INST Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Tuesday, October 21, 2003

¿

0910

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.))

Mr. Mark Nantais (President, Canadian Vehicle Manufacturers' Association)

¿

0915

The Chair

Mr. Mark Nantais

The Chair

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ)

The Chair

Mr. Mark Nantais

¿

0920

¿

0925

¿

0930

The Chair

Mrs. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance)

Mr. Mark Nantais

¿

0935

Mrs. Cheryl Gallant

Mr. Mark Nantais

Mrs. Cheryl Gallant

Mr. Mark Nantais

Mrs. Cheryl Gallant

¿

0940

Mr. Mark Nantais

Mrs. Cheryl Gallant

Mr. Mark Nantais

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. Mark Nantais

¿

0945

Mr. Larry Bagnell

The Chair

Mr. Paul Crête

¿

0950

Mr. Mark Nantais

Mr. Paul Crête

Mr. Mark Nantais

Mr. Paul Crête

Mr. Mark Nantais

Mr. Paul Crête

¿

0955

Mr. Mark Nantais

Mr. Paul Crête

Mr. Mark Nantais

The Chair

Hon. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.)

Mr. Mark Nantais

Hon. Gilbert Normand

Mr. Mark Nantais

À

1000

Hon. Gilbert Normand

Mr. Mark Nantais

Mrs. Eda Crossmile (Manager, External Affairs and Public Policy, Canadian Vehicle Manufacturers' Association)

The Chair

Mr. Brian Masse (Windsor West, NDP)

Mrs. Eda Crossmile

Mr. Mark Nantais

Mr. Brian Masse

Mr. Mark Nantais

Mr. Brian Masse

À

1005

Mr. Mark Nantais

Mr. Brian Masse

Mr. Mark Nantais

Mr. Brian Masse

Mr. Mark Nantais

Mr. Brian Masse

Mr. Mark Nantais

Mr. Brian Masse

Mr. Mark Nantais

Mrs. Eda Crossmile

Mr. Mark Nantais

Mr. Brian Masse

Mr. Mark Nantais

À

1010

Mr. Brian Masse

Mr. Mark Nantais

Mr. Brian Masse

The Chair

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.)

Mr. Mark Nantais

Mrs. Eda Crossmile

Mr. Mark Nantais

À

1015

Mr. Dan McTeague

Mrs. Eda Crossmile

Mr. Dan McTeague

Mr. Mark Nantais

The Chair

Mr. Paul Crête

À

1020

Mr. Mark Nantais

Mr. Paul Crête

Mr. Mark Nantais

Mr. Paul Crête

Mr. Mark Nantais

Mr. Paul Crête

Mr. Mark Nantais

À

1025

Mr. Paul Crête

Mr. Mark Nantais

The Chair

Ms. Paddy Torsney (Burlington, Lib.)

Mr. Mark Nantais

Ms. Paddy Torsney

À

1030

Mr. Mark Nantais

Ms. Paddy Torsney

The Chair

Ms. Paddy Torsney

The Chair

Ms. Paddy Torsney

The Chair

Mr. Brian Masse

Mr. Mark Nantais

À

1035

Mr. Brian Masse

Mr. Mark Nantais

Mrs. Eda Crossmile

Mr. Brian Masse

Mr. Mark Nantais

Mrs. Eda Crossmile

À

1040

Mr. Mark Nantais

Mr. Brian Masse

Mrs. Eda Crossmile

Mr. Mark Nantais

Mrs. Eda Crossmile

The Chair

Mr. Mark Nantais

Mrs. Eda Crossmile

À

1045

The Chair

Mrs. Eda Crossmile

The Chair

Mr. Mark Nantais

The Chair

Mrs. Eda Crossmile

The Chair

Mrs. Eda Crossmile

The Chair

Mrs. Eda Crossmile

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. Mark Nantais

À

1050

Mr. James Rajotte

Mr. Mark Nantais

Mr. James Rajotte

Mr. Mark Nantais

Mr. James Rajotte

Mr. Mark Nantais

The Chair

Mr. Mark Nantais

À

1055

The Chair

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CANADA

Standing Committee on Industry, Science and Technology

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NUMBER 060

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Tuesday, October 21, 2003

[Recorded by Electronic Apparatus]

¿  (0910)  

[English]

    The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): I call this meeting to order. The order of the day is, pursuant to Standing Order 108(2), a study on the status of Canada's automotive sector.

    I need to explain that we originally had both the Japan Automobile Manufacturers Association, JAMA, and the Canadian Vehicle Manufacturers' Association planned for this morning. We also had a person from the mayors' task force on automotive investment. It is unfortunate, but our clerk's mother passed away, so she's off doing business in Sudbury, and there was some confusion as far as changes to the schedule were concerned.

    Basically, what happened was that somewhere along the line the mayor sent notice he would not be able to appear, and we were trying to track down whether his co-chair or another mayor from the mayors' council would appear, since a number of us in the room have mayors on that council. That did not happen. Then the JAMA group sent us notice it had returned to Japan this week for some special events going on and could not make it.

    Today we have the Canadian Vehicle Manufacturers' Association: Mark Nantais, president, and Eda Crossmile, manager, external affairs and public policy. I would ask, Mark, that you begin. Welcome to the committee.

    Mr. Mark Nantais (President, Canadian Vehicle Manufacturers' Association): Good morning, ladies and gentlemen.

    Certainly, we are pleased to be here on behalf of CVMA member companies, DaimlerChrysler, Ford, and General Motors.

    Today I'd like to walk you through, if it pleases the committee, a series of slides as they relate to the state of the auto industry--which is what I think we were asked to do--as well as provide very brief comment on the Canadian Automotive Partnership Council. I understand you had invited the co-chairs, Mr. Michael Grimaldi and Mr. Don Walker, to appear later. My understanding is that they plan to discuss CAPC. I'll be pleased to answer questions with respect to that process, but I'm just going to provide a quick overview and let those gentlemen take you through a more detailed discussion.

    If that satisfies the committee, I'd like to proceed to slide 2, which is the automotive industry in Canada. There is a handout.

¿  (0915)  

    The Chair: It's only in English. Maybe we could pass out the charts so we can read them.

    Mr. Mark Nantais: I apologize. We had rather short notice of our attendance here, so we did not have an opportunity--

    The Chair: And I appreciate it.

[Translation]

    Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): But you also sell cars to people who only speak French.

[English]

    The Chair: This is what happens when the committee decides to move schedules around. You can't get things done too much in advance. The problem our clerk had with her mother passing away has caused difficulty for the committee, and we will proceed with caution.

    Mr. Mark Nantais: Thank you, and if I'm talking too quickly, please let me know and I'll be pleased to review things.

    The first slide addresses the automotive industry in Canada. It indicates that when you consider both direct and indirect employment, there are roughly 530,000 Canadians in the industry, which drives our economic health and prosperity. As an industry, and I'm speaking about the overall industry now, we account for about 12% of manufacturing GDP in Canada. We purchase about $33 billion in Canadian parts and services on an annual basis, and when we speak about DaimlerChrysler, Ford, and General Motors alone, these companies have invested more than $20 billion in new facilities and technologies over the past decade. On top of that, we have numerous dealers and employees in communities all across Canada.

    We can see the distribution and what not of dealerships as well as assembly plants, component plants, and research and development centres across Canada. The “At A Glance” map clearly shows that aside from six assembly plants for DaimlerChrysler, Ford, and General Motors combined, they also have 11 components plants as well as research and development centres located in either Windsor, Oshawa, or Kapuskasing, Ontario. There are numerous OEM parts suppliers spread out through southern Ontario and into Quebec who supply these companies, and across Canada we have about 3,900 dealers now from coast to coast.

    I mentioned the employment figures already, but even from an export standpoint, we are Canada's largest export industry, with $93 billion in Canadian exports annually. All of these things, I think, speak to how important the auto industry and its well-being are to Canada's economy.

    We'll turn to your page 2. When we talk about the automotive industry, clearly, from a global competitiveness standpoint, we see competition is more intense than it has ever been. Our industry is faced with increasing pressures from, first, a situation of overcapacity worldwide. We have roughly 22 million units--some of you are aware of this already--of overcapacity worldwide, of which about three and a half million units reside in North America.

    Second, we are faced with continuous regulatory pressures, which add to our production costs, which continue to increase in response to these regulatory actions. If we fail to achieve or assume a North American approach to regulation, it only compounds our costs, and those costs of course are passed on to the consumer. What we're finding, on the other hand, is that consumers are becoming more and more resistant to these price pass-throughs.

    Third, we are seeing increased competition from offshore manufacturers, who are perhaps not as constrained from a manufacturing standpoint in Canada as DaimlerChrysler, Ford, and General Motors, who have labour contracts and who, from decades as employers, have a large amount of what we call legacy costs.

    If I may, I'll just continue on to page 3, which is the slide entitled “Standards Development is Regional”. In providing Canadians with vehicles having the most advanced emission control technologies and state-of-the-art safety systems, manufacturers really are designing vehicles on a North American basis, that is, one standard certified once for the entire North American market. This approach, historically and going into the future, ensures that Canadians receive the safest and cleanest vehicles at the least cost. While our goal more globally speaking is for worldwide standards consistency, it really is essential that we concentrate on the North American region first and foremost.

    This slide is really intended to show you we have three basic regional standards development areas across the world. We have North America, which in many instances has some of the most stringent standards in the world, then we have Europe, and we have Asia. Those three blocks are essentially what is going on worldwide as we speak.

    Turning to the next slide, I'm going to shift gears a little bit and talk about vehicle sales. This slide depicts vehicle sales in Canada and provides both a historical perspective as well as new vehicle sales projections forward to the year 2010.

¿  (0920)  

    Canadian vehicle sales actually took a pretty severe dip in the early 1990s, to a low of 1.2 million units, with a very slow recovery period of almost a decade in order to achieve similar levels.

    In 2002, though, we actually hit a record level of new vehicle sales at 1.7 million units. For 2003, we expect there will be a slight dip to an estimated 1.6 million or 1.65 million units, and that's driven primarily by very heavily incentivized sales, again primarily by DaimlerChrysler, Ford, and General Motors.

    According to PriceWaterhouseCoopers projections, we can expect a further decline in new vehicle sales to roughly 1.5 million units by 2005 or 2006, followed again, however, by a period of improved sales out to the year 2010. I think when you look at this chart visually you can see how cyclical the industry is. That is typical of our industry.

    Turning to page 4, the top slide entitled “Affordability”, clearly affordability is presently one of the auto industry's biggest challenges, despite the fact that we've seen recent increases in personal income levels. This slide tracks the average transaction price of a new vehicle as a percentage of one's personal disposable income, and it shows Canada versus the U.S. in terms of vehicle affordability.

    What you see is that throughout the 1990s the gap between Canadian vehicle affordability and that of the U.S. continued to grow quite rapidly, or diverge quite rapidly. In 1991, for instance, Canadians had to pay roughly 105% of their personal disposable income for the purchase of a new vehicle, whereas our U.S. counterparts in that year had to pay roughly 96% of personal disposable income.

    Currently, however, when you follow the trend and that widening gap, Canadians pay roughly 136% of their personal disposable income while their American counterparts are paying roughly 93%. From 1999 through to 2002, this gap has narrowed somewhat, but that's due primarily to vehicle pricing actions that are partly the incentives and partly huge and very intense competition between manufacturers.

    The next slide provides some indication of what we are calling a negative pricing scenario that we really haven't seen before.

    The next slide entitled “Vehicle Prices” is to give you an indication of how intense the competition is leading to this negative pricing scenario in the Canadian marketplace. So even though we price Canadian vehicles at a discount of roughly $3,600 per vehicle or per passenger car compared with the U.S., before taxes, we continue to see us being forced into this scenario of negative pricing.

    Vehicle affordability, along with taxes and along with relatively high fuel prices in Canada relative to the United States, affects both the types of vehicles Canadians purchase and how long they actually retain their vehicles over time. This chart gives you an indication of the type of market segmentation that exists in Canada relative to market shares in 2002 for both Canada and the United States. What we see is that Canadians are purchasing almost twice as many compact passenger cars as their U.S. counterparts and almost three times more mini-vans.

    On the other hand, Canadians purchase significantly fewer large and luxury SUVs than their U.S. counterparts. You may ask what this means. What this means is that Canadians value the utility of their vehicles a great deal and from an overall fleet standpoint actually have a fleet in Canada that is significantly more fuel efficient than the on-road fleet in the United States. Of course, that will have implications or relevance to fuel efficiency and some of our targets in terms of our Kyoto objectives.

    Turning to the next slide “Average On-Road Vehicle Fleet”, the average age of the on-road fleet has actually increased very steadily, as this graph shows, from essentially 7.3 years in 1991 to 8.5 years in 2002. Again, this is a function of the affordability and, I'm pleased to say, increased quality of all vehicles across the board. However, it has a negative effect of slowing down fleet turnover, and fleet turnover, of course, is important. If we delay fleet turnover, it tends to delay both the environmental safety as well as fuel-efficiency benefits that we can otherwise derive from the introduction of more advanced technology vehicles.

¿  (0925)  

    Switching now to “Vehicle Assembly” or “Vehicle Production” at the top of page 6, we've seen, after steady growth throughout the 1990s and a peak of just over three million units produced in 1999, that assembly production is down some 16%. Canadian production is projected to further decline through to 2005 and remain relatively constant. What this means to some analysts--and you have probably read this in the paper--is that new industry investment for the remainder of the decade is unlikely.

    I want to add a couple of interesting perspectives involving Canada relative to the rest of the world in terms of production. For instance, the Asia Pacific region is expected to have an annual vehicle assembly growth almost twice that of North America and western Europe combined. If we turn to China, we see light vehicle assembly in China is expected to nearly triple between 2002 and 2010. In other words, China will account for a full one-third of global assembly growth over this same period.

    For example, take Korean exports to Canada--and this next chart is to show the significant increase that has occurred, essentially, from the period 1997 through to 2002. In six years, vehicle exports to Canada for that period have actually increased 345%. These Korean vehicle sales represent around 5.6%, or almost 6% of the Canadian market, but we've seen no commitment to production facilities in Canada. We expect this trend is likely to continue.

    As we talk about trade and trade balances, the auto industry continues as Canada's number one export industry that contributes to, quite frankly, an overall positive trade balance. This next chart gives an indication that of a total of roughly $93 billion in automotive-related exports, we continue to see, in the total context of the Canadian export scene, an 11.5% trade surplus associated with that. If you consider only automotive-related products and trade with the U.S., we have about a $27-billion trade surplus.

    I think we also need to speak about the parts industry and parts production in Canada. Canadian parts production is up quite dramatically from the early 1990s, as these Canadian suppliers are supplying both the U.S. and Canadian assembly plants. By and large, DaimlerChrysler, Ford, and General Motors purchase the overwhelming majority of Canadian-produced parts and components in this country.

    Similarly, as we speak about the parts industry and employment, we see that automotive industry employment in both parts and assembly is holding steadily despite some of the announced and some of the actual assembly plant closures. Of course, we see this as really a product or a factor of a response to increased parts sourcing mandates that certainly DaimlerChrysler, Ford, and General Motors continue to commit to.

    The interesting thing is that when we speak about motor vehicle and parts manufacturing jobs and incomes associated with jobs, we see that, on average, these jobs pay about 53% over the Canadian average. So those who have been associated with the auto industry and those who have been associated with DaimlerChrysler, Ford, and General Motors for decades have experienced a rather, shall I say, rich standard of living by virtue of the incomes they've derived from their work in these plants.

    The next slide, entitled “Materials in the Automobile by Weight”, not only provides you with an indication of types of materials that go into the production of a new vehicle, but it also gives you an indication of the actual value chain that exists in Canada and the many other industries that support both the parts and component manufacturing sector here in Canada.

¿  (0930)  

    My final slide relates the Canadian Automotive Partnership Council. We've seen that active public policy has played a very crucial role in the delivery of a large and productive auto sector in Canada. However, current automotive policies, particularly since the demise of the Auto Pact, clearly are no longer adequate to ensure that the Canadian industry receives new investment in production and employment.

    In other words, new policy is required if the industry is to continue to play a lead role in Canada's economic growth. Without it, the Canadian auto industry will almost certainly supply a shrinking share of total North American vehicle sales, a shrinking share of total investment, and a shrinking base of highly productive high-income jobs.

    Therefore, in response to the need for a new automotive policy in Canada, the Canadian Automotive Partnership Council, which some of you are familiar with, was established. Its purpose was to address, essentially, the five pillars that you see in this particular slide, ranging from infrastructure policy--which includes the road infrastructure, the cross-border situation, customs facilities, and customs processing--through to fiscal investment policy, skills and human resources policy, the harmonization or consistency of regulations on a North American basis, as well as the integration of the Government of Canada's innovation policies. One that you do not see there is actually a working group involved with the auto industry in Canada's Kyoto obligations.

    As I said earlier, I expect that the co-chairs will appear before this committee to provide more detail, but I'd be pleased to answer any questions you have, to the extent that I'm able, on the CAPC process, which has had, I think, three executive meetings to date. Another one is scheduled for early November.

    That concludes my remarks today, and I'd certainly be pleased to answer any questions you may have.

    The Chair: Thank you.

    Ms. Gallant.

    Mrs. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance): Thank you, Mr. Chair.

    In what ways would Canada's implementation of the Kyoto Protocol impact the auto industry?

    Mr. Mark Nantais: You've seen the latest plan for Kyoto and Canada meeting its obligations. One of the measures that has been outlined in that plan includes the adoption of a 25% improvement on fuel efficiency for new vehicles on a unique-to-Canada basis.

    That is a major change from the Action Plan 2000, which basically said the Government of Canada would negotiate with the U.S government in the auto industry for a significant improvement to fuel efficiency of new vehicles, but on a North American basis. So the fact that we are approaching this issue of improved fuel efficiency on a unique-to-Canada basis presents some extreme challenges for our industry to achieve.

    Quite frankly, I've said this publicly before, and I'll say it again: we've been set up for failure. I think the government has set itself up for failure in establishing that target, and as I think you've said, the government has set up the industry for failure on that target.

    We can go about this in a much better way. We have to go about this in a way of perhaps expanding our discussions and talking about greenhouse gases more generally as it relates to transportation, because technology is only one piece of the puzzle as we try to pursue our targets and meet our obligations.

    We're willing to stand up to that challenge from a technology standpoint, but there are many other pieces of the puzzle, including everything from public education, which involves the one-ton challenge, obviously, through to transportation policy, to fuel quality, to standards harmonization, and on and on.

    So just to choose to achieve, basically, a 5.1- or 5.2-megaton reduction by virtue of this target isn't going to cut it. We need a balanced approach.

¿  (0935)  

    Mrs. Cheryl Gallant: Thank you.

    In Japan they have more stringent emission standards, and that helps that country's auto industry because people are forced to buy new cars every few years.

    Is it because of our relationship and the trade and manufacturer being so close to the United States that the Canadian auto industry would not benefit from it?

    Mr. Mark Nantais: That is a very good question, because there are several aspects in there that need to be addressed.

    First, the size of the Canadian market by itself is insufficient to drive vehicle design, so we need to rely on the total North American market to drive that design, and therefore, of course, as I mentioned, we are able to provide technologies at least cost to Canadians. So there is a very clear need.

    This is the market we operate in. This is the North American market, so that's where we have to start.

    As we talk about emission standards in Japan being more stringent, I think we need to examine that a little bit. The question is, when we say “emission standards”, we are talking about those emissions that relate to air quality and smog, that is oxides of nitrogen, hydrocarbons, and CO. Fuel efficiency really equates to CO₂ emissions. We need to make that distinction.

    So in Canada we are adopting and introducing vehicles that meet what we call the tier 2 standards. These are the standards that were devised in the United States and adopted here in Canada as well. These are the most stringent national emission standards in the world. So on that front, we are more stringent than Japan.

    When you talk about fuel efficiency, clearly when you look at the price of fuel and at their regulatory regime, and so forth, yes, they have set some targets in Japan that are more stringent.

    In Canada and the U.S., of course, we are less stringent at this point in time and are striving to improve our fuel efficiency, but there are many factors that are operative in the Japanese market that drive fuel efficiency.

    That is true with the European agreement as well. The Europeans have also set more stringent fuel efficiency standards, but there is no relevance of that agreement to Canada because fuel prices are significantly more costly. We see that if a company that was part of that agreement is going to be economically harmed, there are some off-ramps. We see that the government is willing to step into that market and actually put in place policies that draw or pull forward technologies--clean diesel, for instance. We don't have any of that here.

    So aside from having a fleet that is a lot more fuel efficient in Canada and the United States, we don't have any of these other parameters that are operative, nor does the government seem to be willing to step up to them. This is why I speak about a more balanced systems approach to trying to achieve these things.

    We can't just pick one piece of the puzzle. We have to go after numerous puzzles that are complementary to one another, that help us to achieve and introduce more advanced technologies.

    That is a long answer. I apologize.

    Mrs. Cheryl Gallant: No, that was very informative.

    Subsequent to Canada's refusal to endorse the United States' entry into Iraq, Bill H.R.1588 has been introduced into the House of Representatives. Are you familiar with that bill?

    Mr. Mark Nantais: Is it the energy bill you are talking about?

    Mrs. Cheryl Gallant: No, it is the defence budget bill.

    In that bill they asked each department to list out where all the items come from in relation to military procurement. They want to know where the technology happens, where the R and D happens. They want to know where the raw materials are coming from, where all the parts are coming from, and where the finished product is manufactured.

    Along with that bill, it would appear that they are setting things up to exclude Canada from their defence procurement process.

    As you know, we have the LAVs, which are manufactured in London, Ontario. In Quebec, we have tire plants, and many, many automotive parts industries throughout Ontario and the rest of Canada.

    What impact do you see this having on the auto industry overall, if it's ratified?

¿  (0940)  

    Mr. Mark Nantais: As I mentioned, I am not that familiar with that bill, but based on what you've told me, I don't see a major impact.

    When you look at what President Bush has announced in terms of commitment to hydrogen and the hydrogen economy, the motor vehicle industry will play prominently into that.

    When you look at some of the leading-edge companies that are developing hydrogen technology in Canada, be they Ballard Power Systems, Hydrogenics Corporation, or Stuart Energy Systems, and so forth, those companies are being courted as we speak. The question is, how will we be able to keep those companies in Canada? How can we turn their technology into the first modules of production here in Canada, from a Canadian plant, which might ultimately be exported to the U.S. market?

    I guess the short answer is that I don't believe we're going to see a major impact on the motor vehicle industry, but it's certainly worth studying further.

    Mrs. Cheryl Gallant: What measures can we as parliamentarians put forth to improve the auto industry's chances for prosperity, which translate, most importantly, into jobs for Canadians? I'm asking you for more specifics on your five pillars. Infrastructure policy, fiscal policy, and human resources policy would all be reasonably addressed.

    Mr. Mark Nantais: There are working groups for each one of these pillars, and a number of recommendations have gone forward relating to fiscal policy, for instance. The government has actually acted on some of those policies as they relate to capital taxes, or the phase-out of those taxes federally and provincially, which is a great thing that will help.

    But there's more to do as it relates to infrastructure, particularly at the border. There are a couple of key things that will make a major impact on companies' decisions to invest in Canada. Reliable power is one of them; a reliable and consistent border is another; but so also is a very positive tax regime in Canada on a hemispheric basis, meaning relative to our major competitors and competing jurisdictions.

    So there are a number of recommendations this group is working on and has already put forward. Some additional ones will be coming forward relating to innovation policy. Clearly, we want to do something that is going to make our Canadian plants the most favoured plants to produce in, and obviously we want to position ourselves in Canada to produce some of the most advanced technologies, whether they be hybrid technologies or hydrogen technologies in the longer term.

    I'm a little reluctant to get into some of those recommendations; in fact, I'm not sure I'm at liberty to get into them, but they will be published ultimately. Perhaps I could defer those to the two co-chairs of CAPC, who will be coming to speak to you.

    The Chair: Mr. Bagnell.

    Mr. Larry Bagnell (Yukon, Lib.): Thank you.

    Just on the emissions, I didn't quite understand where you said in the first part, “we've been set up for failure”. If we require 25% less emissions in Canada, someone is going to build the cars and sell them to us, so what's the problem?

    Mr. Mark Nantais: The question is whether they can build them for a 25% improvement, and do you want them being built offshore? We have the technology to do 25%. Can we produce that technology so that it's affordable to Canadians, as I spoke about? It's not likely at this point in time. Will we see continuous improvement towards that goal? Yes, we will.

    But, for instance, when you look at some of the cost curves developed by the transportation table, which was part of the overall climate change consultation process, the cost of some of this technology gets into the multiple thousands. We will talk about price elasticity, and so on, but one of the things that the studies have shown is that when you increase the price of a new vehicle by $100, it decreases the demand for that vehicle by .8% or by almost 1%; so for every $100 increase, there is a 1% decline in the demand for that vehicle. We are already faced with the affordability challenge.

    We can produce vehicles, but can people afford them? How do we get them into the marketplace quickly?

    What we're suggesting that Canada needs to look at is, one, where we're operating in terms of our trading bloc, which is North America, and what can we do to pull that technology forward? We're suggesting that the government give consideration to meaningful incentives—not taxes on new vehicles, because taxes tend to delay fleet turnover. The key to achieving objectives here is to turn that fleet over. Yes, it sounds self-serving, but it's a proven fact; the more vehicles you get out there equipped with the more advanced technologies that are cleaner, more fuel efficient, and safer, the better off we're going to be.

    You can stifle that turnover or you can enhance that turnover, and we're suggesting that the 25% is very, very aggressive in the timeframe cited, which is 2010. And most of the major technologies, or what we call revolutionary-type technologies, are going to be well beyond. But we still have some significant technology barriers to overcome in terms of development, and we have this cost that we have to get down. So it's not that we're saying, “No, we can't do it”, but that, “We can't do it in an affordable manner or in a manner that Canadians can afford”. It will take some time, but 2010 is definitely too soon.

¿  (0945)  

    Mr. Larry Bagnell: I just have one other question. It's a bit esoteric, as my riding is the Yukon—but, of course, we're always looking for regional benefits in the Yukon.

    A couple of the areas I'm thinking of are...first of all, if a vehicle is designed specifically for the north. There are a lot of things that are specific to cold weather, such as an extra battery, block heaters, and everything, but built in as opposed to being additions. Of course, in Canada there would be a limited market as far as vehicle production goes, but if we can do that in Canada and then market to all of the northern nations, it may be a saleable item. For instance, right now, once it's less than 30 below zero, people take their cars to work and leave them running all day, because you can't start them otherwise. So if there were an innovation covering that kind of thing, and we marketed it to the entire world....

    The other thing is that we're keen on more northern research, if possible. I'll be lobbying for that. Just as an example—though it's not an auto industry example—we tested northern pipelines about 20 years ago. We actually did our pipeline testing in France of all the ridiculous places, when we should have done it in northern Canada.

    Those are my biases. Anything you can do in those areas would be very well received in the north.

    Thank you.

    The Chair: Monsieur Crête.

[Translation]

    Mr. Paul Crête: Thank you, Mr. Chairman.

    Mr. Nantais, thank you for your presentation. I reiterate what I said before translation was set up. I'm sure you know that people who only speak French buy large numbers of cars. One of the ways to show respect for them is to provide bilingual documents to Canadian parliamentary committees.

    This being said, you say that in America, models are virtually defined by the United States market and that our market is not large enough to define a type of product that could be in demand.

    However, I realize that for several years, Asian-made cars increasingly respond to North American needs. They are designed thousands of kilometers away, they are highly competitive, and their finish is often better than that of North American models.

    Do you have any data that would enable us to compare the amounts that Canada and Asian automobile manufacturers—say for the major companies—devote to research and development?

¿  (0950)  

[English]

    Mr. Mark Nantais: First off, let me respond to Monsieur Crête and make the chairman's point again that we meant no disrespect by not providing a French copy of our presentation. Again, I apologize.

    In response to your question, when we speak about research and development, I'm assuming you mean research and development in Canada by Asian automakers versus the North American automakers perhaps. I don't know what the figures are for Asian automakers, but I can only say that none of the Asian automakers, to the best of my knowledge, be they Japanese or Korean, have any research and development capabilities or investment in Canada. The research centres perhaps—

[Translation]

    Mr. Paul Crête: ... [Editor's Note: Inaudible]... in Canada the amounts they invested over the past 10, 15 or 20 years in automobile production. Their market is the world. You said earlier that the product was virtually designed in North America by the American market, and not by the Canadian market. Wouldn't you say that the automobile market is an international market? Shouldn't we design a product that could be sold in the United States but produced elsewhere in the world? Wouldn't the best example of this be the Asian companies that created, in their own countries, a product that very well responds to North American needs?

[English]

    Mr. Mark Nantais: Exactly. The Asian manufacturers have responded to North American needs. I don't know of any manufacturer, whether a North American-based manufacturer, Asian, or European, that does develop a vehicle unique to Canada. You're right, we all pursue this notion of global vehicles, which is why I've had a slide that addressed our objective of global regulatory consistency.

    If they're operating on a North American basis, then clearly, whether it be an Asian or a North American manufacturer, they both are developing vehicles for the North American market. They may build vehicles that can meet other markets as well, and that's what we're trying to achieve overall: how can we develop a vehicle that is a truly global vehicle?

    That's something that is going to take years to accomplish, because the regulatory regimes in these three regions I've mentioned are radically different. Either they're radically different in terms of their regulatory requirements and the specifications we have to meet, or they're quite different from the North American market in terms of their test protocols. In some cases those test protocols act as non-tariff barriers to our vehicles and limit the access of vehicles from North America into those markets.

    It's not an easy thing, but you will find that generally when somebody enters the North American market, it's Canadian and U.S. standards. When they enter other markets, it's European standards, or in the Asian market, it's Asian standards. If the implication is that the Asians have the advantage by designing vehicles that are more broadly accepted, that is not necessarily the case.

[Translation]

    Mr. Paul Crête: There's something I would like to verify. Over the past 20 years, Asian manufacturers may have devoted more energy and resources to research with a view to reducing automobile production costs through more plant automation as well as developing more attractive models than North American products.

[English]

    Mr. Mark Nantais: The attractiveness of a product is a subjective consumer issue. I can tell you for sure that any auto maker, in order to remain competitive in today's market, is spending literally billions of dollars in research and development. It's the only way they can stay in the game. This is the price one has to pay to play the game. Whether you're one of the three major North American companies or an Asian company, literally billions and billions of dollars are being spent on development. I would suggest from my standpoint that the Asians are spending no more than the North Americans.

[Translation]

    Mr. Paul Crête: I understand that everybody spends a lot of money, because this is a very profitable market. Do you have numbers to give us so that we can compare the amounts invested in research and development by the different manufacturers across the world and see the efficiency of this money? A lot of money can be spent without being efficient. This can happen.

¿  (0955)  

[English]

    Mr. Mark Nantais: In fact, I think the manufacturers would love to get their hands on each other's numbers, because that becomes clearly a competitive issue.

    I'm sorry, Mr. Crête, I don't have numbers. I'm not sure how one would go about getting those numbers, because I suspect they would be proprietary.

[Translation]

    Mr. Paul Crête: I have a question on a different subject.

    Over the past few years, aluminum has been increasingly used to build automobiles. What kind of future do you think aluminum has in the automobile sector? In your table, you say that this material currently represents about 8% of the vehicle's weight, or 256 pounds. I don't know if this is the right unit of measure, but could you describe how you see the use of aluminum in the future?

[English]

    Mr. Mark Nantais: I think aluminum will play an increasingly more important role in vehicle materials and vehicle design. Aluminum is one of the metals or alloys we will be using, as is magnesium, for instance, as well as other composite types of material. That's all part of what we call the light-weighting of the vehicle. Light-weighting of a vehicle is reducing the weight of the vehicle, which assists us in improving, for instance, fuel efficiency.

    I might add, quite frankly, that through Natural Resources Canada we have CLiMRI, the Canadian lightweight materials research initiative, which is a government program focused on research to reduce the weight of the vehicle through materials like aluminum and magnesium. These are all materials that will indeed play a much more significant role moving forward. They may not become the biggest-volume material, but you will see significant components made more out of aluminum and magnesium.

    We have expertise in Canada, particularly in Quebec, for instance, and automakers will be relying more heavily on those types of materials moving forward.

    The Chair: Thank you very much.

    Monsieur Normand.

    Hon. Gilbert Normand (Bellechasse—Etchemins—Montmagny—L'Islet, Lib.): What are the principal factors in why prices of cars have risen so quickly in the last few years? In many other sectors, such as computers or electronics, prices of new products are going down, and in the automobile industry we have the inverse action. Why are prices rising so quickly in this industry?

    Mr. Mark Nantais: In part the increase in price is attributed to regulatory actions. In other words, if we are required to put in more safety equipment on a vehicle, which we are, or if we are required to put on more advanced emission control systems, they will add cost.

    When we look at hybrid vehicles, for instance, we are essentially looking at two power trains going into one vehicle. There's no question that costs a lot more to build and produce. So in part, regulatory actions are driving costs.

    If we don't use the larger North American market, as an example, to help us keep those costs down, they will continue to climb. In addition to that, we have to look at our labour costs, which are not a huge portion of the vehicle portion, but all of these things combined certainly contribute to an increase in vehicle pricing.

    It's all of those things together. You can imagine when you are putting two essentially different drive trains or systems into a vehicle—you continue to have an internal combustion engine as well as an electric drive—combining the two will add significant cost to a vehicle. In many cases it's multiple thousands of dollars. It's the price of getting cleaner, more fuel-efficient, and safer vehicles.

    Hon. Gilbert Normand: Do you have a board to make comparisons between the salaries here in North America, in Canada, and in Japan or Korea?

    Mr. Mark Nantais: I don't have specific numbers to give you, but rest assured that in other jurisdictions, such as Korea and some other jurisdictions, labour costs are generally more favourable than they are here. In some cases it's very significant.

    In our industry, of course, capital is more mobile now than ever. We don't have any requirements in Canada to keep us here any more, as we did under the auto pact. When you combine that mobility of capital and the flexibility of some of the new technology we're putting in place from a production standpoint as well as from a vehicle standpoint, you can build a case pretty quickly to move production to another jurisdiction. When that jurisdiction may be providing incentives or a draw to bring those plants there, it makes it more difficult to retain what we have here, let alone acquire new investment here.

À  (1000)  

    Hon. Gilbert Normand: As a final question concerning the attachment of the employees to their companies, do all employees, for example, at GM, drive a GM car, as in Japan Honda employees drive a Honda car?

    Mr. Mark Nantais: I'm sure you'll find in any plant employees will drive the vehicles of their employer. You'll find the odd one, perhaps, who may be willing to deviate a little bit, but for the most part I think you'll see well over 90% of the vehicles in the lot of that employer will be the products they produce.

    Mrs. Eda Crossmile (Manager, External Affairs and Public Policy, Canadian Vehicle Manufacturers' Association): Some of it is an affordability issue as well. Some of the younger workers will eventually purchase the products they make, but you'll always have those differences.

    The Chair: Mr. Masse.

    Mr. Brian Masse (Windsor West, NDP): One of the things I was surprised you didn't touch on in your presentation that I'd like to hear some commentary on is the cost of auto insurance.

    What I'm hearing about from a number of people in my constituency is its effect on decision-making in purchasing an automobile: whether it will be a larger vehicle or a more expensive one; the safety measures; and the way it's rated by the insurance industry. That is a recurring cost you have to now add on to the purchase price of your vehicle to be able to afford to make the payments for it.

    Is that something we should be looking at as a federal government?

    Mrs. Eda Crossmile: Obviously the cost of auto insurance is especially crucial to the young people who are just getting out into the auto market and looking to purchase a vehicle. It unfortunately forces them to buy a product that would be several years older than what they would like to buy. It certainly has an impact on them. I know many young people, even in our own family, who have had to divert their purchasing decisions to an affordability issue because they are not able to pay the cost of insurance.

    I certainly believe it is something we need to investigate further.

    Mr. Mark Nantais: From a personal standpoint, I have to wonder, though, why insurance companies don't recognize this and provide some sort of premium incentive or reduction for vehicles that have certain safety technologies, whether it's active headrests or some other more advanced safety system. Some do, but we are not hearing that it's universally applied. From a consumer's standpoint, that's something I'd be looking for if I purchased a new vehicle--what sort of reduction in premiums might accrue to me if I purchased a vehicle equipped with, say, a particular safety system, or anti-theft system, for that matter.

    Mr. Brian Masse: Right.

    I think it is having a tremendous impact, especially, as you well noted, when trying to move newer vehicles into the market to eliminate some of the older ones that could be smaller than the larger vehicles, but produce more pollution and gases because of their old systems and components.

    Has CAPC been looking at that, or is that something that's been left out of the CAPC model?

    Mr. Mark Nantais: Insurance?

    Mr. Brian Masse: Yes.

À  (1005)  

    Mr. Mark Nantais: I don't believe CAPC has it on its agenda. CAPC is focused primarily on the health and well-being of our auto industry and new policies that will retain and attract new investment.

    Mr. Brian Masse: It would seem to me it has been, to quote you, a rich standard of living for many people, not just the auto workers, but the provincial, federal, and municipal governments that have received the taxes, and the housing industry, from people who purchase new homes. As you know, in my town of Windsor, Ontario, it is leading market growth there. As well, there are management, consultants, advertising--all those different things that have survived quite well.

    At the end of it, when we have this exponential growth of the insurance part of it, it would seem that should be part of a national automotive strategy.

    What do you think about that component? Should that be something we should really start to get into? I know it's been an issue across Canada. What can we do about that in the purchasing decision?

    Mr. Mark Nantais: In CAPC?

    Mr. Brian Masse: Yes.

    Mr. Mark Nantais: It's not a decision for me to make; however, that is certainly something one might want to raise in one of the working groups. But I suspect, and again I defer to your next witnesses on this, that when you look at the mandate of the group, which is essentially what I described, there would probably be reluctance to get into that, I would venture to guess.

    Mr. Brian Masse: You noted the growing market of Korean exports. What type of parts manufacturing are they doing in this country?

    Mr. Mark Nantais: The short answer is zero.

    Mr. Brian Masse: Why is that happening? What is prohibiting them from making those investments over here? Why do you feel they're not employing labour on our continent for the manufacturing?

    Mr. Mark Nantais: I'd venture to guess that for currency reasons, for favourable labour cost reasons, they're quite content to remain where they are and simply export into Canada unabated, because we have, from an automotive standpoint, one of if not the most open automotive markets in the world. In other words, we have absolutely nothing in terms of tariffs or other non-tariff-type policies that would prevent those vehicles from coming into Canada unabated.

    Mrs. Eda Crossmile: They have systems in their assembly plants set up already in those Asian countries, and it's just a matter of export to bring the finished product.

    Mr. Mark Nantais: I think the Government of Canada has to ask itself, can it afford not to ensure that we retain our automotive industry in Canada? About $18 billion in revenues is generated by our industry annually. The government needs to ask itself, can we afford not to continue to ensure that we have a very viable and healthy industry right here in Canada?

    Mr. Brian Masse: One of the concerns you've noted, and I've raised this as well, is that I think with the proper investment we can address and clean up some of the issues related to the actual emissions for Kyoto, cleaner technologies.

    You noted fuel quality. That seems to be lost on the radar screen a lot of the time.

    Can you expand on Canadian fuel quality and clean diesels? I know there are some others.

    We're going to be giving the oil and gas industry a substantial tax cut this week. They're going to receive anywhere between $1.5 billion to $2 billion in tax reductions, along with mining.

    What are the things we can do specifically to catch up with the world in that industry?

    Mr. Mark Nantais: Certainly when we talk about emissions performance in a vehicle, and to some extent fuel efficiency, they operate as a total system. In other words, the technology has to be supported by appropriate fuel quality.

    We talked about fuel quality, and the oil industry quite frankly said, “What is it you want in terms of fuel quality moving forward?” So rather than go forward with a piecemeal regulatory approach, they wanted us to tell them what we need. We told them what we need, and it's outlined in the worldwide fuel charter.

    In Canada we have taken a step forward. We have put a stake in the ground with the introduction of the low-sulphur gasoline regulation, which is a very positive first step. It came a bit late, but that's okay. We got the stake in the ground. It allows some of the current technology vehicles to operate as they're designed. Without it, we won't receive the full environmental benefit of that technology.

    Moving forward into what we call the tier-two technology, the low-sulphur regulation is not the end point any more. We have to go beyond that.

    On top of that, aside from some other positive attributes that are outlined in that worldwide fuel charter, now we have to take an immediate look at metal-based gasoline additives. The issue of manganese-based gasoline additives has come up again. Our industry, through the Alliance of Automobile Manufacturers in the United States, embarked on about a $9 million U.S. study on the adverse effects of manganese-based gasoline additives, which clearly shows that they are problematic.

    Tier-two technology seems to be particularly sensitive to those additives. In fact, any metal additive is something we can no longer tolerate in our fuels. That is something we are obviously going to be approaching the government to act upon and act upon immediately, because the tier-two technologies, which are again meeting standards that are the most stringent in the world, are entering the market as we speak. Those vehicles will begin to fail, and it will become readily evident to the motorist.

    So we have more to do, Mr. Masse.

À  (1010)  

    Mr. Brian Masse: I have a real quick one with regard to incentives to purchasing more fuel-efficient vehicles, especially--and this is another one for later--ones that are built in Canada, which are a must. Are purchase incentives, like $2,000 or $3,000 for purchasing a more fuel-efficient vehicle manufactured in Canada, a way of reducing those costs to the consumer to make those choices in the end?

    Mr. Mark Nantais: Yes. I think the key is to offset that premium in price associated with the more expensive technology. We see examples of things being considered in state jurisdictions, in the United States, where there is an income tax credit, for instance.

    But it appears you have to have something meaningful to pull that technology forward. That's just one example. It should be for alternate-fuel vehicles. It should be for advanced-technology vehicles, which are not only cleaner but will be more fuel efficient as well.

    Mr. Brian Masse: Thank you, Mr. Chair.

    The Chair: Mr. McTeague.

    Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you for being here today. I have been very interested in some of the questions my colleagues asked--Mr. Crête in particular, with respect to how vehicles are perceived in Quebec.

    As you know, I have some experience working as a public relations specialist for Toyota Canada. These are the kinds of methodologies and marketing strategies that were used. At the time I left, the company was selling about 65,000 units, and now it is up to about 150,000. It's amazing what happens when I leave.

    Mr. Nantais, I wanted to ask, because it hasn't come into the equation here, about two perplexing issues that have come up very recently. I think it's very timely that the committee has an opportunity to look at this.

    One is the significance of the rising appreciation in the Canadian dollar, which by all estimates, and conservatively speaking, has probably gone up at least 10¢ or 12¢ in the past year. What impact does this have on auto parts and on the industry from a manufacturing perspective?

    Also, could you perhaps resolve for me the conundrum around what appears to be your member companies building large-platform vehicles in a nation that according to your own estimates here is very much geared toward a compact economy?

    Mr. Mark Nantais: Maybe we'll give you a company perspective as it relates to the dollar.

    Mrs. Eda Crossmile: We are aware of the rising value of the dollar, but at this point we're just continuing to monitor it. There haven't been any decisions made regarding it, but certainly it is key on our radar at this point in time.

    As for the larger-platform vehicles that are produced by automakers, it becomes a question of what sells in the marketplace. Because the U.S. is our largest market and they demand larger vehicles, we would tend to stay in that market because of profitability issues. Supply and demand is basically what we're looking at. Those vehicles are what the American consumer is looking for. That's what they want to buy.

    Mr. Mark Nantais: The parts suppliers, of course, might have more concern about the value of the Canadian dollar relative to the U.S. dollar. They may well be impacted more and sooner than an assembler.

    On the issue of big-platform vehicles, what we've seen is that Toyota and Honda are actually moving upscale into those very segments because they do continue to see, as Eda has pointed out, the consumer demand for these vehicles. One also, therefore, looks at the fuel efficiency performance of those vehicles in those same segments. You'll find that the North American auto manufacturers are either better or similar in those segments, so we're seeing a kind of overall melding of the industry, a coming together. There's an article in today's Globe and Mail about Toyota struggling with its design blandness, if you will, because they now have so many different models in so many different segments. They've come from being a sort of small-line manufacturer to being a full-line manufacturer now, just like DaimlerChrysler, Ford, and General Motors.

À  (1015)  

    Mr. Dan McTeague: Those are very good points, Mr. Nantais, and thank you, Ms. Crossmile.

    I see in your deck here, for instance, Korean imports increasing 345% in six years. It's always been a truism of marketing. It takes me back to the old days when I see where the young driver who will buy a small, affordable vehicle today will tomorrow buy a Lexus, a Cadillac, or whatever the case may be at some point down the road.

    I'm wondering, with the concern--and the concern, I think, is peaking over the issue of energy; it's not just Kyoto and it's not just the government's resolve to go ahead of the Americans on sulphur and then go to your next stages on tier two--if in fact there could be some rather substantial and dramatic impacts for the automotive industry in Canada.

    Again, I come back to the fact...when I think of St. Thomas building the Crown Victorias, Windsor building the trucks and the vans, Oakville building the vans, six-cylinder...and trucks in Oshawa. From an outsider's perspective, I ask whether there is the danger or the risk that if the appetite in the United States as well as in Canada begins to change towards more conservative, much smaller-scale vehicles, Canadians will in fact be the first ones to suffer as a result of that since we don't have the diversity of mix.

    I appreciate what you're saying about this convergence. This is an important issue as far as the industry committee is concerned because we could be caught flat-footed with rising energy costs, as no doubt energy costs will rise in the short term.

    Mrs. Eda Crossmile: Thinking forward to new vehicles that are going to be entering into the market, I'd say one of the advantages is to be had by changing our assembly plants to become flexible assembly plants. This means you're able to build different types of vehicles with different wheelbase sizes and different heights, that is, totally different sizes in the same assembly plants, whereas years ago a plant was built for one product.

    I think in the minds of companies it's too expensive to erect the bricks and mortar, to build another assembly plant, but they can convert the existing plants to become flexible manufacturing facilities in order to change to respond to the demands of the consumers.

    Mr. Dan McTeague: I'll just shift gears for a second, if you'll pardon the pun. I wanted to ask you about the federal role in training as it relates to the flexibility in manufacturing you've just described. Do you believe the federal government ought to play a more important role in terms of adequately training future generations of workers in plants? Are we doing enough currently?

    The theory behind that is if you're going to have these changes, and assuming of course that...as can be best expected.... Every time I turn around, if I open up a newspaper on a plant winning an excellence award, nine times out of ten--and I'm not saying this to be patriotic, but I think it's the reality--it's a Canadian plant. Whether they are North American plants or whether they're offshore plants, we seem to be doing extremely well. Is it enough for the federal government to have the position it does in relation to training, of which much has devolved to the provinces, when indeed that may be one of the main reasons investments may be coming to Canada, to maintain what is otherwise a pretty healthy, dominant industry?

    Mr. Mark Nantais: Certainly, in regard to skills development and a skilled workforce, here in Canada we do very well. One of the things that has been announced under the CAPC process is an auto sector council under the human resource pillar. That was announced last June or July or thereabouts, I believe.

    There's a continued role for the federal government in that regard, and when you look at the amount of energy and resources that go into training our workers, that's one of the really positive things we have going for us here in Canada, that we have a highly skilled workforce. Certainly, the companies I represent are going to continue to make sure they maintain their position in that regard, because it's very valuable for attracting new investment, there's no question about that.

    The Chair: Thank you.

    Mr. Crête.

[Translation]

    Mr. Paul Crête: You spoke of the world market. I'd like to know if you have numbers on the size of the three markets referred to in the table in acetate 3, i.e. America, Europe, and Asia. How large are these three key markets, and how do you see them grow in the coming years in terms of dollars or number of cars sold?

À  (1020)  

[English]

    Mr. Mark Nantais: Off the top of my head, I cannot give you dollar figures, but just proportionately speaking, I'd say the European market is very large, if not the largest at this point in time, although I may stand corrected on that. The Asian market, that Asian bloc, is growing by leaps and bounds. I mentioned a couple of figures where in China alone, for instance, production will triple by 2010; it's a huge market. India is another huge market. It's hard to say where they'll fall in terms of their regulatory consistency, but these are markets that are clearly going to expand by leaps and bounds.

[Translation]

    Mr. Paul Crête: The Kyoto Protocol was signed by most European countries. Therefore, these countries should become interesting markets for increasingly environmentally-friendly automobiles.

    Would it be realistic to say that products developed in Canada could be sold in this market because our manufacturers are submitted to requirements that are similar to those imposed on European manufacturers, i.e. the Kyoto requirements?

[English]

    Mr. Mark Nantais: I think we can, and we should try to pursue that if we can. This is why it's so important to get what we call early modules of new technology production, for example, fuel cells. I think we have an opportunity in Canada to pursue the technology needed for the hydrogen economy. That's not in the immediate term, but in the longer term I think we should be looking in that direction, yes.

[Translation]

    Mr. Paul Crête: You may have already answered this question. Are the current government efforts enough? Could initiatives be taken for universities, for example, to devote more effort in this research and development sector so that we don't disagree with international trade agreements? Would you like governments to take steps in this direction?

[English]

    Mr. Mark Nantais: Yes, they can, and the innovation working group of the CAPC process is now--and I attended a meeting just the other day--developing additional recommendations related to the SR and ED tax credit system. Also, it addresses how we can get some recognition for advancements in manufacturing technology on the shop floor and for a series of those things. Certainly, DaimlerChrysler, Ford, and General Motors are already spending hundreds of millions of dollars in Canada on research and development.

    These are all things we're willing to work on with the government to try to keep or get the edge we need to make sure we get those first modules of production here in Canada.

[Translation]

    Mr. Paul Crête: You know that in political terms, one of the hottest issues right now--and I thing it will get even hotter in the future--is to know whether governments should help multinational companies in this research and development sector. What arguments can you provide to support what you just said. What could be the benefits of this, not only for companies, but also for society as a whole?

    For example, the Department of Industry has a technological partnership program for other sectors but has not established many links with the automobile sector. How could government intervention in this sector be justified in the eyes of the people?

[English]

    Mr. Mark Nantais: I think the benefits derived from appropriate policies that ensure that we continue to invest in Canada will generate the resources and revenues necessary to invest in research and development as well. You make a very important point. How do we make the partnership linkages between our sector, the research centres, the universities, and what not, and we've done a great deal in that regard already, through Auto 21, for instance, which is associated with the national centres of excellence.

    We have many university relationships between companies and university chairs and so forth, but you touched on something that is absolutely critical and that's taking research and development and going beyond the development into commercialization. That is absolutely key here. We need to make that step, because when we make that step to commercialization, developed and produced here in Canada, it will generate significant benefits to Canadians. I think that's where the justification lies in government's participation in policy development in this area.

À  (1025)  

[Translation]

    Mr. Paul Crête: Do you think the government should significantly increase its efforts in this respect, or are the current efforts enough?

[English]

    Mr. Mark Nantais: I think the government needs to--how do I say this--rethink how to go about it. We have a few partnership programs that exist here already, but very few that actually apply truly to the auto industry.

    In some cases it doesn't make sense to revamp or adapt those programs for automotive. It may be more appropriate, easier, and more efficient to develop something entirely new for the automotive industry. Technology Partnerships Canada is one of those things where, quite frankly, we could use some things there. There are other programs that it's better to start from the ground up.

    When you look at some of the quite active policies associated with aerospace or pharmaceutical companies, they've benefited quite tremendously from those active policies that are in place. We need something now that is focused on automotive. I don't understand how they measure this, but when you look at innovation over the late nineties, we've improved by I think the figure of 75%. That is five times greater than any other sector.

    So innovation is going to play a very prominent role in how we move forward and what we get in Canada, whether it be through flexible manufacturing plants or vehicle development, whatever. It is very critical.

    The Chair: Thank you.

    Ms. Torsney.

    Ms. Paddy Torsney (Burlington, Lib.): Thank you.

    One of the things that concerns me is that governments at various levels, and certainly different crown corporations, own a number of fleets of vehicles, and some of them are in pretty bad shape. I'm tired of seeing Canada Post contractors driving around in things that if they hit my bumper, I think they're going to fall all over me as they disintegrate.

    Is there not some push on to get the government to replace the fleets, not just because they're horrible looking and old, but because there will be huge fuel efficiencies and huge gains in terms of emissions in this country? Is something being done? Is anyone listening?

    Mr. Mark Nantais: I'm not sure anybody's listening actually. Certainly, the auto industry for many years now has provided a wide range of vehicles, whether conventional vehicles, small-type fuel-efficient vehicles or alternate-fuel vehicles, natural gas or flexible E85 vehicles. They're out there. We haven't seen any uptake. Virtually none.

    There are a few vehicles that are in the government fleet as we speak, but when you think about the size of the federal fleet, for instance--I'm not talking only about the Ottawa area, but across Canada--the opportunity from a procurement standpoint is large and could, in terms of the government's house, play a significant role. But because in many cases they too--those who do the purchasing of these fleets--are somewhat constrained by budgets, because some of these vehicles do have a premium attached to them, it becomes a question of, does the government lead by example or does the government continue down the existing path of cheapest is best?

    Ms. Paddy Torsney: Well, I think we should be leading by example. Part of that example might not only be what we purchase, but also perhaps some kind of a tax incentive for other large fleets, whether it's UPS or Purolator or whomever, to purchase more fuel-efficient cars or to have some different kind of write-off, if there's some kind of mark.

    Is there something you could suggest to us in terms of a designation that would establish that something is going to make a significant difference in terms of Kyoto, and this is the vehicle and jobs and everything else? I mean, if we are seeing the slowdown, now is the time to get them to push on the fleets. It should be a little more cost-efficient for them to purchase it now as opposed to purchasing it at the top of the industry production.

À  (1030)  

    Mr. Mark Nantais: The information is out there on the product, on the performance of the product, whether it be from an emissions standpoint or a fuel-efficiency standpoint, what fuel it operates on. It's all there, quite frankly. It really comes down to what the will is to purchase those vehicles.

    Those, again, who make these purchasing decisions also have to take into account the needs of their customers, the people who are going to operate those vehicles. If you're up in the north, of course, obviously you need vehicles that will be conducive to the northern climate and the terrain. If you're hauling goods and cargo, that is another issue as well.

    Again, we're not talking about only passenger cars here. A great deal of research, for instance, has gone into heavy trucks as well. We now have hybrid configurations in a class 8 vehicle. We have class 8 CNG vehicles. So there's a wide range of product out there. Again, it really comes down to the policy and whether you are going to enact the policy and respond to it.

    Ms. Paddy Torsney: Mr. Chair, perhaps I could suggest that this committee do something about the Canada Post vans. I think you've all seen them driving around. I appreciate that they're individual contractors and they're not paid to replace their vehicle, but there should be some kind of plan to replace those things. Frankly, I think it does a disservice to the logo for Canada Post to have that “thing” driving around in our communities. I was afraid one was going to break down right in front of my office and would be there for a month before someone could tow away the bits. If we could ask them to either submit their plans to this committee or answer why they're not making moves to replace something, and how we could incentivize them to do something, other than public shame, I think it would be an interesting initiative on behalf of the government. It would set an example--

    The Chair: You might want to send your letter to André Ouelette.

    Ms. Paddy Torsney: The committee is going to send a letter to André Ouelette. Is that what I heard? I didn't hear you.

    The Chair: You may want to send a letter to--

    Ms. Paddy Torsney: Oh, I can assure you I'll be doing that. But I'm saying as a committee.... I'm not talking about one particular department. There are others that could be leading by example. We see ministers lead by example, the industry minister with his Prius, and we have a Prius on the Hill for the RCMP. We own a lot of fleets, and if we care about this industry in Canada, we could be setting an example and encouraging them to do something.

    Thank you.

    The Chair: Mr. Masse.

    Mr. Brian Masse: Thank you, Mr. Chair.

    One thing that we can do is pass a motion to support our party's green auto strategy. It has a CAW, Greenpeace, and David Suzuki sign on it, and it actually has the procurement of federal, provincial, and municipal fleets as part of that strategy. So it is something we would like to see happen.

    It brings up an interesting point, though, about the kind of dilemma you raised a little bit earlier. What concerns me, and we've seen this happen with the textile industry in the past in Canada.... I refer to Mr. Crête's discussion around research and universities and getting them involved in bridging the gap to the practical application. If we don't end up having the manufacturing base of those vehicles here, if the technology we're looking to get for the improvements is not creating jobs in our own country, we'll be importing them from abroad.

    I know that the three presidents of DaimlerChrysler, Ford, and General Motors in Canada have signed on for the Canada national auto policy, as well as others. That was done, I think--this letter goes back to October 2002. How much closer do you think we are to getting that national auto policy with CAPC, or what else do we need to do to get that? What kinds of main components would you like to see in that? I believe that is so critical.

    We do have an obligation--we talked earlier about justification--with Kyoto. This government policy moving us and the industry toward a new kind of horizon--we do have a responsibility to be part of that, and I think that justifies our participation. But what would you like to see in that national auto policy?

    Mr. Mark Nantais: The CAPC has actually set out some near-term objectives, things that have to be dealt with immediately. One of them, of course, is infrastructure. Another would be some of the vehicle standard issues that are specific examples that have been cited. These are immediate. Then we have medium-term and long-term issues.

    I think progress is being made by virtue of the products these various working groups have developed, but since this is an industry-driven process, as I understand it, those CEOs involved, whether it be the three you've mentioned, or Honda and Toyota who are also manufacturers in Canada, as well as the parts makers and labour, are going to be watching what the next step is.

    We're pleased to see some activity or responsiveness on the part of certain recommendations, but they are now looking beyond that. Things happen very quickly in our industry. We respond very quickly to shifts in consumer demand. A decision for new investment, for instance--we can't wait months in some cases. Those decisions have to be taken much quicker. So I think what you're seeing now is that those CEOs have their eyes on the target and they're seeing whether the target will move forward or not.

À  (1035)  

    Mr. Brian Masse: You noted that you can't wait months. This has been my experience. I've had a chance to go over to Michigan and talk with the development commissions there, and they have a series of products, they call them, that they can pull off the shelf as incentives to be able to gain a plant.

    As you know, in Windsor we lost a number of different opportunities. In terms of successes, we were able to save the Navistar in Chatham, which is tremendous, but we lost two other opportunities. The most recent one has actually been delayed even in the United States. The minister at that time said, “I don't see this as a transaction lost, I see this as a discussion postponed”.

    My concern is that a year has lapsed since that time, and I wonder if that opportunity rose up again, do we have the necessary tools to be able to win that type of opportunity versus the competition, not only just in the United States--and northern Michigan is now getting into this in terms of incentives, tax abatements, and what not, as well as southern states--but in Mexico? What has changed over the year? Do you think we could actually be successful, or are we going to lose other opportunities?

    Mr. Mark Nantais: I can't comment on what the possibility of success would be, but I think in the example you're using, really what factored into that decision to postpone was what was going on in the marketplace and the economy.

    I will venture a guess that Canada will continue to be a jurisdiction that will be considered, but that said, all those other factors, whether it be the economy, which played a major role in this decision, other jurisdictions, what transpires, what develops in those jurisdictions, how that changes--all of those things that continue and that are very fluid could mean an entirely different scenario further down the road. It may be more positive for us, and it could be more negative; it's hard to say at this point.

    Mrs. Eda Crossmile: I think too that the government was receptive in entertaining discussions when we were talking about the Windsor project, to which I think you were alluding, which was different from what has happened in the past, but I suppose you just have to keep in mind that there are other countries and states, and everybody else is vying for the same project, so the competition is very intense.

    I think the government needs to realize that it is a different playing field from what it used to be years ago, where you only considered U.S or Canada or maybe even Mexico. Now, as they're global companies owned by Germany or some other country, they don't have the same alliance that you may have had 10, 15, or 20 years ago. So the rules have changed.

    Mr. Brian Masse: My real criticism of this is that it was about eight months before anybody in the public really knew what our position was in terms of provincial-federal involvement in the program.

    What type of a timeframe do we need? How quickly do we need to be able to act on opportunities? I think that's why I'm calling for a national auto policy, so it's clear and happening quickly. What type of a timeframe can we expect in order to compete around the world now?

    Mr. Mark Nantais: I would suspect that each case and circumstance will be much different, and depending on their business model, depending on all these other factors I mentioned, that will dictate the timing.

    Mrs. Eda Crossmile: The economy right now is also one in which you're waiting for things to turn around before you talk about any type of multi-million dollar investment. It isn't just one factor, and it becomes complicated when you start considering different players in such a project.

    I would think this would be something the government in turn would be discussing amongst themselves, that is, how could they be prepared if such an opportunity came around so that within their own house they have some idea where they need to go.

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    Mr. Mark Nantais: I think if the industry has the clarity on the policy, that will make a big difference.

    Mr. Brian Masse: I have one last question on a subject that's often overlooked but very important in the community: the tool and die industry and what's happening there. Can you provide some brief comments on what's happening there, or expand if you can, if there's time, Mr. Chair? There have been expressions of concern, especially from some of the smaller companies, that they're almost canaries in the cage in regard to what we can expect down the road if we see a decline in auto sales.

    Mrs. Eda Crossmile: I'm not that closely tied to the parts end of it, other than what I've read in the papers myself regarding.... For companies such as ourselves, when we have a situation where we're in a restructuring mode and we need to look at finding cost savings, our suppliers would be the first base we would identify to try to make them more efficient, try to find inefficiencies in their systems that can be tapped into, so their margins then become smaller as well. But as they become more efficient, we help each other. In terms of their internal businesses and the problems they've experienced, I'm not that closely tied to it that I can predict what their circumstances may be down the road.

    Mr. Mark Nantais: There's no question that tool and die makers are a highly valued breed, but it relates more to the overall skills trade sector, getting enough of them. We see the demand for skills trade that is still there I think in a very significant way. Even on a higher level, from an engineering design standpoint, there's a huge demand for design engineers. They're hard to get. Why? Because they're moving to other jurisdictions in some cases.

    So whether it be skilled trade and tool and die makers specifically, we're going to continue to have a need for them. But the question is whether we can fill the vacancies as the attrition takes place and other opportunities arise.

    Mrs. Eda Crossmile: I think that's where you talk about facilities like at St. Clair College and the Ford Centre for Excellence in Manufacturing, where they specifically train tool and die makers or CNC machine operators with the types of equipment that would be required at a tool and die shop. So they're getting the specific skills training right in the community college type of environment.

    The Chair: Thank you very much.

    As chair, I'd like to also ask a few questions. One of the things that happens when the U.S. economy is down is that, given the fact that we in Canada make more than one million vehicles than we use in Canada, there tends to be a sharing of the pain of the economy in the U.S. Would you like to comment on that?

    Mr. Mark Nantais: It's a true statement. We have plants in Canada, of course. We produce products of which about 80% are destined for the U.S. market, and the extent that their economy begins to lag and slow down and the extent to which vehicle purchases for the vehicles that we produce in Canada diminish has an impact on our production facilities and levels of inventory here in Canada. Nobody can afford to keep large inventories on hand, and generally adjustments are made.

    We start out as best we can by basically cutting back production or slowing down line speeds, and when it gets very critical, of course, then you shut down the plant for a period of time. So there's a series of progressive steps we take to minimize the impact on our workers here in Canada, but if the situation and the economy begin to become very sluggish in the U.S., the extent that that affects our production is that we could well see plant closures.

    Mrs. Eda Crossmile: The pendulum seems to swing both ways. When times are good our plants are working at capacity and putting in lots of overtime, but when it swings to the other side again, we have a shutdown of plants or time off in order to equalize the inventory.

À  (1045)  

    The Chair: We talked about research and development in Canada, and I realize over the last five or six years General Motors in Oshawa has put back research and development. There have been changes in the Windsor investment. Would you have the numbers of percentage of R and D done in the U.S. with the big three versus Canada?

    Mrs. Eda Crossmile: I don't have percentages off the top of my head, but I know that our research and development centre in Windsor needs to compete with the research and development facilities we have in the U.S. So it's not a given that any special project that is down the pipeline would come to our facility. There is a competition among the various facilities in order to get that work.

    The Chair: I'd be interested in knowing the total R and D with the big three in the U.S. versus Canada. Could you supply that to the committee?

    Mr. Mark Nantais: Somebody would have to look into it for you.

    The Chair: I think Mr. Masse was starting on the topic of the skilled trades. In Ontario there have been a lot of requests by the mayors in plant cities about improving the apprenticeship programs because of the skilled trades' average age and the fact that over the next five years many of the skilled trades will be retiring.

    Could you comment on what you've done with the Ontario government, or have not been able to do with the Ontario government, since apprenticeships fall totally within a province...

    Mrs. Eda Crossmile: Well, the apprenticeship situation has diminished in the recent past. We did have a program set up with the ministry and colleges and universities through St. Clair College where we were able to set up a unique system. They were able to acquire their hours in the plant and then still be able to do their hours at the college. With the change in the economy and the restructuring of our organization we've had to eliminate many of those apprenticeship positions, mainly because we're restricted in the number of apprentices we can have at any given time to the number of fully trained, skilled people we have, and that is written into our contract language. We're not able to have, say, more apprentices. There's a certain ratio they need to follow.

    At this point I think we were able to finish out a portion of the skilled trades or the apprentices who had started the program, but we have not reinstituted it.

    The Chair: Didn't the big three cut back on a lot of apprenticeships?

    Mrs. Eda Crossmile: Yes.

    The Chair: And it's much easier to take skilled trades from small and medium-sized businesses?

    Mrs. Eda Crossmile: Right now we haven't been hiring skilled trades. Our skilled trades were subject to layoffs as well during our restructuring.

    The Chair: Mr. Rajotte, welcome back. Thanks for coming back.

    Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Mr. Chair, and thank you very much for coming in today. I apologize for having to step in and out.

    Mr. Nantais, one of the questions you asked us was, can we afford not to continue to ensure a healthy and vibrant auto industry? I think you'd find every member here agreeing that absolutely we have to ensure the viability of this industry.

    My first question deals with the 25% target that the federal government has set for your industry. I know you've raised this with us before. You've raised this publicly before; I'm sure you've raised it privately with them. Have they responded, and have you entered into negotiations with them to see whether they can instead adopt a more North American style of approach to this, rather than doing something uniquely for the Canadian market? As you said, if you splice off the Canadian market from the rest of the North American market, you're really putting our companies and our industry at a disadvantage.

    Mr. Mark Nantais: We have had discussions with the federal department involved, which is NRCan. We are trying now, of course, through constructive discussions to indicate to them what the pitfalls are of doing something unique to Canada. We're certainly trying to help them understand where the level of technology is at and how quickly it might come to the market, but also some of the barriers that prevent us from bringing that technology to Canada.

    Often people, publicly and otherwise, have cited the European agreement as what we should be doing in Canada. Again, I reiterate to them that virtually nothing in that agreement circumstantially applies to the market here in Canada, nor do we see any sort of intervention similar to the role the European government is taking.

    I think we've started those discussions, and I think we're having some good dialogue, but we've had some challenges.

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    Mr. James Rajotte: Have they set up a timeline for you on when they want certain reductions or when they are even going to start implementing this?

    Mr. Mark Nantais: Well, they want to start in 2004, and it's for the period of 2004 to 2010. One of the key things that we're helping people understand is that in our industry we develop products that are essentially four years out. So the 2006 and 2007 model year are fairly much designed, as we speak, which is why we are saying that the time period out to 2010 is far too short. And when you look at the other measures that are being contemplated as part of our list of measures to achieve our obligations, no such burden, I don't believe, is placed on any other industry.

    As well as the cost, which again the transportation has established at about $157 per tonne of GHG reduced, that burden far exceeds not only the $10 per tonne that was initially announced but also the $15 cap that was announced. So we need to talk about these things, because quite frankly it doesn't seem to be very equitable.

    Mr. James Rajotte: The second point I want to raise deals with fiscal policy. You mention the capital tax. You're pleased with the reduction over the five-year period. Now, many have recommended that this be eliminated immediately. Is your industry of the view that the capital tax should be eliminated immediately rather than reduced over a five-year period?

    Mr. Mark Nantais: That would certainly be our preference. Capital taxes hit industries such as ours particularly hard in good times or bad times. We think this would be a very positive signal for future decisions in terms of new investment. I don't think we're alone on that. I think many manufacturing sectors would take that view.

    Mr. James Rajotte: The third and final point I want to raise is this. You talk about a reliable open border as being one of the key issues the industry faces. I don't know whether someone else has asked about this. Has your association or industry come out in favour of this?

    I assume you've discussed the possibility of a customs union, as to how we can further integrate a lot of what we do at the border with the Americans, and I guess even expand that into our other NAFTA partner. Do you want to give us your association's perspective on a possible customs union or on even greater continental security in order to have obviously a more free flow of goods and services across the border?

    Mr. Mark Nantais: Well, we haven't taken any specific position, but certainly the federal government, I think, has taken some very positive steps with its nine-point plan and the funding that's been announced. The questions now become, how can we get it implemented and how quickly can we get it implemented? Certainly our industry has been a kind of model or an example when we talk about customs processing, for instance, with the FAST program and what not, where you have low-risk shipments but high volumes. It makes sense to move in that direction.

    I think Minister Manley, quite frankly, has done an extremely good job at dealing with his U.S. counterparts. The question now is, when you look to some of the local issues, when you look to some of the resource issues, we have to find a way to resolve them and resolve them quickly so that we can move forward with what's been announced. It's very critical for us.

    The Chair: Thank you very much.

    That concludes our meeting.

    Mr. Nantais, do you have anything else you want to add?

    Mr. Mark Nantais: Mr. Chairman, I'd like to say to the members of the committee that this has been a discussion that I've enjoyed very much. Certainly on behalf of my members, we really appreciate the opportunity to come today to speak with you. Beyond today's discussion, if you have any questions, we'd be glad to answer them. We'll certainly follow up on some of the outstanding matters that you've mentioned.

    Thank you.

À  (1055)  

    The Chair: Thank you very much.

    This meeting is adjourned until Thursday morning.