capital cost allowance to move a piece of equipment to China. Whether it be tool and die, mould making, or whatever it might be, if Canadian taxpayers are going to invest in it, the writeoff and everything for that which they invest in as a population is harder to actually dislodge through a general corporate tax cut. It's a carrot-and-stick approach that is a little more appropriate in my evaluation.

At any rate, I'd like to hear what you think about whether or not the capital cost allowance should be continued. To credit certain governments, they have extended it, so it hasn't disappeared, but it hasn't been to the longer cycle that some are advocating.

5:05 p.m.

President, Canadian Vehicle Manufacturers' Association

Mark Nantais

I think somebody commented earlier on why wouldn't we extend these things. I also mentioned in that context that industry needs certainty. Certainty does not mean knowing whether that policy is going to be in place three years from now or not, or whether that AIF is going to be at that level four years from now or two years from now. Whether it be capital cost allowance, the parts incentive fund, an AIF, or any other, I would suggest they should be solidified, entrenched, made permanent.

Let me put it in another context. We've talked about job multipliers and things like that. In fact, one of Flavio's largest company members did a financial analysis on automotive company incentives. They put it in dollar terms. It was based on an example of a $100-million investment, which is small in terms of our playing field. You need to think of it as an investment, and on that investment, you get your money back within three years. That's a return on investment that's very short, unlike many other industries. In eight years, you more than double your investment.

To put it in those terms, you get incredible returns by getting new automotive investment. However, you won't get new automotive investment if there is a lot of uncertainty. Decision-makers who are part of the investment cycle 10 years from now need to know if that is going to be there in 10 years or not. It's just like collective agreements. People think, “We're in good shape; we have some good agreements in place.” Well, guess what? They're only there for four years.

Our industry, the petroleum industry, and any other major industry, including aerospace, need long-term certainty. To the extent that any government can provide that certainty, or when you hand off from one government to another, having discussions about how you maintain that certainty for industrial investment would be absolutely critical to and greatly welcomed by any sector.

5:10 p.m.

NDP

Brian Masse NDP Windsor West, ON

You're saying that it's basically a permanency of the capital cost allowance.

5:10 p.m.

President, Canadian Vehicle Manufacturers' Association

Mark Nantais

Yes. I think that's less important to large manufacturers, but it's still important. It's certainly important to small and medium enterprises, absolutely.

5:10 p.m.

NDP

Brian Masse NDP Windsor West, ON

Another one that hasn't been touched on, which I'm hearing some concern about, is the SR and ED tax credits. People actually do support the SR and ED tax credits and so do a lot of companies, but it's about the access to them. The problem is the difficulty of access. It seems to be a nagging concern that I keep hearing about over and over.

Do you have any suggestions on improving that? I just met with the mould makers again, and they appreciate and support it as an initiative, but the problem they often have is that going through the changing rules related to accessing it seems to make it a little more onerous than what they'd like to have.

5:10 p.m.

President, Automotive Parts Manufacturers' Association

Flavio Volpe

That's right. Let me add another element to it about smaller companies. Typically, mould makers have less than 50 employees, and in some cases less than 20 employees, so you have a finite number of people who are making moulds and servicing the customer.

Some of the bigger firms, and especially our bigger firms—our biggest firm is as big as any automaker—will have staff on board to help pursue a tax credit, and they understand the changes and they'll try to influence those changes. A mould maker with 20 people has somebody who's doing something else and is having to take the time away to go and chase the credit.

5:10 p.m.

Liberal

The Chair Liberal Dan Ruimy

That's excellent. Thank you.

In this last round, we have four minutes. Then we're going to break for a couple of minutes and go in camera to discuss something.

Mr. Sheehan, you have the last four minutes.

5:10 p.m.

Liberal

Terry Sheehan Liberal Sault Ste. Marie, ON

I'm going to share my time with Greg, so I'll ask a very quick question.

We've had some witnesses who have taken the approach that the manufacturing study we're undertaking is good because there's commonality to a lot of sectors, while others have said that perhaps a specific one on auto, aerospace, or steel is important.

Could I have your thoughts on that very quickly, please.

5:10 p.m.

President, Automotive Parts Manufacturers' Association

Flavio Volpe

I think any study is going to include an inflection on trade dynamics and trade agreements. I think on those you need to go industry specific. Rules of origin and regional content rules are different for those, and we have different competition in those different manufacturing sectors.

5:10 p.m.

President, Canadian Vehicle Manufacturers' Association

Mark Nantais

Tariffs are different.

5:10 p.m.

President, Automotive Parts Manufacturers' Association

Flavio Volpe

Yes, the tariffs are governed under the different agreements Canada is in. Specifically on trade, look at the different subsectors.

5:10 p.m.

Liberal

Terry Sheehan Liberal Sault Ste. Marie, ON

Thank you. I'll let Greg ask a question now.

5:10 p.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

Thank you, Terry.

Monsieur Nantais and Mr. Volpe, I would like to get back to a point that was raised by my colleague Mr. Nuttall in regard to investments in research and development.

According to the World Intellectual Property Organization, WIPO, Canada does very well in terms of higher education investments in research and development. We do very well in government investments in R and D. Where Canada doesn't do well—it might speak to your sector, and it might not—is in business investments in research and development. We rank 15th in the world among OECD countries. We rank fifth among G7 countries.

I have two questions. Given how important it is to innovate, why do you think Canadian businesses—perhaps some are in your sector and perhaps some are not—are not more innovative? Following up a little on what Mr. Masse or Mr. Nantais raised in terms of SR and ED, what do you think we should be doing to encourage more innovation through research and development in the automotive sector?

5:10 p.m.

President, Automotive Parts Manufacturers' Association

Flavio Volpe

I'll give you just a quick look from the supply sector. We're very good at innovation, with a very high spend.

Where we fall is on commercialization. That's the nature of our business. Our customers will ask us to take a look at a piece and see if we can get it to them lighter, faster, or stronger. We do that, and then they may award that program through an assembly plant that isn't in Canada. We may be able to supply it, but we're left to supply it in that concentric circle of supply.

I think that is going to change materially if Ontario IT companies get into the supply chain properly, as the commercialization of intellectual property in that space is a much straighter line.

5:15 p.m.

President, Canadian Vehicle Manufacturers' Association

Mark Nantais

I think I would support those comments as well.

Part of it is the way the companies are structured. The engineering facilities, for instance, where we do innovative work and research and development, have been historically located in head offices elsewhere. Pulling those projects out and putting them in Canadian facilities has always been a challenge. Certainly, my companies have them here.

This is where Minister Bains' work on the innovation agenda is going to be very helpful, I think, because I am assuming that he will be looking at these very issues. I know that my companies have been, and will continue to be, a big part of that discussion.

I mentioned a couple of things today that I think could help, and I know there are many more that individual companies, because of their individual circumstances, will speak to more directly.

I think the timing is right. What is going on in our industry is going to drive a lot of this, because we are going to need to innovate, and we are innovating, I think.

As Flavio says, we are spending a lot of money. How we rank in the standings globally, how that plays out, is a different issue. Other countries, such as Germany, have very specific programs, and they have been at it for a long time.

Certainly, our view is that we can do more, do it better, and make a move faster.

5:15 p.m.

Liberal

The Chair Liberal Dan Ruimy

Excellent.

I want to thank Mr. Nantais and Mr. Volpe for their engaging the committee. They certainly seemed very engaged today. Thank you very much for coming.

We are going to suspend for two minutes, and then we'll come back and wrap it up.

[Proceedings continue in camera]