Public Accounts Committee on March 30th, 2015

[Jeff Watson, Conservative, Essex, ON]

You pointed out there was no “lessons learned” exercise. That is in progress, as I understand it. What is the expected completion date?

[Philip Jennings]

It will be completed by the end of this year.

[Jeff Watson, Conservative, Essex, ON]

Okay.

On the auto innovation fund—which by the way in 2008 saved Ford's Essex Engine Plant in Windsor, that's a good news story there as well—I note that the Auditor General's report says that risk assessments were completed. I think for the first time I've seen one where they said it was perhaps too exhaustive in the due diligence. We'll take that as noted.

The project risk and proponent risk profiles, the Auditor General points out, were not part of the risk assessment framework. Are they now, Mr. Jennings?

[Philip Jennings]

I'll clarify that the department has always used, and continues to use, a risk-based approach when it assesses projects. As noted in the Auditor General's report, we did not have that approach properly documented. As of October of last year, we've now included that explicitly in our documentation.

[Jeff Watson, Conservative, Essex, ON]

This fund has tremendous—

[The Chair, NDP, David Christopherson]

Sorry, Mr. Watson. Time has expired. Thank you.

I noticed the attempt to keep that a little tighter. It really helps. I appreciate it.

Colleagues, this committee will now stand suspended. I would ask you to return as promptly as possible after we have voted so we can reconvene.

We now stand suspended.

[The Chair, NDP, David Christopherson]

I now declare this meeting of the Standing Committee on Public Accounts back in order.

Colleagues, you'll recall that we had left off after three speakers from our rotation list. I'll pick that up now with our fourth speaker, and that is Mr. Allen, who now has the floor.

[Malcolm Allen, NDP, Welland, ON]

Thank you very much, Mr. Chair.

Thank you, folks, for being with us.

Mr. Berthelette, in the Auditor General's report, on page 12 in the English at 5.45, 5.46, and 5.47, it talks about the amounts of money that were set aside as part of the whole. It talks in broad strokes about the $2.8-billion loan made for capital expenditures, warranty claims, under general corporate purposes. It goes on to talk about the $4-billion loan, $1 billion of which was for the GM pension plan.

There seems to be a concern with that piece in the sense, as you raise it, that it was set aside for the pension plan but it seemed to be set aside in a trust or some sort of other account that the parent corporation, which is actually a U.S.-based corporation, seemed to control.

Can you walk me through that piece as to what you found in the sense of the lack of oversight or control, if I can use those terms? I'm not suggesting you will, but can you tell us what happened with that billion dollars in the sense of the control of it or lack thereof?

[Jerome Berthelette]

Mr. Chair, in paragraph 5.46 we make reference to the $4 billion that had been set aside in an escrow account; $3 billion of that money was to be used for the pension funds within GM Canada and $1 billion was to have been paid by GM Canada. Once that $1 billion had been paid by GM Canada, $3 billion of the $4 billion was made available to GM for its pension liabilities. The remaining $1 billion was released to GM head office, the U.S. parent company.

We raise a point here that I think we've raised a couple of times in this particular chapter, that we didn't know exactly how that money was going to be used. It goes back to a point I think we made earlier in the chapter about the need for an overarching plan, a restructuring plan that would have helped us understand how that $1 billion was going to be used by the parent company, when we went in to take a look at how this was being managed.

We have no doubt it went to the parent company, that it was used by the parent company. We just aren't sure about exactly what use was made of it by the parent company and how that helped the long-term viability of the Canadian subsidiaries, for instance. We needed some more information related to those types of details.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Mr. Berthelette.

It goes back to the point I think Mr. Watson made about at the time there was a real liquidity crisis in the markets. I think everyone would agree. There was a meltdown and money was tight; it was hard to find. Canadian taxpayers' dollars went into a restructuring plan, a billion of which finds its way to the U.S. corporate headquarters. Of course for those of us...and four of us on this committee are either representatives of or tied to the auto sector one way or the other: Mr. Watson, Mr. Carrie, Mr. Carmichael, and me, who represented workers.

I know all too well, as an ex-CAW leader who was at bargaining, that you bargain and fight against each other inside your own corporation. If the liquidity ends up in GM U.S. hands...and we don't know what happened with it, they may very well have invested it. I'm speculating; I'm not asking you to speculate. They could have invested in a plant in the southern United States that takes on the St. Catharines transmission plant that I represent. We don't know that.

With money being tight, they could have used part of the money that was in escrow to take on what we thought was going to be a viable corporation up here that we were trying to bail out at the time. That's speculation; we don't know.

As you pointed out, Mr. Berthelette, I guess we should have known, and I think what Industry Canada is saying, Mr. Jennings, is that in the future we will find out and know where money is going. I believe that's what you said in your action plan. Is that correct?

[Philip Jennings]

Maybe I should clarify.

In working in partnership with the U.S. Treasury, the restructuring was set up to ensure the viability of the global company. Through that, to ensure the viability and competitiveness of the Canadian subsidiary, which are obviously the operations in Canada.

[Malcolm Allen, NDP, Welland, ON]

I appreciate, Mr. Jennings, where you're heading but I don't get that much time and I know how to drag the time out because that's what I'm paid to do. The question was about reporting not about whether it's the viability of the global corporation, as you described it.

The issue is that this is Canadian money to look at a Canadian enterprise, because that's what we bought shares in. Eventually we took shares in the Canadian enterprise because they are separate. Let me tell you that this corporation has made sure for a very long time to tell us that they are two different entities, not one. They may be a global corporation but that's not how they act in Canada. They tell us they're a separate entity. Vice-Chair Carmichael, who sits at the head of the table and who knows the dealership group really well, will tell all you about how they tell you what you are doing or not doing these days, but he'll speak for himself obviously.

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

With that, Mr. Allen, I'm going to call time.

Thank you, gentlemen.

Mr. Carrie, over to you.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

I want to thank everyone for being here today.

As was stated, I'm not a usual part of this committee. I'm the MP for Oshawa, which is the home of GM Canada. I have to tell you, the auto industry is hugely important not only to me, but to my riding and my constituents. I have to tell you, my constituents are worried about their jobs, their pensions, and their futures.

Mr. Jennings, you mentioned in your opening that our government's actions not only saved jobs in my community in Oshawa but the entire automotive footprint in Canada. I was wondering if you could elaborate a little bit more about what the outcome would have been if the government had chosen not to work with the auto industry at this troubled time.

[Philip Jennings]

Participating in the overall restructuring of GM and Chrysler was necessary to protect the Canadian automotive sector at large, which I said in my opening remarks.

With most of the production exported to the U.S., the events that were south of the border were affecting Canadian car production and auto part suppliers. Just to put numbers in perspective, the GM production, months before the worst part of the crisis, was 150,000 units, which they were producing on an annual basis. That went down to 49,000, just to give you a sense of just how much that dropped. In terms of Chrysler, production fell from 143,000 to 30,000. You have drops of about two-thirds in the case of GM and a drop of about 80% in the sense of Chrysler.

Obviously at the end of the day having such a steep decline in terms of production really put the viability of those operations at risk. As these companies were looking to restructure, the Government of Canada and the Government of Ontario wanted to ensure that we were at the table so that any restructured company would essentially maintain the Canadian operations.

We protected those interests in terms of our negotiations with those companies. While I can't get into the details of the covenants because they are commercially confidential, there were production commitments made by the companies and there were commitments made in terms of the capital expenditure investments in Canada as well as research and development commitments to Canada.

The last thing I will just say, which is important to note as well, is that the viability of these companies not only mattered to those companies and the suppliers obviously that relied on them, but also to the other manufacturers that did not directly receive money.

I will give you just two very quick quotes. During the crisis Toyota essentially said that they were mostly concerned with the suppliers, “And if the supply chain falls apart...it could stop production at Toyota's plants, too.”

As well, Alan Mulally the CEO of Ford, said in 2012, “If GM and Chrysler would've gone into free-fall they could've taken the entire supply base into free-fall also”.

[Colin Carrie, Conservative, Oshawa, ON]

You know what? You need to be commended on the action that you took.

Again though, my concern is that a lot of my constituents are really worried about going forward. I think it might be important to talk a little about competitiveness in jurisdictions going forward, comparing Canada and the other jurisdictions. Because it is great that we were able to save that footprint but the idea now going forward is how Canada can keep these jobs and attract future investments from companies like GM and other automotive companies.

I know the government's allocated over $1 billion towards the automotive innovation fund. I was wondering, again, Mr. Jennings, if you could give examples perhaps of how the funds attracted additional investment into Canada.

I also have a question. Comparing the federal governments in Canada and U.S., are you aware of any equivalent type of program in the American federal program?

[Philip Jennings]

Maybe I'll answer the last question first, which is that there is no federal equivalent to the automotive innovation fund in the U.S. The support that takes place in the U.S. in terms of attracting automotive investment is at the state level. That's usually a combination of either direct subsidies, tax abatements, land and infrastructure, as well as training support.

In terms of the automotive sector, I guess the first thing to note is that the industry has continued to grow. As I've mentioned, there has been investment by all the five assemblers, as well as by suppliers in Canada, but it's not without competitive challenges. At the end of the day, it is a sector where many jurisdictions do try to attract this type of investment.

It may be useful to walk through what we consider to be Canada's value proposition of why people invest. The automotive innovation fund, as you noted, has to date had a billion dollars allocated to that program. Not all of it has been invested to date, but what has been invested to date has leveraged about $2.8 billion from investments in the private sector, including the Ontario government. What we also have is a number of programs that support research and development in the auto sector. I'll just name a couple of organizations federally: the National Research Council and the Natural Sciences and Engineering Research Council. They provide R and D support, as well as more generous tax credits that also flow to a number of sectors under the scientific research and experimental development tax credit.

Another thing I should note as well is the investment climate. It is one with lower corporate tax rates, which have been cited by many auto companies in terms of being attractive, as well as a workforce that continues to produce high-quality vehicles because of high skills.

I'll maybe just mention on that point that J.D. Power, which is a leading firm that assesses quality.... One-third of all awards that have ever been given have been given to plants in Canada, which is much higher than the proportion of the production that we have.

Maybe the last thing very quickly—

[The Chair, NDP, David Christopherson]

It's a very long answer. Please make it quick.

[Philip Jennings]

The last point is just to say that on the regulatory side as well as in terms of exports, those are both areas in which Canada has seen improvement and has been seen as being increasingly attractive as a place to invest.

[The Chair, NDP, David Christopherson]

Thank you.

We move along to Madam Sgro.

Ma'am, you now have the floor.

[Judy Sgro, Liberal, York West, ON]

Thank you very much, Mr. Chair.

Thank you all very much for being here. I have to say that if I listen to my colleagues across the way, everything is wonderful, you did a great job, and all of that. Well, if that were the case, none of you would be sitting here before the public accounts committee. Clearly there are issues that need to be dealt with.

I want to also reiterate my and all of my colleagues' support for the auto industry. We understand how important that industry is, not just to Ontario but to all of Canada. We were all under huge amounts of pressure at that particular time, opposition and government, to assist in helping to save that industry.

I'm not being critical of the fact that we saved the industry, or at least we think we have. There were reports this morning in The Globe and Mail about the concern of the closing down the Oshawa plants and what that would do. I'm sure that—again, for all of us—we don't want that to happen. When the government commits to a $9-billion bailout, my disappointment here is the fact that, yes, you didn't have sufficient information and this, that, and the rest of it, but we trust you to make sure you have everything in line. All the ducks have to be in order. It's a $9-billion investment that we want to be successful. Clearly the pressure on the department to approve this money and to move forward once Parliament had approved it was probably very difficult, but clearly you were making decisions without sufficient information.

Could you not have held back for more information, even though the commitment was there, the money was there, and allocated it in a slower way while you got the information you needed to be able to back up your decisions? At the end of the day, Parliament's responsible for every cent that goes out, but you are also responsible. Could you not have secured more information through this process than you did?

[Philip Jennings]

I'll attempt to answer that question.

What I iterated before was that we were working toward very tight timelines that were essentially tied to the fact that these companies in the United States were under bankruptcy protection, and we really had to restructure, under very tight timelines, in terms of how they would emerge from that bankruptcy.

The Canadian and Ontario governments decided it was important to ensure that our interests were protected through those hearings, in terms of how they would restructure. What we required from the companies were restructuring plans that were clear on what was needed for them to be viable and for them to be viable not only in the United States but in Canada.

A number of inadequacies were identified in the restructuring plans that were first identified, which was highlighted in the Auditor General's report. In all the cases, for everything that was highlighted as inadequate, we received sufficient information to make an informed decision that we needed to make to participate in that restructuring.

The other thing that is also important for our being at the table is that one key interest that emerged from the restructuring was that Canada would not be disproportionately affected by the restructured entity. We did secure commitments from both Chrysler and GM on footprint and capital expenditure, as well as research and development in Canada.

[Judy Sgro, Liberal, York West, ON]

They certainly were continually assuring all of us of very similar things, but it's a question of just who is monitoring the dollars once they've been approved.

According to the comments from the Auditor General, you have still not used the information sufficiently to determine whether or not the program is achieving its objectives. What's your plan to improve on that particular detail?

[Philip Jennings]

What I can say about the automotive innovation fund is that in 2012 we did evaluate the program. The evaluation did show that it was meeting its short-term and medium-term objectives, but it was too early to tell whether it was going to meet its long-term objectives.

We've committed to having an evaluation when we feel that we'll have sufficient information to know the long-term impacts of that program. One is scheduled for 2017 in order to make that assessment to see whether the program meets all its objectives in the short, medium, and long term.

[Judy Sgro, Liberal, York West, ON]

That's a very long time away.