Thank you very much. I'm glad to be here.
Good morning and thank you again. My name is Mike Bilton. I'm the co-chairman of the Canadian Association of Moldmakers.
CAMM, as we call it, represents a member base that carries one of the most in-demand skilled trades to the success and prosperity of our valued automotive sector and manufacturing. We support, facilitate business opportunities, educate and foster over 215 tier two level tool and mould shops in Canada, including 13,000 plus proud and highly skilled tradespersons across Ontario, Quebec and all of Canada.
Today, we are here to discuss the ongoing implications of steel and aluminum tariffs. My chairman, Jonathon, is here to speak more specifically about the direct cost implications to his business, like others, including operating and carrying costs for the tier two level.
In support, I am here, however, to discuss the other side of it, which is about how his overall cost models affect my business at the tier one level. As large parts suppliers, tier one companies are typically the customers of nearly all tier two companies, as tier three are to tier two, in the same fashion.
Of course, at the top of the chain, the actual OEMs are my customer, the auto manufacturer. It's no secret that today's OEMs' direct supply basis is constantly being challenged, with mandatory cost reduction strategies, to remain competitive in various product segments and components. Setting aside a new realm of root material tariffs, these challenges are real, as is the struggle.
Clearly, steel and aluminum are the main materials in the construction of the vehicles of today and tomorrow. That's obvious. Separate from that though, I'd like to bring light to the enormity of tooling and equipment needed to create these components and a vast array of others that all come together to create our masterpiece.
The manufacturing costs of these tooling and equipment assemblies, cells, and line side post-operative systems will often represent north of 60% of a program's budget, with very little wiggle room to eliminate waste and streamline our path to profitability, however small those margins tend to be. This is our reality.
The global movement into Industry 4.0 and now, into 5.0, which is the next generation of manufacturing as we know it, is changing at a breakneck pace. More specifically, the need for tier one manufacturing plants to morph and retool into this next-generation facility relies profoundly on implementing automated work stations to create parts and widgets. It's the out-of-control rising costs of these automated tools and equipment that I'm referring to.
The main ingredients in this tooling and equipment are indeed—you guessed it—steel and aluminum. Without a modern type of automation and shifting conventional manufacturing property and equity to this new style, there will be bad news for folks like me in tier one. Bad news means rapidly rising cost structures and falling behind in market competitiveness.
This is not to mention the burden placed on the automaker, when even their own parts suppliers are forced to close doors, which is happening, because they cannot remain profitable enough to supply. Rising operating costs are always the culprit, especially in a business that barely survives on single-digit margins.
From my perspective at the tier one level, contract pricing from our automation supplier companies is up 10% to 15% and in some cases, where steel and aluminum material content is much higher, I'm seeing increases of 25% to 35%. This is not only for automation suppliers but also for mould suppliers under our umbrella at CAMM, who are exactly the suppliers that CAMM's membership consists of. This is unacceptable.
I cannot sustain a competitive business model for my OEM customers with these increased costs in my own supply base, for which most costs are forcefully absorbed by me or the automaker. Already, direct results to a tier one supplier are elevated annual mandatory givebacks.
Trade incentive and duty relief programs and the rules by which they are to abide are unclear and not easy to follow. The administration and receipt of relief funds can take up to four to six months. These regulatory challenges are part and parcel of a continued struggle, by-products of which continue to fight to remain competitive, with a cash flow burden that forces already single-digit margins to be very stressed. Factoring unavoidable tariff costs into our pricing models to our customers upstream is even more of a challenge if we are to be considered a supplier of choice.
Our manufacturing sector is also now at the mercy of reduced government funding initiatives, such as SR and ED. As we know, reinvestment of R and D funds back into a business to allow it to partner with tier ones and automakers on advanced technologies is one of the most advanced qualities in a company to be selected as a supplier of choice by an automaker. I can assure you that it matters greatly in the eyes of the top of the automotive food chain. North American, Japanese, Chinese and Korean automakers are all alike. This is a common denominator that we're seeing.
At this time, with a broad stroke, I'd like to echo the volumes of facts and figures, points of concern, quantifiable data submissions, resources and study findings that have been passed along from our Canadian business owners and stakeholders who, without doubt, have already felt the heavy burden of the imposition of recent steel and aluminum tariffs. This is felt not only by an enormous automotive and manufacturing base but also by aviation, aerospace, military and marine industries, or pretty much every industry that requires us to rely upon a common foundation of tooling equipment materials of aluminum and steel, currently and in the future, to create product.
In closing, in consideration of South Korea's successful negotiation of steel and aluminum tariff removal with the U.S. in March 2018, the Canadian Association of Moldmakers poses this question to the federal government: What are you doing to negotiate a similar outcome to ensure the prosperity of our Canadian businesses?
Thank you.
