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GOVERNMENT RESPONSE TO THE SECOND REPORT OF THE STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY: A STUDY OF THE CRISIS IN THE AUTOMOTIVE SECTOR IN CANADA

The Government commends the work of the Standing Committee on Industry, Science and Technology (“the Committee”) on their report, entitled “A Study of the Crisis in the Automotive Sector in Canada.”

In the context of the North American market, the Canadian auto industry has been a major success story in the last decade with domestic production totaling twice the value of domestic sales.  Few other countries are as economically reliant on the auto sector.  In 2008, the automotive sector represented 12 percent of manufacturing GDP (gross domestic product) and 18 percent of manufacturing exports.  While Canada’s automotive manufacturing is largely concentrated in Ontario, this is truly a national industry with thousands of jobs in every province directly tied to the automotive value chain.

Through Advantage Canada in 2006, and more recently through the 2008 and 2009 budgets, the Government was paving the way for a stronger and more sustainable Canadian automotive industry.  In 2008, Canada produced 2.1 million passenger and commercial vehicles.  Investment averaged more than $3.4 billion annually over the last decade, and Canada accounted for 16 percent of North American light vehicle production while representing only 10 percent of North American sales.

The Canadian automotive assembly industry has tremendous direct and indirect economic impact across the nation.  It employed 137,500 people in vehicle assembly and component manufacturing, and another 345,900 in distribution and aftermarket sales and service.  It is estimated that each automotive assembly job creates 4.9 indirect jobs – well above the Canadian manufacturing average of 1.2 indirect jobs.

The automotive industry employs thousands of engineers and tens of thousands of highly skilled technicians.  It represents an important pillar in the knowledge-based workforce.  Thanks to this workforce’s world-class productivity, Canada has the exclusive mandate to produce 24 different cars and light trucks and has built up a supply base of more than 750 part manufacturers located across Canada with a significant portion of the industry clustered in Ontario near Michigan and Ohio.

The auto industry is the cornerstone of much of Canada’s manufacturing base.  The auto sector consumes about 28 percent of Canada’s rubber product manufacturing, 18 percent of Canada’s plastic product manufacturing, 18 percent of Canada’s domestic rolled steel, and 11 percent of Canada’s fabricated metal product manufacturing.

Canada’s automotive industry operates in a highly integrated North American marketplace. The United States (U.S.) and Canada have been making automobiles together for more than 40 years, leading to integrated supply chains and just-in-time inventory.  For each vehicle, components move back and forth 6-7 times across the U.S. and Canada border throughout the assembly process.

In this integrated marketplace, the recent liquidity crisis, downturn in economic activity and significant fall in automotive sales, represented considerable challenges for the Canadian automotive industry.  These challenges were compounded by the major restructuring efforts already faced by the industry in light of volatile fuel prices and the growing investments required for new, greener vehicles.  The automotive industry faced an industry-wide credit and consumer crisis that involved a very large economic footprint with multiple nations pledging support to these manufacturers.

That is why the Government was pro-active.  Support for Canada’s automotive sector, including restructuring assistance to Chrysler and General Motors, was given under the guiding principle that it would be proportionate and parallel with those announced by the U.S. Administration and that it would maintain Canada’s share of North American production.  The Government recognized early on both the urgency of the difficulties facing the automotive industry and the critical importance of the sector to the Canadian economy and helped the automotive sector deal with the most serious economic downturn ever witnessed in the global economy.

Response to Recommendations

The government has taken full account of the Committee’s recommendations and the following section addresses each recommendation individually:

Recommendation 1

“Given the highly integrated nature of the industry, the development of a coordinated North American approach is essential to ensuring the sustainability of the industry in Canada.  In order to effectively address the current and future issues faced by the industry, the Committee recommends that the Government of Canada further engage with its North American partners and industry stakeholders on issues including: investment in innovation and new technologies, investment in infrastructure, the implementation of harmonized regulatory regime (including harmonized regulations regarding fuel consumption, safety standards, and emission standards) the training and development of an appropriate workforce, and other issues affecting the industry.”

Response

Canada’s role as an automotive-producing nation must be understood in the context of an increasingly global market and levered to generate the greatest benefits for Canadians.

The auto sector in North America is highly integrated, requiring an integrated approach.  A car part, for instance, can cross back and forth over the Ambassador Bridge between Detroit and Windsor several times before it is finally installed in an assembled vehicle.  Each trip means the niche expertise of a particular company from Michigan or Ontario has improved upon that product.

The Canadian auto industry is critical to the well-being of affected workers and communities.  It is also a vital component of the diversified economy needed for future prosperity in Canada.  Canada’s support is designed to help position the Canadian auto industry to prosper in a new global marketplace that is both more competitive and more aligned to environmental needs.

To achieve these goals, the federal government has been working closely with the governments of Ontario and the United States and has implemented a number of critical measures, notably:

The Governments of Canada and Ontario provided $3.775 billion to support the restructuring of Chrysler and extended a working-capital loan and a medium-term restructuring loan to Chrysler in Canada in support of further restructuring.  In conjunction with the U.S. Government, both governments also supported a court-supervised restructuring of Chrysler through joint Canada-U.S. debtor-in-possession (DIP) loans.

The Government of Canada and Ontario extended an interim loan and a medium-term restructuring loan to General Motors in support of further restructuring.  In conjunction with the U.S. Government, both governments also supported a court-supervised restructuring of General Motors in the U.S. through joint Canada-U.S. debtor-in-possession (DIP) financing.  The total support to General Motors was up to US$9.5 billion.  At the conclusion of the court-supervised process, all of this funding transformed into a loan of up to US$1.3 billion for General Motors in Canada; US$403 million of preferred shares in General Motors Company; and a 12 percent ownership stake in General Motors Company.

As a condition of restructuring assistance extended to both Chrysler and General Motors the Governments of Canada and Ontario required both companies to have viable business plans and make significant commitments.  As a result Chrysler will be maintaining Canada’s share of North American production and will also provide assurance that they will maintain a proportionate level of product-related capital investment while encouraging training, and research and development in Canada.  General Motors will maintain the company’s share of Canada-U.S. production and make significant capital and research and development investments in Canada.  The loans are proportionate and parallel with those announced by the U.S. Government, and are to the benefit of the companies’ workers, suppliers and consumers across the country.  The support provided to both companies is part of a holistic approach the government has adopted for the auto industry, in order to enable it to restructure toward a viable, sustainable future.

The Government announced the Canadian Warranty Commitment Program, ensuring that the consumer warranties of new vehicles purchased from Chrysler and General Motors were honoured during the restructuring period.

The Government helped automotive parts suppliers by expanding their accounts receivable insurance.  In April 2009 the Government of Canada announced that it had added $700 million to Export Development Canada's (EDC) Accounts Receivable Insurance (ARI) program available to auto parts suppliers.

Canada’s Economic Action Plan has been given very high marks internationally, particularly by the International Monetary Fund (IMF).  The Plan puts in place an unprecedented economic stimulus that will help Canadians weather the global recession and emerge with an even stronger economy.  The Plan has been supplemented in important ways by provinces and territories and through our combined actions with the new U.S. administration to support the auto industry.

a) Investment in innovation and new technologies

Automotive Innovation Fund

The Automotive Innovation Fund (AIF) was established in 2008 to provide automotive firms $250 million over five years to support strategic, large-scale research and development (R&D) projects to build innovative, greener, more fuel-efficient vehicles.

The AIF supports Canada’s environmental agenda in advancing Canadian capabilities in fuel-efficient automotive technologies and greenhouse gas reduction.  The Fund demonstrates the government’s commitment to implementing Canada’s Science and Technology (S&T) Strategy in an automotive context.  The AIF also provides an important complement to the Government’s agenda to support industry competitiveness, outlined in a plan called Advantage Canada: Building a Strong Economy for Canadians.

In September 2008 the Government of Canada announced its investment in Ford Motor Company’s Renaissance Project to make Canada a major research centre for greener, fuel-efficient engine technologies.  The Renaissance Project includes the establishment of a new flexible engine assembly plant in Windsor, as well as the creation of a new North America Centre for Diesel and Advanced Powertrain Research and Innovation, which will perform research into engine efficiency and new fuel technologies.  The federal government agreed to provide a repayable contribution of up to $80 million through its Automotive Innovation Fund (AIF).  The total investment among all of the partners in the Renaissance Project could reach $730 million.

Supporting Collaborative Research and Development

World class research strengths in Canadian universities align well with the existing manufacturing base and the projected future technologies for the automotive industry.  The federal government is therefore supporting collaborative research and development initiatives that will allow Canadian industry and academia the ability to jointly take their work from research to application.

AUTO21 is a national research initiative supported by the Networks of Centres of Excellence (NCE) Program and funded through the Natural Sciences and Engineering Research Council (NSERC) and the Social Sciences and Humanities Research Council (SSHRC).  Its objective is to increase the amount of auto-related research and development in Canada by creating partnerships among university, industry and government labs and researchers.  AUTO21 currently supports more than 300 researchers across Canada working on 54 auto-related projects in a variety of areas.  From 2000-01 to 2010-11, AUTO21 has been awarded $63.7 million from the federal government to fund projects such as vehicle safety for children and the elderly, health and safety of auto workers, new manufacturing processes and materials for future automobiles, new fuels and types of powertrains, and the integration of advanced electronic systems into cars and trucks to improve safety, comfort and convenience.

The Canada Excellence Research Chairs (CERC) program was launched in 2008 to strengthen Canada's ability to attract the world's top researchers and develop ambitious research programs.  CERC will establish 20 prestigious research chairs in universities across the country.  Each chair will receive up to $10 million over seven years to conduct research in areas of strategic importance to Canada.  At least one chair will be allocated to research that is of direct benefit to the automotive industry.

The Canada Research Chairs program stands at the centre of a national strategy to make Canada one of the world's top countries in research and development.  The Canada Research Chairs program invests $300 million per year to fund 2000 Chairs in eligible degree-granting institutions across the country to attract and retain some of the world's most accomplished and promising minds.  Chairholders aim to achieve research excellence in engineering and the natural sciences, health sciences, humanities, and social sciences.  24 chairs are conducting research in fields relating to automotive safety, manufacturing, alternative fuels, computer systems, engineering and materials.

Automotive Partnership Canada

On April 16, 2009 the Federal Government launched Automotive Partnership Canada (APC), which will provide $145 million in research funding over five years to support significant, collaborative R&D activities that will benefit the entire Canadian automotive industry.  Proposals funded by APC will support leading-edge university or government researchers in Canada, and must be clearly driven by industry needs and involve active industrial participation.  This initiative is a partnership between the federal granting agencies and research programs, which have identified collaborative, industry-driven automotive research as a priority.

Automotive Partnership Canada will enhance Canadian automotive research capacity, fuelling made-in-Canada innovation, increasing our ability to compete internationally and bringing long-term benefits to this important sector.  The program will support R&D projects in specific areas determined by an Industry Task Force, including alternative fuels, next-generation manufacturing, advanced power trains and lighter or more sustainable materials.  The government of Canada is investing in R&D not only because it will lead to greener, better-performing vehicles, but because it will create jobs and strengthen the economy for future generations.

b) Investment in infrastructure

Through the $33 billion Building Canada Plan, the Government of Canada continues to make strategic infrastructure investments that contribute to a growing economy, a cleaner environment, and strong and prosperous communities.  The Plan represents the largest federal commitment to public infrastructure in over fifty years.

The Building Canada Plan includes the $8.8-billion Building Canada Fund for investments in critical national priorities, such as the core National Highway System, clean water, sewage treatment, public transit, and green energy.

In addition to the Building Canada Fund, the Plan also contains three national targeted funds: the $2.1-billion Gateways and Border Crossings Fund, the $1.25-billion Public-Private Partnerships Fund, and the $1-billion Asia-Pacific Gateway and Corridor Initiative.

Given the high degree of integration that characterizes the Canada-United States automotive sector, the Government of Canada (through the Gateways and Border Crossings Fund) has invested in several key border-related infrastructure projects that will help to facilitate more efficient cross border trade including: an initial $400 million to support the construction of an Access Road to the new Windsor/Detroit international crossing; $62 million to reconstruct the Canadian Plaza at the Queenston-Lewiston Bridge;

and most recently in Budget 2009, $13.5 million for improvements to the Canadian plaza at the Bluewater Bridge in Sarnia; and $1 million for plaza improvements at the Peace Bridge between Fort Erie and Buffalo.

In addition, the Government of Canada, in partnership with the Provinces of Ontario and Quebec and the private sector, is developing the Ontario-Quebec Continental Gateway and Trade Corridor.  A corresponding Gateway Strategy will be released in Fall 2009 and will include infrastructure, policy, and regulatory actions to optimize and build upon the region’s world-class transportation and trade system.

c) The implementation of harmonized regulatory regime (including harmonized regulations regarding fuel consumption, safety standards, and emission standards)

Regulatory harmonization is a key issue for the Canadian automotive industry.  To reduce costs and in consideration of the integrated nature of the automotive sector in North America, the automotive industry has long advocated for regulatory harmonization between Canada and the U.S.

Vehicle safety standards, vehicle emissions of air pollutants and greenhouse gases, and fuel standards are areas of regulatory harmonization that are of particular interest to the Canadian automotive sector.

Transport Canada develops the Canada Motor Vehicle Safety Standards (CMVSS) under the authority of the Motor Vehicle Safety Act (MVSA).  Canadian vehicle manufacturers support full harmonization of safety standards with those in the U.S. given the integrated nature of the North American auto sector.  While the majority of regulatory differences have been addressed in the past year, certain safety standards, such as occupant protection in frontal impacts and vehicle immobilization standards, remain different between Canada and the U.S.  Over the last 18 months, Transport Canada has amended at least 17 additional motor vehicle safety standards to align/harmonize them with their U.S. counterparts.  It is expected that all of the Canadian safety standards will be harmonized, to the extent possible, with those of the United States, by the end of 2010.

Environment Canada is responsible for the regulation of light-duty vehicle emissions of air pollutants and greenhouse gases.  Environment Canada has developed and will continue to develop a series of regulations to reduce smog-forming air pollutant emissions from all vehicles and engines in alignment with the world leading national standards of the United States Environmental Protection Agency.  This includes smog-forming air pollutant emissions from new passenger cars and trucks, motorcycles and buses, small spark-ignition engines such as lawnmowers and chainsaws and for off-road diesel engines used in applications such as construction, mining, farming and forestry machines.  As well, new regulations are being developed to address smog-forming air pollutant emissions of recreational marine engines and off-road vehicles such as snowmobiles, off-road motorcycles and all-terrain vehicles.

Environment Canada and the United States Environmental Protection Agency are also implementing, under the Canada – U.S. Air Quality Agreement, a joint workplan on vehicle and engine emissions control to reduce administrative burden through cooperation in the sharing of information and data on vehicles, engines and testing including development of new emissions testing procedures and collaboration on research and development.

Regarding fuels, Canadian regulations controlling sulphur content in both gasoline and diesel fuel are also fully aligned with U.S. requirements.  Low sulphur levels in these fuels are required to ensure the effective operation of advanced emission control systems on vehicles and engines.  National standards on benzene are comparable to U.S. standards.  In addition, drafting of Canadian regulations on renewable fuels with an approach similar to the U.S. is under way.  This will include the development of a renewable fuel regulation that would require an average renewable fuel content of at least 5 percent, based on the volume of gasoline, to be implemented by September 2010, and a 2 percent renewable fuel content for diesel fuel and heating oil, to be implemented by 2011 or earlier, subject to technical feasibility.

On April 1, 2009 the Government of Canada announced that it is proceeding with the immediate development of regulations under the Canadian Environmental Protection Act, 1999 (CEPA, 1999) to limit emissions of carbon dioxide (CO2) from new cars and light-duty trucks to take effect beginning with the 2011 model year.  Under CEPA, the Government has the flexibility to align with U.S. national standards as they emerge, which is crucial to achieving a harmonized approach that takes both our environment and economy into account.  President Obama recently announced a new U.S. national plan to establish more stringent standards to increase fuel economy and reduce GHGs from cars and light trucks of the 2012-2016 model years.  These national standards will require a GHG emission performance that is equivalent to an average fuel economy of 35.5 miles per gallon by 2016, four years ahead of schedule established by Congress in 2007.  The Government is committed to continue working to harmonize our standards with the U.S. and to establish common North American standards for reducing greenhouse gases from new vehicles.

d) The training and development of an appropriate workforce

Human Resources and Skills Development Canada (HRSDC) has a number of programs and initiatives in place to address both short term and longer term labour market needs of the automotive sector.  Although most programming is targeted to individuals, through the Sector Council Program, the Department engages industry and other stakeholders.

The Sector Council Program works directly with employers and other stakeholders to develop and implement forward looking human resource strategies for a given sector.  There are two sector councils in the automotive sector, one for manufacturing – Council for Automotive Human Resources (CAHR) – and one for the aftermarket – Canadian Automotive Repair and Service Council (CARS) CAHR includes Ford and Toyota among its board members, Chrysler and General Motors as affiliates and has linkages with American organizations such as the Centre for Automotive Research (CAR) and the Great Lakes Manufacturing Council.  CAHR has undertaken a number of projects geared to developing skills within the automotive manufacturing workforce.  Of interest include their ongoing transitional skills project, which will provide tools and resources to enable workers (current, future and displaced) in the automotive manufacturing industry to adapt to changes in their work environment and to continuously upgrade their knowledge and skills, and a project CAHR is undertaking in partnership with the Province of Ontario to examine alternative approaches to workplace training for specialty-skilled workers.  CARS is a not-for-profit organization and Canada's leader in human resource development and training for the automotive repair and service industry.  CARS provides human resource and learning tools that are convenient, accessible and custom designed for automotive repair.  Notable CARS initiatives include the new Advanced Technology Training Curricula Development project that will introduce 24 new courses for the automotive repair sector An existing project includes the “CARSAbility” website, an online professional training needs assessment tool, which integrates an assessment question bank, employee skills portfolios, occupational standards, and an inventory of training available to address skill deficiencies.  HRSDC has provided $6.85 million in funding to these two councils over the last two fiscal years.

Although responsibility for labour market programming rests largely with the provinces and territories, the Federal Government provides funding through Labour Market Development Agreements (LMDAs) for employment insurance (EI) eligible workers, and Labour Market Agreements (LMAs) for low-skilled workers and unemployed workers not eligible for EI benefits.  Complementing LMDAs and LMAs, Budget 2009 introduced a two-year Strategic Training and Transition Fund which targets support to employed workers and those not eligible for EI benefits.

The following HRSDC programs help insure an adequate supply of skilled workers for the automotive sector.

Work-Sharing helps employers and workers avoid temporary layoffs during economic downturn by allowing EI eligible workers to work a reduced work week, thereby allowing employers to retain skilled workers which will be needed when the economy swings upward again.  Opportunities also exist to link work-sharing with training initiatives.  As of July 2009 there were 235 active Work-Sharing agreements involving 21,151 workers across Canada in the automotive sector.

The Red Seal Program facilitates the interprovincial mobility of skilled trades-people, who successfully meet national standards in their trade, recognized by all jurisdictions.  In 2008, 2,852 Red Seals were issued to tradespeople in the automotive aftermarket.

The Apprenticeship Incentive Grant is a taxable cash grant of $1,000 per year or level, up to a maximum of $2,000 per person.  It is available to apprentices in the designated Red Seal trades upon completion of their first and/or second level of their apprenticeship program.  Since the AIG was launched in January, 2007, over 100,000 grants have been issued, approximately 7,600 to apprentices in the automotive sector.

The Pan-Canadian Foreign Qualifications Recognition (FQR) Framework was announced in Budget 2009.  The Government of Canada committed $50 million over the next two years to support its development, in partnership with provinces and territories, in order to recognize immigrants’ international credentials faster.

To develop a skilled workforce in a broader sense, HRSDC supports the following:

The Office of Literacy and Essential Skills focuses on improving the literacy and essential skills of adult Canadians by developing literacy and essential skills tools, conducting research, developing policy, and working with partners at all levels of government and with external stakeholders.  Some initiatives focus on developing literacy and essential skills in and for the workplace.

The Canada Student Loans Program provides loans and grants to Canadians attending a University, College, Trade School, or Vocational School, if they need help financing their education.  Budget 2008 provided investment of $350 million in 2009/10, rising to $430 million by 2012–13, that will reach 245,000 college and undergraduate students per year when it takes effect in the fall of 2009.

The economic downturn has put considerable strain on all industries, including the automotive sector.  Recognizing the importance of skills and training to help workers directly affected by the downturn, the Government has provided additional assistance in Budget 2009 through the Canadian Skills and Transition Strategy with enhancements to Employment Insurance and funding for skills and training, which includes the following during the next two years:

  • Increasing all regular Employment Insurance (EI) benefit entitlements by five weeks, and the maximum benefit duration to 50 weeks from 45 weeks.
  • $500 million to extend EI benefits for those participating in longer-term training.
  • Extending work-sharing agreements by 14 weeks, to a maximum of 52 weeks.
  • Investing $500 million in a Strategic Training and Transition Fund to provide support to workers whether or not they are EI eligible.  The Government of Canada is providing Ontario with $103.2 million for 2009/10.
  • Providing additional $60 million over three years for the Targeted Initiative for Older Workers (for a total of $220 million 2006-12), and expanding it to include workers in small cities; the Targeted Initiative for Older Workers is a federal/provincial/territorial cost-shared initiative that supports unemployed older cworkers in communities with chronic high unemployment and/or those dependent on a single downsizing industry.
  • Investing $40 million a year in the Apprenticeship Completion Grant, a taxable grant of $2,000 for registered apprentices who complete their program and receive their certification in a designated Red Seal trade.

Recommendation 2

“The Government of Canada has proposed to implement a $12 billion secured credit facility aimed at easing the restrictions on credit in the industry and measures to increase access to credit for auto parts manufacturers.  The Committee recommends that the Government of Canada implement these initiatives as soon as possible.  Immediate action would help ease the restrictions faced by producers and consumers in the industry and should serve to foster demand in Canada.”

Response

The Government announced in Budget 2009 the Canadian Secured Credit Facility (CSCF) which provides direct support for vehicle and equipment financing.  Through the Facility, the Government will purchase up to $12 billion of asset-backed securities (ABS) backed by loans and leases on vehicles and equipment to stimulate economic activity in Canada and promote renewed investor participation and confidence in the vehicle and equipment financing markets.

CSCF funds were allocated to participating firms through two auction-like allocations.  The first allocation of CSCF funds in May 2009 was conducted through two tranches.  The Large Enterprise Tranche was targeted at Canadian firms that have used the term ABS market for financing, including the financing arms of major auto and equipment manufacturers.  The Small Enterprise Tranche, with a lower minimum transaction size, was designed to reach smaller market participants.  These companies are now well-positioned to increase lending volumes backed by their CSCF commitments.  The CSCF was developed with two allocations to permit potential changes in terms and conditions to reflect changing market conditions.  The Government engaged market participants for the second allocation in August 2009 and has allocated the remaining CSCF funds.  Firms have until the end of December 2009 and the end of March 2010 to sell ABS into the Facility under the first and second allocations.

Market observers have indicated that the CSCF has contributed to lower spreads and an improvement in market sentiment for auto and equipment ABS in Canada.  Some participants are reported to have used their CSCF allocation as a backstop to obtain funding from private lenders or through ABS sales outside of the CSCF.  The Government continues to monitor access to financing for groups like vehicle and equipment dealers who may not be able to take full advantage of the CSCF.

Recommendation 3

“That the Government of Canada consider introducing new vehicle incentive programs to stimulate consumer demand in Canada in consultation with provinces, territories and the Government of the United States.  Any such programs should recognize the potential effects on the aftermarket industry.”

Response

a) Motor Vehicle Scrappage Incentive Program

The Government of Canada has already created a national vehicle scrappage program as an environmental initiative.  The primary goal is to reduce smog-forming emissions by accelerating the retirement of personal vehicles of model year 1995 and older.  Secondary goals of the program include reducing greenhouse gas emissions by promoting sustainable transportation alternatives (such as public transit), and preventing the release of toxic substances in the environment by ensuring the responsible recycling of vehicles.  The vehicle scrappage program supports the Government’s Clean Air Agenda and ecoTRANSPORT strategy by offering incentives to Canadians to voluntarily retire their older personal vehicles.

The $92 million Retire Your Ride vehicle scrappage program was announced on January 30, 2009 by the Honourable Jim Prentice, Minister of Environment, and is managed by the Clean Air Foundation.  The number of weekly applications for Retire Your Ride continues to grow steadily.  It appears that the program is well placed to meet its current goal of retiring 100,000 vehicles between April 1, 2009 and March 31, 2011.

Clean Air Foundation and its network of local delivery organizations offer Canadians rewards for retiring their vehicles of model year 1995 or earlier.  These vehicles are targeted because they generate 19 times more air pollutants than vehicles of model year 2004 and newer.  Rewards vary between provinces, depending on the incentives offered by the local partners involved and may include: a choice of options to encourage the use of environmentally friendly transportation, such as discounts on public transit passes, bicycles, memberships in car-sharing programs, discounts on the purchase of a vehicle of model year 2004 and newer, or $300 cash.  The federal contribution to these incentives is $300 per vehicle scrapped.

Retire Your Ride also ensures that all old cars retired through the program are safely dismantled and recycled in an environmentally sound manner.  Environment Canada developed a national code of practice for vehicle recycling with the Automotive Recyclers of Canada to ensure high environmental standards and consistent practices across Canada are used on retire the old vehicles scrapped under the program.  Recyclers participating in Retire Your Ride are required to follow this code.

Since the program was launched, over 95 percent of participants outside British Columbia have selected $300 cash as their reward.  In British Columbia, the national scrappage program is complemented by substantial provincial funding allowing for incentives with a value of $1000 to $1500 to be offered.  About 70 percent of participants in British Columbia are selecting a rebate on the purchase of a replacement vehicle (current value up to $1250, up to $2250 until early August 2009) as an incentive.  Other incentives include up to 2-years of free transit, rebates on bicycles, and car sharing membership.

Results from a survey of Retire Your Ride participants, conducted by Environics Research for the Clean Air Foundation between mid-June and mid-July, were positive.  Nearly 9 out of 10 participants were satisfied or somewhat satisfied with the value of their incentive.  Over half said the program prompted them to get rid of their vehicles sooner than they might otherwise have done.  Very few participants considered options other than retiring their vehicle, such as keeping it, trading it in, selling it or transferring the ownership.  7 out of 10 respondents have already bought or say they plan to buy a replacement vehicle.  Of those, about 60 percent are looking to buy a used vehicle.  Those who do not plan to replace their vehicle say they will adapt to one less car in their household or use public transit.  Overall satisfaction in the customer service experience with Retire your Ride was high.

b) Warranty Program

The Canadian Warranty Commitment Program was put in place on April 7, 2009 as a federal initiative that ensured consumer warranties on new vehicles purchased from Chrysler and General Motors would be honoured.

In the event of a failure by Chrysler or General Motors, an auto service provider would have been appointed by the Canadian Warranty Commitment Program to supply the warranty services to honour consumer warranties over a 12 month time period.  The program covered the participating automakers’ warranty on every new vehicle sold during its restructuring period.

With the government supported successful restructuring of both companies and the wind down of the parallel program in the U.S., the Government of Canada has announced the winding down of its warranty backstop programs for Chrysler and General Motors.  This reflects the companies’ stronger financial and competitive footing and their ability to fully meet their warranty commitments on their own.

Recommendation 4

“The Committee recommends that the Government of Canada ensure that any provision of public funds to industry participants would be subject to a strict reporting regime aimed at holding recipients accountable to the people of Canada.”

Response

The governments of Canada and Ontario co-operated to provide financing to Chrysler and General Motors to support restructuring of both companies while maintaining Canada’s production share in the Canada-U.S. market.

The support to Chrysler and General Motors included working capital loan and a medium-term restructuring loan to the companies’ Canadian operations.  In conjunction with the U.S. Government, the Government of Canada and the Government of Ontario also supported a court-supervised restructuring of Chrysler and General Motors in the U.S. through joint Canada-U.S. debtor-in-possession financing.

The Governments of Canada and Ontario received a combined 2-per-cent ownership stake in Chrysler and a 12-per-cent ownership stake in General Motors and gained the right to appoint an independent director to the boards of the newly restructured companies.

As a condition of interim loans extended to both Chrysler and General Motors, the Governments of Canada and Ontario required both companies to have viable restructuring plans and were asked for significant commitments, for example to pay their debts owing to suppliers in a timely manner.  With Chrysler, the completion of a deal with Fiat, gave both governments the assurance needed to commit taxpayers’ dollars to help usher in a promising new future.  General Motors committed to making capital investments totaling more than US$2 billion in the Canadian operations over the life of the agreement, and to investing US$1 billion in research and development in Canada.

The following are examples of conditions placed on Chrysler and General Motors that ensure that the Governments of Canada and Ontario are able to exercise rigorous oversight over taxpayer money.

  • Amounts owing to automotive parts suppliers are to be paid according to reasonable automotive sector commercial terms and conditions, including timing.
  • Limitations on dividend payments, executive privileges and compensation, and on luxury expenses.
  • Interest-bearing notes must be provided.
  • Reporting of significant financial, production, and material transactions.

Recommendation 5

“That the Government of Canada review the other issues raised in the auto subcommittee.”

Response:

The government reviewed other issues in the report including restructuring of Chrysler and General Motors, assembler financial assistance, support for automotive parts manufacturers, and an automotive industry strategy.  The Government has taken a comprehensive approach to the automotive sector to position the sector for long-term success.

The governments of Canada and Ontario worked together, in partnership with the United States, to support the automotive sector. Combined support by the Ontario and federal governments, provided through loans and other instruments, totaled more than $14-billion.

On April 30, 2009, the governments of Canada and Ontario announced they were co-operating to provide $3.775 billion to Chrysler to further the companies’ efforts to restructure, while maintaining Canada’s 20 percent production share in the North American market.

On June 1, 2009, the governments of Canada and Ontario announced they were co-operating to provide US$9.5 billion to General Motors to support the companies’ efforts to restructure while maintaining Canada’s production share in the Canada-U.S. market and making a significant investment in research and development.

The funding provided to both companies is part of a holistic approach the government has adopted for the auto industry, in order to enable it to restructure toward a viable, sustainable future.  It is also parallel and proportional to the funds that were provided to both auto companies by the United States government.

The federal government asked for significant commitments from both companies and their stakeholders, and is pleased they made the tough decisions necessary to put themselves on a more steady footing.  The decisions made by all stakeholders as part of this process were not easy, but they were necessary to ensure our share of North American production.

In April 2009 the Government of Canada announced that it had added $700 million to Export Development Canada's (EDC) Accounts Receivable Insurance (ARI) program available to auto parts suppliers.

Combined with EDC's previous ARI exposure of approximately $550 million for auto parts suppliers, the additional $700 million brought the exposure to $1.25 billion, an amount proportional to a 20 percent share of the US$5-billion Auto Supplier Support Program announced by the U.S. Government in March 2009.

In 2008, EDC provided a total of $4.2 billion in commercial facilitation to 595 Canadian companies in the auto industry through its financing and insurance products and services. Of this amount, $3.2 billion was in the form of ARI.

In Canada's automotive industry, ARI is used to protect the auto parts suppliers selling to the auto manufacturers, such as Chrysler and General Motors.  Auto manufacturers usually require parts suppliers to enter into agreements with guaranteed delivery obligations that can range up to 60 or 90 days, regardless of the automaker's financial situation.  With ARI, auto parts suppliers can insure the amount of parts supplied under the contract.

When EDC insures receivables for a Canadian company, it provides security for their banks, and banks can then lend to the Canadian company against that security.  This benefits Canadian companies by giving them the ability to offer more flexible credit terms to their buyers.  By not having to self-insure, Companies are able to free up working capital.

Conclusions and Next Steps

The federal government recognized early on both the urgency of the difficulties facing the industry and the critical importance of the sector to the Canadian economy.  That is why it took action to support the automotive sector through this difficult period in a number of areas to help automotive companies, automotive suppliers, and Canadian consumers.

Chrysler and General Motors received loans to support their restructuring efforts in Canada and both companies have since emerged from court supervised restructuring.  The Government of Canada has every reason to believe that these companies will be competitive, and that they are now in a position to operate a sustainable and viable business that will keep production, innovation, and jobs in Canada.

Automotive parts suppliers have benefited from $700 million that was added to Export Development Canada’s (EDC) Accounts Receivable Insurance (ARI) program.

The Canadian Warranty Commitment Program was established to ensure consumer warranties on new vehicles purchased from Chrysler and General Motors were honoured during restructuring.  Furthermore, a $12-billion Canadian Secured Credit Facility was launched in a timely manner to improve credit availability for consumers to purchase and lease new vehicles.

To ensure Canada’s strength in the highly competitive automotive manufacturing industry, the Government of Canada has made significant investments in high value-added R&D activity to help create the next generation in automotive technology.  Initiatives such as the Automotive Innovation Fund (AIF), Automotive Partnership Canada (APC), and support for collaborative R&D activities like AUTO21 that bring the best academic minds to bear on industry challenges, are necessary to ensure the transformation of the automotive sector.  They are also key to strengthening Canada’s position as a leader in developing the car of the future.

It is clear from what has been noted above that the Government has and remains sincerely committed to supporting the automotive industry and those individuals, families and communities affected by the industry through both short and long term strategic planning.  Canadians can be assured that the Government will continue to engage with the auto sector and work to ensure the industry has a strong and vibrant future in this country.

ParlVU