:
Thank you, Mr. Chairman.
I'd like to start by simply thanking you and the members of the committee for the opportunity to meet with you this evening.
As you mentioned, I have with me Adriaan Korstanje, who is general manager of external affairs for Toyota Motor Manufacturing Canada in Cambridge, Ontario, or, as we refer to it, TMMC.
TMMC builds Toyota and Lexus vehicles in Canada. Toyota Canada, the company I represent, is responsible for the marketing, distribution, sales, servicing, and warranty activities of Toyota in Canada. We have a sister company, Toyota Financial Services, which offers dealer business financing and consumer purchase financing and leasing.
The issues the subcommittee has been asked to investigate are certainly serious and far reaching for the Canadian auto industry and for the Canadian economy as a whole. You, of course, already know that the auto industry is a significant contributor to the Canadian economy, but I would say that in Toyota's 45-year history in Canada, we've also become a significant contributor to the auto industry itself, and in turn to the country.
Over the past four decades we've committed billions of dollars to establish manufacturing facilities, hire and train employees, create a dealer and service network, and more. We now employ thousands of Canadians directly and provide indirect employment to tens of thousands of Canadians at our various suppliers and partners.
Our capital investments include a brand-new, state-of-the-art assembly plant in Woodstock, Ontario. When this plant officially opened last December, it became the first greenfield assembly plant in Canada in 20 years. Our contribution includes the fact that TMMC builds some of North America's most popular and fuel-efficient vehicles in their classes, including the Toyota Corolla, Matrix, and RAV4, and the Lexus RX 350.
That manufacturing mandate is significant for two reasons. First, Canadian-built models will account for roughly half of our anticipated sales volume in Canada this year. In fact, it is fair to say that if people aren't buying a Toyota, there's a pretty good chance they're not buying a Canadian-built car this year. Second, Toyota is a net exporter of vehicles, which supports our investment in Canada. Last year our plants in Cambridge and Woodstock, Ontario, exported approximately 70% of their production, compared to roughly 85% of the production exported on average from Canadian plants operated by other non-Asian automakers. As such, sales in Canada of Canadian-made products are major contributors to the success of our Toyota assembly plants.
Beyond this, on a global scale, we're creating the technologies that are charting the future course for the industry in helping societies. Our world-leading hybrid vehicles are the most visible examples of this, but it's no accident that Toyota offers the most fuel-efficient passenger car fleet in Canada.
But like every other company in the global automotive industry, Toyota is being affected by the unprecedented decline in the world economy, and that decline is led by the collapse of the consumer marketplace in the United States.
While our investments in infrastructure and technology are positive accomplishments, Toyota is also mindful that everything starts with the customer. We need a market to buy our products, plain and simple, and that, in our view, requires two things: first, consumer confidence, and second, access to credit.
These issues are particularly important right now. Approximately 43% of the 2008 total Toyota and Lexus Canadian annual sales of passenger vehicles were made in the months of March, April, May, and June. In effect, then, if dealers and manufacturers miss this important spring market, they've really missed the year in Canada.
For Toyota, these months coincide with our annual red tag days event. This year, for the first time in our history, we're offering 0% financing on our core Canadian-built models and have added a free job-loss credit protection program on those same models. It's our effort to stimulate economic activity here in Canada and help bolster consumer confidence for those core vehicles.
I would tell you today that the single most important request Toyota has of the Canadian government is this: open access to credit now. The inability to obtain access to credit is bigger than any individual company. Traditional sources of credit for vehicle financing and leasing, including but not limited to the financial arms of auto companies, need access to large amounts of money in order to do business. The normal sources of this credit—asset-backed securities, commercial paper, short-term loans, bonds, and so on—are not available these days even to creditworthy financing operations.
We applaud the government for stepping into this gap in the last budget with the proposed $12 billion fund. But we do have some concerns in that respect.
First, we worry that with the continuing state of the economy, $12 billion, while substantial, may not be enough to cover the needs of those financing arms operated by the various automakers, let alone other independent sources of credit.
Second, if that $12 billion isn't enough, how will the government allocate what is available? We encourage the government to establish a mechanism to ensure that this money goes to those financing operations that are committed to actually getting the money into the pockets of consumers as opposed to those looking to use it to cover their own business requirements.
Third, it must be recognized that not every source of vehicle financing is created equal. Some financing operations are not as creditworthy as others, and if the government treats every applicant equally, without considering their credit quality, the government will have to include a premium on the interest it charges those who take advantage of the facility, and that in turn means the interest rate charged to consumers will have to be higher, which may deter some consumers from purchasing or leasing a new vehicle.
Finally, the fund provides the opportunity to kick-start consumer confidence, but to be effective the money needs to be made available immediately. As I noted, the key selling season is under way in Canada. We need to unlock those funds immediately or consider other timely approaches to stimulate consumer spending.
If the government can't create a market where access to credit is available, there are other programs that can be considered and that in fact have been proposed to this committee. Those proposals include such things as a sales tax holiday, right through to an overhaul of the scrappage program that encourages Canadians to retire old vehicles and purchase new ones. Certainly, each has its benefits and trade-offs.
For example, a temporary sales tax holiday on new vehicles would be relatively quick to implement, and for this reason it might be the easiest way to stimulate the market. But it has lasting costs that would be borne by the government in a period of deficit financing. Meanwhile, an improved scrappage program would deliver environmental fuel efficiency, pollution control, and safety benefits as well, but it needs to offer a larger monetary incentive to retire an old vehicle than it does currently, and it needs to tie the size of the consumer incentive to the gains made in environmental performance. But it has to be done sooner rather than later if it's going to have the benefit in the spring market.
It's important to note as well that to date the debate has been focused at the manufacturing level, and that overlooks the fact that approximately 50% of the employment in the Canadian auto industry is in sales, distribution, and dealerships. Incentives to consumers help to clear dealer lots and reopen the manufacturing pipeline, providing the financial resources that everyone in the supply chain needs to ensure the economic health of the sector. This certainly doesn't negate the specific cashflow requirements of those parts of the supply chain, such as vehicle and component manufacturing, that are dependent upon U.S. exports, but it does underline the fact that in an integrated North American market, Canada has to do its part to address the economic forces that have caused new car purchases to stall.
We can't lose sight of the fact that to remain competitive for continuing investment in Canada, an assembly plant must provide the highest quality and productivity levels. Quality is dependent on constant training and improvement of skills, while productivity relies on capital investment in equipment and technological innovation. Government can continue to support with incentives and a favourable tax structure that recognizes achievements and training, research and development, and capital expenditures for equipment and technology.
The current market conditions are temporary, but they are very real. They have painful consequences for individual Canadians, so this is not a hypothetical debate. We shouldn't lose sight of the fact that there are other important national objectives that have been set aside as we all concentrate on short-term adjustments. For example, the need to address safety, fuel economy, and emissions standards remains. The U.S. administration is poised to introduce new fleet fuel economy and emissions targets for 2011 and beyond, and Canada, of course, has pledged to set complementary standards, but the industry needs both the time and the resources to be able to successfully meet those requirements, adding further urgency to dealing with the economy so we can move on.
This also suggests that if consumer incentives are to be considered, they should help to move the market in the direction of those future standards, improving the demand curve for vehicles meeting the highest standards in safety, fuel economy, and environmental performance, and thereby ensuring that manufacturers are able to quickly and profitably pursue new technologies.
In summary, then, this is what Toyota is doing to address the current situation. We're building a full range of fuel efficient, high-quality, and safe products that Canadians actually want to buy, and we're building a high percentage of those right here in Canada. We've already invested in Canada at all steps of the automotive sector supply chain, and we will continue to support those investments. We're creating attractive pricing and financing offers and other incentives to encourage Canadians to purchase new vehicles. We're investing in R and D globally to ensure Toyota's products continue to meet or exceed society's demands for fuel efficiency, environmental performance, safety, and other standards.
In turn, our recommendations to the subcommittee are these.
Focus on programs that encourage Canadians to buy new vehicles, because this will support every step of the auto sector's supply chain.
If the government wants to help the manufacturing activities of the auto sector, the best way to do that is to ensure that there's a healthy market for our products. The fastest and most effective way to do this is to create immediate access to credit. A second-choice option may include offering Canadians a temporary tax holiday on new vehicle purchases, because this can be implemented quickly and help the industry to capture sales in the current and crucial spring selling period.
Finally, you could follow this with programs that encourage new vehicle purchases that also help the government achieve longer-term policy objectives. For example, a new scrappage program incorporating the ideas that Toyota has outlined would encourage environmentally responsible, fuel-efficient choices while taking the older, less safe, more polluting vehicles off the road.
Thank you for your attention. My colleague and I look forward to your questions.
Just to be very clear, as opposed to there being three distinct proposals, it really is one proposal on consumer credit, and in the event that's not possible, then there are alternatives. It's not one on top of another.
From the standpoint of what we are doing to respond to consumers, it's very much what we've done in every other significant economic crunch that we have encountered, going back to the oil crisis of the 1970s and forward.
Toyota's position has been that consumers in troubled economic times tend to turn to quality. They're looking for the lowest possible price, with the least inconvenience, they can possibly obtain in the marketplace today. So they're looking for an affordable car of high quality that won't leave them with unusual maintenance costs, and they're looking for high levels of fuel economy.
As I mentioned in my remarks, we have focused very directly on putting our own corporate resources behind promoting our Canadian-made products that fall exactly into that category. So vehicles like the Corolla, like Matrix, like the RAV4, are all fuel-economy leaders in their class, and all are very highly rated for quality.
As I said, for the first time in our history, we're providing 0% financing, as well as job-loss credit protection, and a number of other measures designed to try to help consumers find their way into a new car purchase.
But beyond that, as I said, we're very mindful of the fact that the world is going to change one more time. So in 2011 and beyond, as we move to new fuel economy standards and new emissions standards, we have to move very rapidly to introduce new technologies. For example, later this spring we'll be introducing the third generation of our hybrid technology to Canada, a vehicle that not only provides extraordinary advances in vehicle power and fuel efficiency, but also moves the needle on safety and a number of other features. This new car introduces new materials technology into the automotive marketplace; it introduces things like a solar powered moon roof, which helps to ventilate the car using no other external energy; it has advanced pre-collision systems, which read the traffic in front of the vehicle and help it to avoid collisions; and it has new innovations in the human-machine interface.
So Toyota is not holding back at all in the face of a slow market. We are in fact, to the contrary, moving as quickly as we possibly can to bring new technologies out and, more significantly, in the current market, to support our Canadian operations.
And thank you for coming before us tonight.
I want to start with a little bit of context, if I could, just speaking a little bit about the global context. Of course, as we all know, there's a global economic downturn that's had a significant effect on the industry. But as we look at what commentators around the world from outside the country have said about Canada's system, we see Newsweek, for example, talking about the World Economic Forum ranking our banking system as the healthiest in the world, whereas the Americans, I think, are number 40. They actually noted in the same Newsweek article a couple of weeks ago, “If President Obama is looking for smart government, there is much he, and all of us, could learn from our...neighbour to the north.”
We have The Daily Telegraph in London, in the summer, saying, “If the rest of the world had comported itself with similar modesty and prudence, we might not be in this mess.”
We have The Economist saying, “...in a sinking world, Canada is something of a cork. ... The big worry is the fear that an American recession will drag Canada down with it.”
I think we're seeing what's happening in that regard right now.
The New York Times just recently noted:
There is no time to waste. Reconfiguring the American banking structure to look more like the Canadian model would help restore much-needed confidence in a beleaguered financial system. Why not emulate the best in the world, which happens to be right next door?
There is a lot of commentary in terms of that global context. I'd like your feedback on that in terms of your experience in the auto sector. Is the experience in the Canadian auto sector similar to that in other industries, where we're really, relative to other countries--particularly the United States--much stronger, but there's nothing we can do to avoid what's going on in the States and the impact it's having on our industry?
:
Good evening, Mr. Chair, committee members, ladies and gentlemen. It is a great pleasure for me to be here this evening to talk to you about Honda Canada.
[English]
Thank you for inviting Honda Canada to participate in this hearing on the crisis facing the auto industry in Canada.
Mr. Manabu Nishimae, president and CEO of Honda Canada, wanted to be here tonight, but he is unfortunately unable to do so because he is out of the country at this time. He asked Louis and me to represent him. He sends his regards and his congratulations for undertaking such an important mission to find potential solutions to the crisis affecting the automotive industry in Canada.
As a way of introduction, let me give you a quick background of Honda Canada and maybe explain some things about our company that you maybe have not heard before.
First, tomorrow, by coincidence, on March 11, we will celebrate our 40th anniversary in Canada. So we're going to be heading back for a big party tomorrow.
In 1969, when Honda came to Canada, we were a small company with a big dream. We started with motorcycles and power equipment, and in 1974 we started the automobile business. In fact those of you who remember the first Civic that we launched in 1974, we sold a total of 747 units that year.
But we worked hard to gain the confidence and trust of Canadians, and over time, through the development of our strong brand image, our products earned the respect of the marketplace. And we grew. In 1986 we built our first factory in Alliston, Ontario, the first automobile manufacturing plant opened by a Japanese company in Canada. By 1991 we had sold one million vehicles in Canada, and in 1998 we built a second manufacturing plant, again in Alliston, based on our company's philosophy, which is to produce products as close as possible to the markets where they are sold.
Following that same philosophy and based on our steadily increasing sales, this last year, in 2008, we invested in our third manufacturing facility in Ontario, this time a state-of-the-art engine plant to supply our Canadian factories with fuel-efficient, low-emission four-cylinder vehicles.
But the investment hasn't stopped there. Last year we began the construction of our new, environmentally friendly head office in Markham, Ontario, which is designed to be LEED gold-certified. Our new facility will accommodate 700 associates. And as you may know, we also have regional offices across the country, in British Columbia, Alberta, Quebec, and Nova Scotia. All these investments now exceed $2.6 billion that Honda has made in Canada. These were all made without direct governmental aid or subsidies, as we believe that to be sustainable, an investment has to make sense on its own financial merit over a given period of time.
I'll come back later in my presentation on this point, as we believe that governments have an important role in creating stability in the market to make such investments viable and recurring.
So what is Honda in Canada today? Honda is a company powered by Canadians for Canadians. In fact, more than 22,000 Canadians work either directly or indirectly for Honda, in the manufacturing, sales offices, and dealerships across the country, generating $12.5 billion in sales annually. You may ask, why such a large number of people? It's because Honda Canada distributes more than just cars and trucks under the Honda and Acura brand names. We also sell motorcycles, ATVs, power and marine equipment, and soon, small business aircraft with our new fuel-efficient Honda jet. Anything with an engine is good for Honda.
In terms of production, with just over 383,000 cars and light trucks built in Alliston last year, Honda Canada was the third-largest automotive manufacturer in Canada, behind GM and Chrysler, and the second-largest manufacturer of passenger cars, behind GM. Based on recent announcements about production from some manufacturers, it could well be that Honda will be the number one manufacturer of automobiles in Canada next year.
It's also worth noting that later next month, our Alliston plant will be manufacturing their five millionth vehicle—a very important milestone for any manufacturer, but this means so much more for a company such as Honda, which is often referred to as a foreign company rather than a new domestic manufacturer.
Furthermore, the Honda Civic, one of the models manufactured in Alliston, has been Canada's best-selling car for eleven years in a row. Because of its success, Honda Canada is proud that 45% of all the Honda and Acura vehicles sold in Canada last year were manufactured in Canada.
Behind all those successes and numbers are what Honda Canada is all about, our people and our customers. That's why we're here tonight. We want to continue to thrive in Canada so that our associates, our dealers, our suppliers, and our customers continue to enjoy the benefits that come from a solid automotive sector.
We believe that government can help in these difficult times, and we would like to cover some of the initiatives we propose that can be undertaken for that purpose. Before I do so, however, I'd like to briefly explain what Honda Canada believes are our responsibilities as a company that Canadians want to exist, as indicated in our global mission statement.
As a responsible member of society, Honda is making every effort to ensure that our associates continue to enjoy working in a secure and pleasurable environment; that our dealers and their employees continue to benefit from the investment and dedication they have made, both in their dealerships and our products; that our suppliers expand their business further through technological advancements; and that our customers continue to be the primary focus of everything we do.
At Honda, we have always considered it our responsibility to ensure blue skies for our children. That means ensuring the preservation of the global environment in every phase of our corporate activities. That's why Honda Canada introduced in 2000 the Honda Insight—North America's first gasoline-electric hybrid. We made sure that our plants in Alliston have zero landfill waste and our engine plant uses molten aluminum made from 100% recycled scrap.
We're studying how to commercially sell the Honda FCX Clarity, a zero-emission, hydrogen-powered fuel cell vehicle, in Canada.
We're just as proud that more than 1.2 million Canadians have benefited from charitable programs funded by Honda Canada and the Honda Canada Foundation, which focuses on environmental activities.
So while Honda will continue to be governed by these basic principles and philosophies, the onset of the recession has created widespread concerns among all of our stakeholders. I know that the association representatives that were here before you yesterday covered the state of the automotive market in North America extensively, so I will not go into any details on that topic. But as far as Honda Canada is concerned, suffice to say that while enjoying record sales in Canada at the beginning of 2008, our sales, just like the majority of other manufacturers, have decreased substantially in the latter part of the year and during the first two months of 2009.
While those month-to-month percentage differences are reflective of the record months we had last year, it's important to realize that even a company such as ours, with a wide range of product, which we can quickly adapt to shifting consumer demand, is in fact suffering. The major reasons for our rapid decline in sales are primarily due to lack of credit availability and faltering consumer confidence. We believe the government can and should play an important role in those two main factors in order to create some market stability, and as a result regenerate an atmosphere where people feel good about shopping.
Dealing with access to credit, even though you've heard this before, let me once again explain the impact on our business. With the rapid deterioration in the economy and resulting higher cost of borrowing funds, Honda had to adjust quickly by tightening credit granting for consumer loans. At the same time, our dealers saw their cost of operations increase dramatically due to that same lack of availability.
We were very encouraged to see in the last budget the government's efforts to backstop credit for the industry with the $12 billion secured credit facility, and we look forward to a speedy implementation by the Business Development Bank. However, we would have preferred that the government made those funds available directly at a preferential rate to the existing OEM financial institutions so that they could securitize their portfolios and thus make more affordable financing available to our customers.
With more than 65% of all Honda and Acura customers seeking some kind of financing or leasing support for their vehicle, quick access to credit by dealers and customers would provide an important boost to help the Canadian industry to at least maintain its production.
In terms of retail initiatives, while Honda is not asking for any assistance for our company from the government, we believe the government can and should help restore consumer confidence. We would recommend programs aimed directly at the customer. In fact, we believe the government has a unique opportunity to create a win-win situation by enhancing its existing scrappage program to help stimulate new vehicle sales in Canada while having a substantial positive impact on the environment, for example by quickly adopting a progressive successful scrappage program similar to that of British Columbia and a number of European countries.
Honda Canada fully supports these concepts, which provide customers with a sliding financial incentive based on reduction of greenhouse gas emissions compared to their previous vehicle. In addition to this program we believe that government should also consider other economic stimuli for customers, such as timely sales tax reduction or exemption for new vehicle purchases; allowing RRSP withdrawals without penalty for car purchases, similar to the housing program; or reducing all import tariffs from 6.1% to 2.5% to harmonize with the U.S., thus reducing the cost of all imported vehicles.
In the same vein, we also believe that financial stimuli provided to some manufacturing companies should be closely monitored to ensure the money provided is used for what it was originally intended. We are concerned that if taxpayers' money assigned for one purpose is then diverted into customer loan financing or other similar types of incentives, this introduces unfair competition for those firms who are not requesting government assistance.
To ensure that our investments continue to be profitable, and if we are to create new investment in the future, we feel it's crucial that our government ensures a level playing field among all companies when it comes to policies and programs that affect consumer purchasing decisions.
Let me wrap up by thanking you on behalf of the 5,000 Honda Canada direct associates who I represent here this evening. I thank you for your time, and I have the confidence that you all will create an environment where we can continue to grow, invest, and provide secure jobs over the long term.
[Translation]
Thank you very much for your attention.
Thank you for taking the time out of your schedule tonight to be here.
I want to come back to a little bit of context, if I could. I'm not going to read through all the quotes I read when the Toyota folks were here, but I just want to point out a few things.
Advantage Canada, our plan in 2006-2007--we did several things in there, and one of those things was to reduce taxes across the board, including a GST cut, 2% over a couple of years, about $600 on the cost of a $30,000 vehicle. We also started reducing the corporate tax rate from 22%, eventually to 15% by 2012. It will make us the most competitive tax environment in the G-7. These are important steps.
When you look at the numbers in the G-8, for example, all other countries in the G-8 ran deficits in each of the last three years previous to this one. Canada was the only one that ran a surplus in any of those years, and we ran a surplus in each of them. World Economic Forum says we have the most solid banking system in the world here in Canada, number one. I think U.K. was 44, the U.S. was 40. IMF and OECD are saying we're going to come out sooner and stronger than any other country.
I'll read one quote from The Telegraph that sums up the rest of them: “If the rest of the world had comported itself with similar modesty and prudence, we might not be in this mess.”
Speaking about the steps Canada has taken prior to this, I think it's important that we don't lose sight of the long-term track when we're talking here about the short-term measures, especially when we're talking about a company that's generally in a pretty solid financial position compared to others.
First of all, do you agree with my assessment that Canada is in a very strong financial situation relative to other countries?
Secondly, and an important part of the equation we haven't touched on a lot, is what do you see as the long-term prospects of the Canadian auto sector once demand in the U.S. rebounds?