Public Accounts Committee on March 30th, 2015

[John Carmichael, Conservative, Don Valley West, ON]

Thank you, Chair, and welcome to our witnesses today. This is certainly an important topic. I appreciate your opening comments. Mr. Jennings, you especially commented on an area I'd like to open with and also ask Mr. Berthelette. I'm talking about the scale of the industry. I think your comments reflect it well.

The auto sector remains a vital part of our Canadian economy. The Canadian auto sector just experienced two record sales years: 1.8 million vehicles per year in Canada, which is a remarkable recovery considering where we came from in 2007-08, which you've all reiterated today. It's interesting that our government has worked hard to put in place the right conditions, with low taxes making Canada a great place to do business, and employing tools like the automotive innovation fund, which has given manufacturers incentives to do bigger and better work.

As we've heard today, one manufacturer in Alliston is building new right-hand drive cars for the CETA European market. Ford in Oakville is doing the same thing. They're building right-hand drive vehicles for Europe. That has to be an encouraging sight, particularly for those who lived through it up here in those terrific times.

In section 5.2 of the report, Mr. Berthelette, there's a pretty good summary. It talks about the extent of this industry and just how important this industry is to the overall economy. It states that:In 2007, approximately 1.5 percent ($21.4 billion) of the Canadian gross domestic product was attributable to the car industry, compared with about 1.1 percent ($19.1 billion) in 2013. In 2007, car manufacturers and parts suppliers employed 152,000 people. In 2013, the sector employed about 117,000 people.

Mr. Berthelette, I don't want to reiterate all the comments that have already been stated, but could you talk to how many jobs you estimated, i.e., the Auditor General's office, would have been lost had General Motors and Chrysler ceased production? Does this include runoff jobs such as dealers? General Motors had 700 dealers at the time; Chrysler had 450 dealers. I wonder if you could consider them as well in your total numbers.

If GM and Chrysler had ceased production, you stated in your comments that tax revenues would have decreased, and expenditures such as those for social programs would have increased. What do you estimate this could have cost the federal government?

[Jerome Berthelette]

Mr. Chair, we did not do any audit work related to the number of jobs that could have been lost nor the amount of money that would have been lost in tax revenues if both GM and Chrysler had gone out of business in Canada.

The information we have here is the information that we picked up while we were doing this audit. We focused on the management of the support as opposed to what would have happened had they gone out of business. I can say, I think as most of us around the table can say, particularly those working in the industry, that if they had gone out of business it would have been a big hit on the economy. That is evident, sir.

[John Carmichael, Conservative, Don Valley West, ON]

It's interesting that here we are today at this committee meeting and there was an extensive article on a report due to be released—and I think it was released somewhere around noon by Unifor, the union representing most of the unionized workers in the auto industry—it talked about the total hit, as I recall the term they used, of some 30,000 jobs at General Motors alone just in the factory and extended into some of the parts suppliers. If you start to leverage some of those numbers—Mr. Jennings, you mentioned 100,000 jobs. I think it is probably closer to 150,000 jobs in total. It was a fairly significant number.

In the report at section 5.30, the Auditor General states:

Despite the absence of final restructuring plans, Industry Canada had high-level information on what the Canadian restructuring costs would be, how much government funding would be needed, and what the funds would be used for. The Department also had limited analysis showing how the restructuring actions would improve the financial situations of the Canadian subsidiaries, what concessions had been made by stakeholders, and how the companies would repay their loans.

Mr. Berthelette, I wonder if you could elaborate on that?

There are always lessons to be learned and ways that we can improve further, obviously. These are noted in the report we're viewing today. However, it is equally important that we note the statements such as the one above in your report where it says “Industry Canada had high-level information”. I wonder if you could elaborate further on that, and then maybe Mr. Jennings could jump into that as well.

[Richard Domingue, Principal, Office of the Auditor General of Canada]

Mr. Chair, when we did the audit we saw that the information to support the decision-making process for some files was rather limited, so in the report we question the way these decisions were taken, considering that the information to support them was limited. For example, we talk about the decision to support the pension plan. We saw very limited evidence—either analysis or documentation—to support the decision to support and inject the kind of money that was injected into the pension plan, and the same for the health care trust, the same for the concession made by the unions, the dealerships, the suppliers, so when we did the audit, we saw a limited amount of information available to the departmental officials to support the decision-makers.

[John Carmichael, Conservative, Don Valley West, ON]

You talked about high-level—am I finished?

[The Chair, NDP, David Christopherson]

That's going to have to be well done. It's a minute 20 seconds over, but I wanted to give adequate time to that first round.

Moving over—by the way, colleagues, you'll see that the lights are flashing, the bells are ringing. We are good to complete one round. Then I'll suspend. We'll go and vote and then return.

With that, next up is Mr. Giguère. You have the floor, sir.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

I thank the witnesses for being here with us. I also want to welcome the delegation from Vietnam.

My question is addressed to the Assistant Auditor General.

In this regard the public service took a major political decision extremely quickly. All of the dossier nevertheless appears quite positive to me despite the difficulty in obtaining information from Chrysler and General Motors. The public service was given a very short time frame to deliver the merchandise. It had to act quickly, that is to say before both companies went bankrupt.

My analysis is quite positive with regard to our public service, which demonstrated know-how which can always be improved with experience. Is that analysis mistaken on my part?

[Jerome Berthelette]

Mr. Chair, I agree with what you say.

I would make reference to paragraph 5.88, which is our conclusion:

...we concluded that Industry Canada, the Department of Finance Canada, and Export Development Canada managed the financial support to the automotive sector in a way that contributed to the viability of the companies and the competitiveness of the sector...over the short and medium terms.

Generally, this is a good news story.

Mr. Chair, I would then make reference to paragraph 5.23. While I just noted that it is a good news story, there are certain areas where we saw that some more work could have been done. There were areas where there was limited analysis and limited information.

We recognized, as we state in paragraph 5.25, that, “The federal government made its decisions on financial assistance in a period of high uncertainty and within tight time frames.” We understand that. We think more work could have been done in terms of the analysis, maybe relying less on the material presented by the companies and doing a little more independent analysis of it, and perhaps doing a more independent challenge of the information that had been presented.

I think that a final restructuring plan would have been good. It would have provided a place where all of the details related to the restructuring could have been brought together in one place. It would have made it easier for the department and for Canadians to follow what had gone on in the restructuring, and would have made it easier for the department to report against the restructuring.

We have in appendix A, which I believe is at page 25 in my document, some suggestions related to going forward if there is ever another situation like this. We made suggestions related to the planning, monitoring, and public reporting related to such large interventions by the federal government.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you.

I will now ask what is known as “the fatal question”.

In light of the fact that there have been many personnel changes in the public service, will new public servants be able to learn from this experience?

Let us suppose that in a few months, for instance after the month of October, you were asked to go through this experience again. Let's say another industry had to be restructured, a pulp and paper industry, for instance, which would become a pulp and paper and chemical products industry. Would you be able to redo this excellent work, and improve it and make it a little more rigorous?

[Philip Jennings]

I am going to try to answer that question.

One thing the Auditor General did highlight was the fact that it would be useful to do a lessons learned exercise. While we didn't do a formal one, following the crisis we got together among partners—with Ontario and all of the federal departments—to understand what we learned from that crisis: what worked well and what didn't work well. I think the reason there was an award received for the work that was done is that principally there were a lot of very positive lessons learned.

The first lesson was about pooling resources, in the sense of working across organizations and understanding where there was expertise and where you had to draw on additional expertise to support the intensive work that was necessary under very tight timeframes. I mentioned already that there was financial expertise that had to be brought in. There was legal work that was done. There was actuarial work that was brought in. There were leading experts who were hired. It was about trying to, within a matter of weeks, get the intelligence that was necessary to inform the decisions that were made. That's one big lesson that was learned.

The other one was about working together and coordination. A decision that was made very early on was striking at very high levels, at a deputy minister committee, which would talk on a daily basis to keep track of where things were and to support the decisions being made.

Another one was a very novel approach, in terms of what we called “home and away teams”. There were a number of negotiation sessions that did take place outside of Canada. There was a very intense session in New York dealing with General Motors, and one with Chrysler that took place in Washington. There were senior teams where those negotiations were taking place, as well as senior teams that were in Ottawa. They were supporting each other in terms of trying to ensure we got the outcome that was desired. If Canada and Ontario were going to participate and support the companies, it was ensuring that we got the outcomes we wanted. As we've seen, the outcomes have been very strong, in the sense of both companies being very viable and vibrant now, and they're both reinvesting in Canada.

[The Chair, NDP, David Christopherson]

Thank you.

Please keep the answers a little tighter, if you could, going forward

We can get one more in and that gives us three. That takes us to about the halfway point in the bells and then we'll suspend.

Mr. Watson, you have the floor, sir.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

Thank you to the witnesses here today. To the Auditor General, thank you for the report. It audits—with respect to the restructuring of GM and Chrysler—only one of the many things that were happening under tight timelines across the government. I think the general conclusion here that this is a general good news story may be a bit of an understatement.

I want to begin where the report itself begins. I want to ask the question, because this was a credit crisis that precipitated this financial meltdown outside of Canada. There was legitimate concern—I think Mr. Jennings you hinted at this—that if the U.S. did a restructuring of the auto industry without our participation they would have repatriated the industry back into the United States and out of Canada. Was that a legitimate concern of the government at the time?

[Philip Jennings]

There's no doubt that one of the risks and one of the reasons why it was important for Canada and Ontario to be at the table was to ensure that for any restructuring of the companies that occurred Canadian interests would be protected. That would mean the Canadian operations of both GM and Chrysler would remain in Canada.

[Jeff Watson, Conservative, Essex, ON]

Mr. Berthelette, the Auditor General notes in the report what the effects of a credit crisis look like in terms of the negative effects on the auto industry. There are no viable alternatives if the auto industry goes under. For the very same reasons there would be no access to capital, businesses couldn't purchase inventories or take on new hires, or anything like that. Is that a fair assessment as well?

[Jerome Berthelette]

Yes, Mr. Chair. I believe that's a fair assessment.

[Jeff Watson, Conservative, Essex, ON]

If I'm understanding this very well, and we've talked about the incredibly tight timelines, how long is a business-as-usual restructuring of a company, say in the United States...? Obviously, because of the integrated nature, we're talking about a U.S. parent company. What does a chapter 11 reorganization typically look like there?

[Philip Jennings]

I don't think I have an accurate assessment, but everything I've heard is much longer than was the case for both GM and Chrysler.

[Jeff Watson, Conservative, Essex, ON]

According to HG.org, a chapter 11 bankruptcy in the U.S. can take 20 years, or even longer in some cases when you include monitoring to the objectives of the restructuring. From the announcement that the U.S. is participating in December 2008 to the June 1 bankruptcy, that's an impressively tight timeline. Yet I note, Mr. Jennings, there were a couple of awards here: the Institute of Public Administration of Canada in 2010, a silver innovative management award, and the Public Service Award of Excellence in 2009. Is that correct?

[Philip Jennings]

It is.

[Jeff Watson, Conservative, Essex, ON]

Good.

The report, if I understand the conclusions, said with respect to the management of this particular file, Industry Canada did a good job in assessing the recovery prospects of the company, found on page 7, paragraph 5.24; that Industry Canada monitored the restructuring assistance, page 11; it monitored the production commitments, page 12; and it has been recovering the funds, page 13.

The critiques, if I understand them, are in the nature of how exhaustive the due diligence was, not that there was due diligence absent. Is that a fair assessment, Mr. Berthelette?

[Jerome Berthelette]

I believe that would be a fair assessment. Our critiques were about the amount of effort that went into the analysis.

[Jeff Watson, Conservative, Essex, ON]

I make note the Auditor General's report on this chapter was completed in September 2014. Is that fair? It's in the back, I think.

[Jerome Berthelette]

Yes.

[Jeff Watson, Conservative, Essex, ON]

At the time, it said there was no report for the public with respect to the bailout. Is that complete now, Mr. Jennings?

[Philip Jennings]

It is completed and is now posted on our website, as of December 2014.