Industry Committee on Oct. 17th, 2016

[Chandra Arya, Liberal, Nepean, ON]

Your presentation was quite interesting. It was interesting to hear the rich history of how the parts manufacturing industry grew here, but for me the most critical thing was in your last sentences. You said there has been a 20% growth in capacity in Mexico, whereas there has been very little growth in Canada.

Have we reached a plateau, or are we already in the sunset phase here?

[Flavio Volpe]

The automotive business works in cycles. We usually accept, colloquially, that there are seven-year cycles, and that's a build-up of new production, retiring of old production. The OEMs have moved to a global platform. The Ford Fusion you buy here is the same one that you would buy in Europe and the same one that you would buy in Asia. Many of the assets are very similar around the world.

[Chandra Arya, Liberal, Nepean, ON]

My point is, are we going to see an increase in capacity ratios here?

[Flavio Volpe]

We could. I was getting to that.

Frankly, Canada had a really good run in the 1990s, 1960s and 1970s. There was a dip in the 1980s, and a dip in the 2000s.

[Chandra Arya, Liberal, Nepean, ON]

I want to concentrate on the smaller member firms, the ones which have 50 to 100 members. How are they finding access to finance? How are they finding commercializing research and development?

[Flavio Volpe]

The automotive business works on a process, especially with Mark's members, the PPA, production part approval, process. You win a bid. You speculate on that bid. You build some tooling. You win the bid from him. You take your documentation to the bank, and the bank says they'll finance the build-up of your tooling and the retooling of your line.

In terms of volume, there hasn't been a better time for automotive parts producers since I've been around, and there's no issue in access to commercial financing to supply volume parts.

Access to competitive research and innovation financing and tax credits, it's a bit of a wavy pool, especially when you're competing with other jurisdictions where the public partner is a little bit more aggressive. I would give Canada and Ontario a passing grade.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

Mr. Dreeshen, for five minutes.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Mr. Chair, I'd like to share my time with Mr. Lobb.

Mark, when you spoke earlier, you talked about commitments that governments could show to help with some certainty. You talked about improving access to capital, intellectual environment, and negotiation of fair trade deals. In the fair trade part, you talked about currency manipulation and issues associated with that. You also talked about other issues such as keeping business costs low, and Mr. Nuttall spoke to some of those. With CPP payroll taxes, 95% of the people working right now are not going to see anything out of what is there, yet you and your workers are going to have to pay that right away, and we have the tax implications of massive debts that are engaged here.

Mr. Masse spoke about how workers and companies have made the adjustments. My fear is the barriers that might exist. One of the things you spoke of was whether Canada was going to be more competitive or less competitive on a 20-year basis. From your position, are there unintended consequences that we had best be aware of so that we are able to advance this out on a 20-year spectrum?

[Mark Nantais]

Thank you very much for that question. I think what needs to be done here is this. From a policy standpoint, and ultimately a regulatory standpoint, governments, whether it's this government or any other government—and the continuity, by the way, is really important in terms of certainty for future investment decisions—have to look at it through a lens of the economic realities and benefits. If we don't do that, then we're going to run up short in terms of, for instance, costs that will add to our cost of doing business here.

I don't care if you're an existing company, or whether you're a potential new candidate for investment in Canada. It all comes down to not one issue but multiple issues that are all summed up in terms of the total cost of doing business here. If we're not competitive on that basis, then we're not likely to get new investment in any major way, which is probably why we've lost out on some investment to date.

You always have to look at policy development through that lens. That doesn't mean you can't still achieve environmental objectives, or other objectives, but ultimately, if we don't do that, then we're not in the game. The real issue here, the challenge, is staying in the game relative to our competitors. From a government standpoint, any government, whoever is in power federally and provincially, needs to look at it in that context.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you.

I'll leave a couple of minutes for my colleague.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Thank you.

I would like to ask Mr. Nantais a question about Ontario's global adjustment on electricity bills. Can you tell us if your members pay the global adjustment price on their electricity bills, or are they exempt from those?

[Mark Nantais]

No. We pay all of it, which is really part of the issue.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Do you get a special rate at all from the Province of Ontario for electricity bills?

[Mark Nantais]

We have to pay the global adjustment and whatever the industrial rate is for us in that location. We don't get any breaks at this point in time. It becomes a question of what Ontario is going to do to address that issue, not just for industry, but also for rural residents—I'm one of them—who are experiencing exceptional electricity rates right now that are not very affordable.

[Ben Lobb, Conservative, Huron—Bruce, ON]

The other question I will ask is around the CPP rate increases, and this is from one employer who has close to 1,000 employees, and I've talked to other ones as well. I'm not going to argue the merits for or against it, just the fact that for every dollar an employee puts in, the employer also has to put in. Subsequently, they feel the RSP they have with their company is pretty generous. In addition to the health tax, they pay the CPP, EI, WSIB, the property, and all that stuff. Their plan was to reduce the amount of their RSP to the same amount as the CPP adjustment, so to the employee there's really no net benefit. It's just taking one from the other and maintaining the same employer contributions.

Do you have any thoughts on that, or have you got that far along with the companies you represent?

[Mark Nantais]

The companies I represent are evaluating this now, but I think the example you've given really is an indication of what a company needs to do to stay in business and competitive. That would be a perverse consequence of this initiative, but it speaks to what companies need to do to remain competitive.

It's pure and simple, as I see it. Ultimately, we have to provide a reasonable retirement plan for all Canadians, but how can we do it in a way that's not going to unduly or unfairly penalize those companies that have been responsible, that have provided reasonable, fair, and generous pension plans to their employees? How do we do that in a fair way?

[The Chair, Liberal, Dan Ruimy]

Thank you.

We'll move on to Mr. Sheehan. You have five minutes.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

I'd like to thank our presenters. Right before the session started, I was over in Japan. I'm co-chair of the Canada-Japan Inter-Parliamentary Group, and we had an opportunity to visit a Toyota plant in Nagoya. We met with their executives who are responsible for North American production. It was a great conversation about the importance of the auto sector industry. During that conversation, we talked about government support for GM and others. They mentioned that they were for supporting what I would think would be almost their competition in the area, General Motors, etc. They told us it was because of the person sitting beside you: because of the auto parts suppliers. Their feeling was that if people like GM go elsewhere—and hence the critical mass—the auto supply people go with them, and it makes it challenging for them to stay in Ontario.

My first question is for you, Mark. What is it that we as a government can do to support the auto sector industry, in particular noting that we have a big innovation agenda? When I worked for the government, for the Ministry of Training, Colleges and Universities in Ontario, I used to go into auto shops. If you walked onto the floor, you'd see a bunch of tools on the wall. Now when you walk into an auto shop, it's like going into NASA. There are computers everywhere. What can we do to support the innovation agenda for that industry?

Mr. Volpe, every riding wants to know what it would take to get an auto manufacturing parts place in their riding. What things do you guys look for, and what does your industry look for?

Thank you.

[Mark Nantais]

I'll start.

I mentioned a couple of things, including the AIF. We're very grateful for the fact that the fund has been extended, but now it's a question of how we can improve it from a tax treatment perspective. We read things in the paper that maybe the government's considering going to a grant structure. That would be a great thing, although I'm not sure I've seen any official announcement of that yet. There are also SR and ED credits. We're talking about what qualifies and what doesn't qualify. In terms of the shop or on the floor, what makes a difference there can help as well.

These are all things, but the key is in how we adjust it and close the gap between ourselves and our competing jurisdictions. Right now we take an envelope approach—the federal government and Ontario, for instance. That envelope needs to be expanded. We shouldn't be talking about 20%. We should be maybe talking about 50% plus, as I mentioned.

These are the things that can help, but they will also help because the assembly plants are kind of the nucleus. That's what attracts the suppliers, the supply chain that creates the concentric circles around us. Now we're getting into the fact that it also supports engineering facilities. It's not likely you'd have an engineering facility if you didn't have assembly here. I can say that pretty confidently. The fact that we do means that we do have, certainly in my member companies, research and engineering facilities here. Supporting them and expanding these programs so that they apply to some of the activities in those facilities as well is something that will not only help the auto industry but also help us become even more diverse and be able to promote and carry forward the innovation agenda more effectively and more broadly.

I think that is what's key when we go forward. We are challenged right now in trying to find talent in the areas I mentioned—lightweight materials, sensors, artificial intelligence, communications. We need engineers in those areas, and we need them now.

Those are the things that I think could be very helpful to us.

[Flavio Volpe]

Let me just add a quick answer.

What does our jurisdiction need to do? Look, in the end, to land an OEM investment there, it's one person, an actual human being, on one side of the table talking to another actual human being. On the OEM side of the table, it's usually site selectors or their company executives in Detroit or in Germany or in Japan or in other capitals. Who represents Canada and Canadian interests? The model that competing jurisdictions use is one group, ProMéxico, which is a concierge service for current investors and the desk that they use for foreign direct investment.

Part of Minister Freeland's mandate letter earlier this year said that the government is looking to create an investment in Canada office. Let's do that yesterday. That's the most significant. The rest of these things are silos. If we have someone going for that investment, it'll work.

As well, what do parts suppliers look for in a community? It's really two things: labour force and then the infrastructure to get that product out, on highways or on rail, to your customers.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

Mr. Masse, you have two minutes.

[Brian Masse, NDP, Windsor West, ON]

With infrastructure, the Windsor-Detroit corridor, how important still is a new border crossing to the people you represent?

[Flavio Volpe]

Do you want to give our answer jointly?

[Mark Nantais]

Yes, sure.

That's it. That's the most important thing.

[Brian Masse, NDP, Windsor West, ON]

It is.