Public Accounts Committee on March 30th, 2015

[The Chair, NDP, David Christopherson]

Mr. Carmichael.

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

Thank you, Chair.

I'd like to return to my earlier line of questioning with Mr. Berthelette and Mr. Domingue. Very briefly, in 5.30 you make a comment that, “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.”

Mr. Domingue, we got a little off-topic in the answer to the question. I wonder if you could just give me a yes or no. Do you still stand by that statement?

[Richard Domingue]

We still stand by the statement that it had limited analysis for information.

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

It had high-level information.

[Richard Domingue]

Yes.

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

Mr. Jennings, I just want to follow-up on Madam Sgro's comment. We were in a crisis in 2007-09, and somebody had to make something happen, and clearly, you gentlemen did that.

In paragraphs 5.48, 5.49, and 5.50 the Auditor General talked about, in exchange for financial assistance, Chrysler Canada's commitments to production, and General Motors Canada's commitment to meeting certain production targets for vehicles, engines, and transmissions, and it goes on to list those commitments.

Could you, Mr. Jennings, or one of your colleagues elaborate a little bit further, as briefly as possible, or as the chair says, “As tightly as possible”, on this statement of your successful monitoring of these targets, as well as current progress on the GM commitments?

[Philip Jennings]

Unfortunately, most of the details of the commitments are commercially confidential. However, the commitments that were put in place were really about trying to anchor those companies and their operations in Canada.

As I've mentioned a couple of times now, commitments from both GM and Chrysler were secured in terms of production, capital expenditures, and research and development.

To answer your question specifically on General Motors, General Motors does have reporting requirements under those commitments. Every year, since the restructuring assistance, they have not only met the commitments they've set for themselves but they've actually outperformed their commitments in terms of what they've committed to Canada and Ontario through the restructuring assistance.

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

Mr. Berthelette, with the time remaining I wonder if we could go to the conclusion. In your remarks in 5.87, 5.88, and 5.89, you say:

The financial assistance provided to Chrysler and General Motors (GM) for their restructuring involved complex transactions, high uncertainty, and tight time frames during its development and execution.

You go on to say:

Nonetheless, 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 in Canada over the short and medium terms.

It then goes on further to elaborate a little on that.

Appreciating the good work you do, you said “restructuring involved complex transactions” and “tight time frames”, but the government nonetheless managed. The financial support assessed the risks and “tracked the progress of projects”, which “contributed to the viability of the companies”.

Can you elaborate on that a bit further, please?

[Jerome Berthelette]

Mr. Chair, as my colleague Mr. Jennings just stated with respect to the commitments, Industry Canada has been following up on the commitments. It has received the reports and has ensured that the commitments have been followed. That was a major condition with respect to the negotiations that I think made sense in the circumstances.

I think we can see from the results in the auto industry that in the short term and medium term both GM and Chrysler have done better and are in good shape now. I think that is something that we recognized in this audit.

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

Good. Thank you.

Mr. Jennings, did you want to comment further on the conclusion?

[Philip Jennings]

From my perspective, I think the audit did make me refamiliarize myself with the information that we did have. My assessment is that the comprehensive information was sufficient to be able to make the decisions at hand at the time.

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

Great.

Thank you very much.

[The Chair, NDP, David Christopherson]

Perfect. Thank you so much.

Moving along to Monsieur Giguère, you have the floor, sir.

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

Thank you, Mr. Chair.

Mr. Jennings, I would like to direct your attention to the new fund intended in the main for technological innovation. In this regard, the Automotive Innovation Fund is particularly important because it potentially represents the future.

I noted at point 5.77 in chapter 5 that you reported on performance evaluation measures. However it seems to me that a global perspective is lacking, and that the Canadian industry should have a technological specificity all its own, under Canadian control. The purpose would be to offset the fact that investment decisions are often made abroad, since the Canadian automotive industry belongs to foreign interests.

Through this fund, how could we stabilize foreign capital on Canadian soil, while preserving intellectual property for the future?

I think Mr. Jennings and Mr. Domingue could share the time and both answer that question.

[Philip Jennings]

I'll maybe take a quick second to remind that the automotive innovation fund is about trying to ensure that we support research and development and innovation in the auto sector. When projects are developed by companies and they seek support by the federal government for those investments, we have an assessment against a number of criteria to ensure that we think it brings value to Canada. Those criteria would obviously include looking at the R and D element, in terms of bringing R and D capacity into Canada, and also looking at how it supports the long-term economic development of Canada.

What is similar to what we secured with the restructuring of GM and Chrysler to what we do with the AIF program is that we do ask for commitments to be made by companies in return for the federal support of those investments. Those are similar in nature. We look for a commitment in terms of production in Canada, capital expenditures, as well as research and development.

[Richard Domingue]

When we did the audit, we did not examine the impact head offices have on investment decisions. We simply examined, in light of the objectives set out in the program, how the department managed the funds for these initiatives. That is why we did not examine the influence of head offices on investment decisions.

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

However, among the objectives of that project, is the interest in the short term of seeing several billion dollars' worth of investments in the automotive sector. That is very interesting, but for the long term, there will have to be investments made in safer, electric, intelligent cars, and we are really going to have to stand out in that sector.

Regarding the development of this program's objectives, are we sufficiently imaginative to look at the long-term future of the industry?

[Richard Domingue]

That is precisely why we made that recommendation to the department. We are asking it to do a follow-up and to measure the performance of the program. The objectives are very ambitious; they are to make motor vehicles more ecological, less energy-consuming, encourage innovation and make the sector more competitive. These are broad objectives to which we are not opposed.

In any case, we are not here to call those objectives into question. When we did the audit, we asked ourselves how the government could ensure that its automotive sector innovation program would allow it to reach its long-term objectives.

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

Mr. Jennings, I am giving you my last minute so that you may complete this very interesting reply.

[Philip Jennings]

Fine.

As I already said, we are in favour of the recommendation. It is important to see whether the program's objectives were reached.

We carried out a preliminary assessment in 2012 to see whether we were on the right track and would reach interim objectives. The result of that assessment showed that we had really reached our target objective.

The last thing I should mention is that when we assess a project, its value in Canada is not the issue. Even if we still have to launch an assessment, we try to see what the long-term value of the investment will be. We always try to ensure that with the funds that are available to support the projects, the truly long-term automotive sector projects will be supported. That is one of our objectives, and that is how we obtain information to make recommendations to the minister, so that he knows which project to support through the fund.

[The Chair, NDP, David Christopherson]

Thank you, all.

Moving along, back to Mr. Watson, you have the floor again, sir.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

I just want to return, first of all, to the context. When we're talking about restructuring, it's easy with the passage of time to remember precisely how difficult the time was when this decision was being made. Unemployment in Oshawa, for example, in 2009 was at or above 10%. In Windsor I remember it being as deep as 15.3% at the depths of the recession, and that was without losing the auto sector and all of those related jobs.

It's not just numbers. It is, of course, families, and what that could have meant to them. Windsor, I dare say, would have been a ghost town. This is what the Center for Automotive Research in Ann Arbor said in its study of the U.S. auto bailout. They said that a collapse of GM and Chrysler “would have produced a Depression Era economy in much of the upper Midwest.” I think our Prime Minister at the time suggested that if the industry had gone under, it would have blown a gaping hole in the Canadian economy. That recession could have been significantly worse than it was. We are talking about how the restructuring was implemented precisely because this government actually authorized the funds to be used.

I appreciate the talk of support by members opposite, but the reality is that the authorization for these programs came from Conservative members standing up on that, including funding for the auto innovation fund in 2008 and in 2013-14, as well as through restructuring in the budget of 2009. We don't get results if we don't in fact advance the money.

Regarding the report on the auto innovation fund, Mr. Jennings, we already established that risk assessments that were completed may be exhaustive in some ways. I asked whether the additional criticisms of the Auditor General have already been incorporated into the risk assessment framework of the department. You suggested that has been done.

The program has a number of safeguards. I point to page 18 of the Auditor General's report. There are three safeguards identified there, if I'm correct. The funds are disbursed only after the recipient has invested its own money. That's a significant safeguard. That support is unconditionally repayable. Can you explain what that means?

[Philip Jennings]

That means companies must repay any assistance provided to them. “Unconditionally” just means it's not an option.

[Jeff Watson, Conservative, Essex, ON]

If the product were to flop, the taxpayers would still be safeguarded under that one.

Finally, for projects presented by Canadian subsidiaries, repayment is guaranteed by the larger affiliated companies or the parent companies in the United States. That's a significant safeguard.

The report notes that Industry Canada monitors these funded projects.

Mr. Berthelette, I want to return to appendix A. You mentioned something here, and I'd like your comment on this. In the planning, with regard to minimum requirements, you've laid out here in bullet number 2 that:

Use of public funds is minimized, as required by the circumstances, and adequate compensation is obtained for the risks taken. Public assistance is not a substitute for greater concessions by stakeholders.

Is that the Government of Canada's advice, or is that your advice to the Government of Canada when it approaches planning?

[Jerome Berthelette]

Mr. Chair, that would be our advice to the Government of Canada, to our colleagues, when it comes to the planning.