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Results: 1 - 7 of 7
Jerome Berthelette
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Jerome Berthelette
2015-03-30 15:35
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Thank you, Mr. Chair.
I thank the committee for giving us this opportunity to discuss chapter 5 of our report, entitled “Support to the Automotive Sector”. It is in our 2014 Fall Report. Joining me at the table is Richard Domingue, Principal, who was responsible for the audit.
The global economic recession of 2008 negatively affected Canada's production and employment in the automotive industry. Vehicle sales declined sharply in the United States and Canada, and some companies, including Chrysler and General Motors, could not generate sufficient income to fund their operations.
In December 2008, the governments of Canada and Ontario joined the U.S. government and offered financial assistance to Chrysler Canada and GM Canada. In total, the federal government provided $9 billion of financial assistance to support the restructuring of Chrysler and GM, including their Canadian subsidiaries.
We looked at how Industry Canada, the Department of Finance Canada, and Export Development Canada managed this financial assistance. The assistance involved complex transactions, high uncertainty, and tight timeframes. These circumstances had an impact on what Industry Canada could do to manage the assistance.
We found that Industry Canada, the Department of Finance Canada, and Export Development Canada managed the financial support to the automotive sector in a way that contributed to the viability of the companies and the competitiveness of the sector in Canada over the short and medium terms.
Industry Canada adequately assessed the recovery prospects of Chrysler and GM. This helped the government decide whether to participate in the financing of the companies' restructuring. However, Industry Canada had limited information on required concessions from unionized labour and other stakeholders, and on GM Canada's pension liabilities. This lack of information made it difficult for the department to understand the impact of its assistance on the long-term viability of the companies.
Industry Canada's information on the use of funds was limited to broad categories. For example, Industry Canada had limited documentation on the actual use of a $2.8-billion loan made to GM Canada for capital expenditures, warranty claims, and other general corporate purposes. However, the department adequately monitored the companies' production commitments in Canada.
Mr. Chair, we also found that there was no comprehensive reporting to Parliament of information about the restructuring assistance. Based on the information publicly available, we found it impossible to gain a complete picture of the assistance provided and of the amounts recovered and lost.
In 2008, the federal government launched the automotive innovation fund program. The program's objective is to support automotive firms in their strategic, large-scale research and development projects to produce innovative, greener, and more fuel-efficient vehicles. In addition, the government expects the program to contribute to a more competitive Canadian automotive sector.
We looked at how Industry Canada managed this program. Overall we found that Industry Canada's assessment of each project proposal was consistent with the program's terms and conditions, but in our opinion its risk assessment framework was more comprehensive than required. The department could streamline its risk analysis, given that recipients assume all of the technical risks and most of the financial risks of their projects.
Industry Canada has adequate information coming from progress reports and site visits to allow the progress of each project to be tracked.
However, Industry Canada has not yet used this information to determine whether the program is achieving its objectives.
Industry Canada has agreed with our recommendations and set deadlines for their implementation. Last December the department met one of its deadlines by issuing a report entitled “Summary Report on Canada's Support for the Restructuring of General Motors and Chrysler in 2009”.
Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.
Thank you.
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Philip Jennings
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Philip Jennings
2015-03-30 15:42
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With that, thank you, Mr. Chair and committee members, for allowing me to provide you with a brief overview of Industry Canada's response to the Auditor General's 2014 fall report on the restructuring assistance provided to General Motors and Chrysler during the economic crisis of 2009 as well as the automotive innovation fund.
As you are aware, Canada has a strong automotive sector, which generates $17 billion annually of value-added, or 10% of Canada's manufacturing GDP. With some 730 automotive suppliers supporting our 11 assembly lines and three engine plants, the industry employs some 117,000 Canadians directly, and another 377,000 Canadians indirectly. In fact, in 2014, Ontario was the largest automotive manufacturing jurisdiction in North America—larger even than Michigan.
The auto sector is also export orientated. There are 90% of Canadian-made vehicles sold abroad, the vast majority of these in the United States. The proximity to the U.S., one of the most profitable auto markets, is one of our competitive strengths. Our auto sector is truly part of an integrated North American market.
Industry Canada is always interested in views and ideas that will help us support and grow Canada's automotive sector. While we hope we will never face a situation like the crisis of 2009 again, we are also interested in learning from such circumstances and in continuously improving how we prepare and respond. In this light, we welcomed the Auditor General's four recommendations. In fact, Industry Canada has already acted upon two of them and plans to act on the other two recommendations in a timely fashion. I will discuss this later in my remarks.
As you know, Mr. Chair, late 2008 and early 2009 was a period of extreme uncertainty and volatility. Credit was tightening, consumers were scaling down and postponing their spending, and economies around the globe appeared to be heading into recession, if they weren't already. The auto sector was experiencing first-hand the impacts of consumers postponing major expenditures. Annual vehicle sales plummeted in the U.S. in 2009, from about 17 million vehicles per year to a little over 10 million.
With shrinking sales, the financial situation of all companies was becoming desperate, but for GM and Chrysler it was particularly bad, as it did not have access to capital like the others. In November 2008, GM announced it would run out of cash around mid-2009 without a combination of government funding, a merger, or sales of assets. No credit institution was in a position to help either GM or Chrysler.
While Canadian sales did not dip as much, Canadian assemblers were not sheltered by the events in the U.S., given that close to 90% of Canadian-made cars are exported to that country. Canadian subsidiaries were directly impacted by their parent companies' difficulties. There was a real risk that GM and Chrysler might shutter their Canadian operations in an attempt to restructure.
GM and Chrysler were at the time, and continue to be, the two largest carmakers in Canada, accounting for more than 55% of total production. Many of Canada's suppliers depended on contracts with GM and Chrysler. Without this work, many would not have survived, leading to a hollowing out of the suppliers and creating problems for the other original automotive equipment manufacturers.
That would have triggered a collapse of the entire Canadian automotive supply chain. The strong links and interdependencies between our supply chain and our assemblers were the key motivation for government action and support of GM and Chrysler. GM and Chrysler in Canada had to be protected from being collateral damage of the events in the U.S., not only for their sake but for the entire suppliers sector and ultimately the entire automotive industry in Canada.
Mr. Chair, as the Auditor General concluded, the Government of Canada did what it set out to do: prevent the disorderly collapse of the auto sector and ensure a viable automotive sector in Canada.
The clock was ticking. There was a very short timeframe to find a viable remedy for both GM and Chrysler. Both were in dire financial straits, and Chrysler needed to find a buyer. From the point that the crisis started and GM submitted high-level restructuring plans to the U.S. Congress in late 2008, governments had less than a month to decide whether to provide an initial set of loans. Again, once the company submitted more detailed plans, there was only about six weeks to assess their long-term viability.
As these events demonstrate, the restructuring of GM and Chrysler took place under intensely challenging circumstances. It required unprecedented collective action by the federal, Ontario, and U.S. governments.
While Charles and I at Industry Canada were not there at the time of the restructuring, the federal government did quickly organize an automotive response team. It was headed by Mr. Richard Dicerni and Mr. Paul Boothe, the deputy minister and associate deputy minister at Industry Canada at the time, and Mr. Ron Parker and Mr. David Moloney, who are my predecessors and who led a team of dedicated public servants who worked tirelessly and in unique ways to manage the government's response to the crisis. It supported a steering committee made up of deputy ministers from Industry Canada and Finance, as well as representatives from Export Development Canada, the Privy Council Office, and the Ontario Ministry of Finance and Ministry of Economic Development and Tourism, who all played important roles.
The team also reached out to stakeholders and experts to ensure it quickly had access to the necessary knowledge and expertise, whether on financial corporate restructuring from KPMG and Ernst and Young or on U.S. and Canadian insolvency law from Cassels Brock or on the automotive market from CSM Worldwide and Casesa Shapiro Group.
There were external discussions with those in the industry, including assemblers and suppliers, to gather essential information needed to assess and understand the risk. The government then made a responsible decision and took decisive action. Afterwards, my department monitored the two companies to ensure they fulfilled their end of the bargain and to ensure that the restructuring would deliver the desired results.
Mr. Chair, I am impressed by the work accomplished by my predecessors for the Canadian industry and its workers. Their work was the basis of the government actions and it paid off. It also proved to be pivotal in securing the immediate future of Canada's automotive industry and the economy at large. In early 2009, GM and Chrysler assembly plants directly employed an estimated 14,000 workers. Today both companies continue to be Canada's largest automotive manufacturers, employing about 19,000 Canadians, and the economic benefits extend far beyond the two companies. At the time of the crisis, the Department of Finance estimated that a total of 52,000 jobs were directly or indirectly tied to production at GM and Chrysler. Another study, by Leslie Shiell and Robin Somerville at the IRPP, estimated that in 2010 a total of 100,000 jobs, including jobs in the supplier sector, could have been lost without the restructuring. The study further suggested that in 2009 alone the economy could have suffered losses of $23 billion had GM and Chrysler not successfully restructured. The government's decisive actions ensured that there was business for hundreds of suppliers. The effects even spilled over into industries across the Canadian economy.
Today, all Canadian automakers, including GM and Chrysler, are investing in their operations. In the last two years in particular, each of Canada's five automotive assemblers has reinvested in Canada, and auto parts manufacturers have also invested in their operations. Another sign that the sector is doing well is that Canada's production increased to almost 2.4 million vehicles in 2014. The auto sector will continue to contribute significantly to the Canadian economy for many years to come.
All this work was and continues to be recognized, not only by the industry but also by third party analysis such as the IRPP study I mentioned, which concluded that the restructuring assistance was successful. Furthermore, Industry Canada received recognition for its accomplishments, including in the form of the Institute of Public Administration of Canada's 2010 innovative management award. I believe it is a remarkable success story that we were able to partner quickly and effectively with our counterparts at home and abroad, within and outside of government, to provide sound advice and ultimately save thousands of jobs and hundreds of businesses, and to secure a future for Canada's auto sector.
With respect to the automotive innovation fund, I am pleased that the report reflects a program that continues to be well managed. In many respects, it's still early days for the program. It was established in 2008 and seven projects have been supported. The initial projects are just now being completed, yet we know from the initial evaluation we did in 2012 that the program is meeting its short-term objectives. It has leveraged about $2.8 billion in investments since its inception, and as the Auditor General has recommended, we will continue to report against its longer-term objectives as projects are completed.
Mr. Chair, I want to conclude my remarks by noting that we have learned a great deal from these experiences, and the Auditor General's recommendations have helped embed these. The recommendations have highlighted that clear and comprehensive reporting on support provided and the management of that support contributes to the public understanding of the restructuring success. In order to increase the ease of access to the information, last December we published a single summary report on the restructuring support and recoveries. We've also committed to undertaking a review of the management of the restructuring assistance with a focus on identifying lessons learned. This work will be completed this year.
The Auditor General also recommended reviewing how we evaluate proposals for support from the automotive innovation fund, and monitoring the performance of the program.
We have updated the program's risk assessment framework and made explicit the manner in which risk profiles of applicants are assessed. We will also evaluate the program again in 2017-18 to determine to what extent it achieves its long-term objectives.
It is fair to say, just like all Canadians, we hope we never face such a challenge again, requiring us to use the lessons learned from the 2009 crisis.
Thank you, Mr. Chair and committee members. We will be pleased to respond to your questions.
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David Eaves
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David Eaves
2014-04-03 8:57
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Yes.
If I were looking at this committee and I was trying to think about how we were going to assess the value of Canada's open data policies, I'd be looking at three things.
The first thing I'd be looking at is whether we are thinking strategically about the policy in economic areas that we want to be driving into and what the data is that we're releasing that might support those places.
The second is whether we are thinking hard about how government itself is using the open data that it releases, so it does what we call “dogfooding”, which is that it uses its own information rather than sharing with others and expecting them to use it, but using something completely different itself.
The third is whether we are actually sharing information about government itself. Where is the budget? Where are the things that make government transparent so that citizens themselves can better understand and make government more legible, so they can become more engaged in the political process and contribute in interesting ways in the policy debates?
Thank you.
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Chuck Atkinson
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Chuck Atkinson
2012-04-03 8:47
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Thank you, Mr. Chairman.
We'd like to thank the committee for the opportunity to appear before you and to present our views on the Aveos closure.
The International Association of Machinists and Aerospace Workers is the largest union in the Canadian air transport sector, having represented Canadian airline workers for over 70 years. We represent 2,600 Aveos workers, most of whom were transferred from Air Canada. We also represent around 2,300 members who continue to perform aircraft line maintenance at Air Canada.
The recent announcement of Aveos's closure and the loss of over 2,600 direct jobs across Canada is shocking, but it does not come as a surprise. It is the result of a series of government policies and Air Canada actions that have undermined the Canadian aircraft maintenance industry.
Aircraft maintenance is a growing global industry, providing highly skilled employment and a major component of Canada's skills and technology base. Aveos, the former heavy maintenance division of Air Canada, is a major repository of the skills and know-how on which this sector depends.
The Aveos closure is more than the loss of over 2,600 high-skilled jobs, thousands of spinoff jobs, and many millions of dollars of lost income and tax revenue. It has serious effects on the cities of Montreal, Winnipeg, and Vancouver in these difficult economic times. The Aveos closure deals a body blow to this economically important sector.
When the federal government privatized Air Canada in 1988, we raised serious concerns about the potential for a privatized Air Canada to move much of its work and jobs out of Canada. The government responded by including in the Air Canada Public Participation Act “provisions requiring the Corporation to maintain operational and overhaul centres in the City of Winnipeg, the Montreal Urban Community and the City of Mississauga”.
The merger of Air Canada and Canadian Airlines has since added Vancouver as a major Air Canada maintenance centre.
In 1988 both the government and Air Canada stated publicly that the Air Canada Public Participation Act guaranteed that employment performing aircraft overhaul would be maintained, and indeed expanded, in these communities.
Frankly, these provisions did not allay our concerns. We feared that a privately owned Air Canada's drive for short-term gain would undermine this commitment. Our fears have now been realized.
From the time that Air Canada exited from creditor protection in 2004, Air Canada management proceeded systematically to dismantle the corporation, selling off assets and sucking over $2 billion out of the company, rewarding themselves handsomely while financially weakening the airline.
As part of this asset-stripping exercise, a majority share in the heavy maintenance division, Aveos, was sold for over $700 million in 2007. At that time, Air Canada committed contractually to provide Aveos with continuing work maintaining Air Canada's aircraft.
Subsequently, close to half of Air Canada's maintenance workforce was forced to transfer to Aveos on the promise of continued long-term employment, based on long-term Air Canada contracts.
Air Canada has not followed through on its commitment to provide the work to sustain Aveos, leading Aveos to file for creditor protection and announce its closure.
Air Canada has not provided us with the information as to where it plans to have the heavy maintenance work done. The speculation is that it may not be done in Canada.
While all of this has been unfolding, the federal government has stood by, making no effort to save this company and this sector. Even as Aveos announced its demise, the government has refused to act. While the government showed no hesitation to step in to quash our members' collective bargaining rights at Air Canada on the grounds of economic necessity, it is unwilling to take any steps to maintain thousands of jobs and a vibrant sector.
We are prepared to take legal action to get Air Canada to live up to the requirements of the 1988 legislation, but we are not here to talk about a legal issue. This is an economic and a moral issue for us. Is the government prepared to stand by and watch the demise of a major player in a key sector of our economy? That's the question.
We call upon the Harper government to respect its commitment under the law to support these jobs and the aviation maintenance industry in Canada.
Thank you.
Now we'll be open for questions.
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View Gerry Byrne Profile
Lib. (NL)
Thank you.
I'll ask Mr. Campbell, then. You suggested to us to specifically ask our witnesses about what were the plan and the timeframe for reporting to Parliament on the delivery and economic impact of the economic action plan. What specifically have they left out that you suggest they need to be more forthcoming with?
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Ronnie Campbell
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Ronnie Campbell
2012-03-13 9:31
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I didn't hear the government say on what date or approximately what date they intended to table the report that assessed the impact of the economic action plan.
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View Jamie Nicholls Profile
NDP (QC)
I will get to the question.
Another thing on the strategy and planning of the government for infrastructure spending--and I will bring this to transit shortly--is that the CTF talked about the federal government putting up around 9,000 stimulus signs and said that it was part of the government's plan for taking credit for the orgy of stimulus spending.
This member costed it out and said that it cost, if you multiply it across the country and take into account installation costs, about $3.2 million for signage for taking credit.
Now, what we've been trying to do with this transit strategy bill is depoliticize the process so that we can all get on board and improve the economy of this country by finding ways to improve the productivity of our transit systems.
This is my question to you. I will ask you to tell me which of the following would be more likely to gain the support of the CTF membership, putting aside the fact that the members are mostly against public spending, and accepting that, contrary to your position, funding will be transferred to the provinces and those provinces will use the money for their public transit systems. Which of these two would be more likely to gain the support of your membership? Spending with an eye to political gain on pet projects that have questionable economic impact? Or spending on a strategy that irons out the kinks before any money is spent and aims to improve the accountability and funding mechanisms to, in short, eliminate waste in spending?
What I'm saying is that spending is probably going to happen. Wouldn't it be better to have a strategy ahead of time for that spending instead of doing it on a sort of ad hoc basis?
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