Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 6 - Evidence, May 14, 2014


OTTAWA, Wednesday, May 14, 2014

The Standing Senate Committee on Transport and Communications met this day at 6:45 p.m., to continue its study of the subject-matter of those elements contained in Divisions 15, 16 and 28 of Part 6 of Bill C-31, An Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.

TOPIC: Part 6 — Division 15 — Regulatory Cooperation

Senator Dennis Dawson (Chair) in the chair.

[Translation]

The Chair: Honourable senators, I call this meeting of the Standing Senate Committee on Transport and Communications to order. This evening, we are continuing our study of Bill C-31, An Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures. Our committee has been asked to conduct a pre-study of Divisions 15, 16 and 28. Today, we will be turning our attention more specifically to division 15. This division amends the Motor Vehicle Safety Act to support the objectives of the Regulatory Cooperation Council to enhance the alignment of Canadian and U.S. regulations.

[English]

Our witness for this meeting is Steve Rodgers, President of the Automotive Parts Manufacturers' Association, by video conference. I invite the witness to make his presentation.

Steve Rodgers, President, Automotive Parts Manufacturers' Association: Thank you very much, Mr. Chair and distinguished senators, for the opportunity to be here.

I will start by noting that the Automotive Parts Manufacturers' Association represents parts producers in Canada that would provide their products to global OEM assembly facilities. Very specifically, we represent about 450 suppliers, with a net value produced from these plants in Canada of about $23.5 billion last year and employing about 89,100 employees in Canada.

While we talk Canada, we have to admit that, generally, the vast majority of our members are from and the manufacturing is occurring in the provinces of Quebec and Ontario.

From an APMA perspective, certainly we strongly support the efforts of the Regulatory Cooperation Council to create harmonization. One of the things we clearly need to realize is that as an industry and country, we are competing much more as NAFTA versus other regions of the world, including China, India, South America and Europe, including Eastern Europe. It is important for us overall in NAFTA, not just in Canada, to be cost competitive in a global automotive industry.

We have had great success with what the Regulatory Cooperation Council has done with respect to things like the cross-border working group and harmonizing legislation and policies with the United States to facilitate the movement of goods and human resources back and forth across the border, all with the same focus of trying to make us more competitive and to boost trade and overall competitiveness.

From an overall perspective, very specifically in the automotive industry, especially with safety standards, it is of huge benefit to Canada to be consistent with the United States especially and to adapt and have a single set of safety standards that is particularly advantageous.

From a safety compliance and enforcement point of view, we are obviously less involved with that. The one thing that we would note, in some ways and in some of what we have read, recalls would be under a minister's discretion. We would hope that all of the decisions would be based on evidence and comprehensive data analysis rather than other pressures that might come into play before realizing what the situation is overall. But generally, anything we could do to harmonize our safety standards with the United States especially is going to help us be much more competitive from a manufacturing standpoint in Canada.

I will finish by noting that between now and 2019, Canada falls from being the ninth largest auto producing nation in the world to the fourteenth. We lose market share within NAFTA production every year. Our high was in 2009, when we were around 18 per cent. We will have dropped to about 13.5 per cent of NAFTA production by 2019. We will have lost about 600,000 units of production during that time frame, producing about 2.4 million units last year and somewhere in the neighbourhood of 1.7 million units by 2019.

It is a significant challenge for us in Canada to remain competitive. It is a significant challenge we face in trying to continue to protect both the production of vehicles and the production of components in Canada. Anything that we can do to enhance that is certainly to our advantage.

I'll end the formal comments there and provide an opportunity for any questions that you might have from that standpoint.

Senator Mercer: Mr. Rodgers, thank you very much for being here tonight. We appreciate your time.

Going back to your last point where you talked about the loss of production and how it has been decreasing over the years, is that caused by the cost of production in Canada versus the cost of production in Mexico and the United States? Is it driven totally by price?

Mr. Rodgers: I don't think it's driven totally by price. Again, we would not want to come out in any way and say it is because of the cost of labour in Canada. There's no doubt that we are not a low-cost jurisdiction when compared to Mexico, but we would have to say that a large number of factors come into play.

The situation in Ontario, although this is not true in Quebec, is our power rates. Some of our labour policies, compared to other jurisdictions in the United States, are not as flexible in allowing one to move rapidly.

We have to look at certain states, such as Georgia, Alabama, South Carolina and Tennessee, where they have a tendency to look at these new automotive plants as investments. They have detailed models and look at what they would get from a return on investment for attracting these jobs. As you may have read lately, some of our politicians seem to refer to it not as an investment in our future economy but as corporate welfare and on a competitive basis.

There are a number of factors, such as cost structure and attitudes, that have simply allowed us to be uncompetitive from that standpoint. If Canada wants to have 18 per cent, and our economy is built on a strong element of the automotive industry where we have 18 per cent of NAFTA production, simply to maintain that, we need to win one of every six new plants that are built in the NAFTA region. Currently, since the announcement in 2007 of the Toyota assembly plant in Woodstock, we are in an 0-for-18 run.

Senator Mercer: Are the quality of the parts any different as you compare Canada, Mexico and the U.S.? Can we ensure the quality is up to our standards?

Mr. Rodgers: I believe we can. As in any industry, there will always be some variation from one parts producer to another, but we generally have found that the quality of assembly operations in Mexico is as good as anywhere in the world. The Nissan Aguascalientes plant typically finishes second to the lead plant for Nissan in Japan.

You are obviously going to have certain areas of technology where Mexico may not be quite as competitive or may not have quite as high quality, but overall, we would say that the level of quality around the world is generally very competitive at this point.

Senator Mercer: You mentioned certain labour rules in Ontario but also made reference to the lower power rates in Quebec, which is a significant advantage. Are we seeing more parts manufacturers moving within the country to Quebec to take advantage of the low power rates? Also, could you outline those negative rules in Ontario that you referred to?

Mr. Rodgers: Let's start with a quick example. With respect to the labour laws, as an example, in most jurisdictions in the United States, as in Ontario — and I have to admit on this one I'm not completely sure of the current policy in Quebec. But in most jurisdictions in the United States and in Ontario, there is a similar law that says 40 hours is the normal work week. You can ask an employee to work up to an additional 8 hours, and then from 48 hours up to 60 hours, you need to have written consent. The difference is that in Ontario, as an example, you need to get that written consent every week, which makes it a very difficult situation. For a lot of the employees, they are happy to work that, especially around Christmas, but we have a very bureaucratic structure.

Whereas in Michigan, you can ask once and that employee can then opt in and simply choose not to accept it on their own at any point. You only need the written permission once, basically, for a year, where we require it every week. So it's just little things like that where we make it more difficult in Canada from that perspective.

The second factor you mentioned was the issue of power rates. Unfortunately, one way or another, when we talk about vehicle production in Canada, we now mean production in the province of Ontario. We have no automotive production left in the province of Quebec.

What draws parts producers very simply is automotive vehicle production. It will always be the case that parts producers have a tendency to surround the assembly operations, for the most part, as the main base driving force and the reason they would locate. The only reason more of them are not moving to Quebec right now is that there simply aren't any assembly operations. What they gain in lower power rates and some other cost advantages in Quebec they give up in transportation cost and in todays' cost of diesel fuel and regular fuel, which unfortunately offsets those benefits.

Senator Demers: Thank you for being here, Mr. Rodgers. Do you expect that the proposed amendment could increase the number of jobs in the Canadian auto parts industry?

Mr. Rodgers: We do believe it could improve the number of jobs. We know that where you've got harmonization issues, if you can lower the cost of the certification of a vehicle, it makes that vehicle more competitive. If we therefore have vehicles produced locally, even if it's in the NAFTA region, it still creates job opportunities; i.e., they become more competitive versus vehicles that are imported from other jurisdictions. We would have more pressure for imports if the European free trade agreement is signed.

Harmonization lowers prices; therefore, vehicles produced locally are more competitive, and ultimately, those parts are sourced locally.

Senator Demers: Could you explain using concrete examples how the amendment of the Motor Vehicle Safety Act proposed in Bill C-31 will affect the Canadian auto parts industry?

Mr. Rodgers: That's a very good question with respect to specific examples.

Basically what happens is if you have two sets of standards, if we have a different rollover standard in the United States than we have in Canada and really in all geographic environmental conditions, we have the exact same conditions in the United States as we have in Canada, at least in certain regions in each of the countries from that perspective.

If you have a different rollover standard, if you have a different standard that the engineers have to design to, it's something that has to be taken into consideration. You meet one standard in one country but you have a different cost element that has to be recertified within Canada from that perspective. That adds additional engineering costs, it may add additional material costs and additional components, or you may simply decide not to sell that model in Canada because of a difference in safety standard. First, that adds cost structure; second, it eliminates or reduces the number of models available in Canada. When that is the case there is less competition and higher prices.

The Chair: Mr. Rodgers, you mentioned that you had a certain apprehension about the non-scientific decisions taken concerning recalls. Was that a general comment you were making or does this legislation put it in a context that might worry you?

Mr. Rodgers: There would appear to be certain wording in there that might suggest there are elements that would be purely at a minister's discretion, without specifying what parameters might be around that or what might be involved. It is therefore difficult for us to understand completely, but we do know that when accidents occur, et cetera, there can be any number of factors that would include mechanical failure of the part itself and a problem in the design of the vehicle, but there can be many other factors such as weather, driver, et cetera. There is always pressure when certain things occur to make a quick decision before acting.

I'm not in a position to say that it's absolutely in the bill. There is some wording in there that might cause us some concern. Basically, all we are suggesting is that, in all situations — and I think it generally has been the history within Canada — we make decisions that are based on actual data and that we get to the root cause of the issue.

The Chair: Thank you. I wanted to be sure we clarified your comments.

[Translation]

Senator Verner: Good evening, sir. Thank you for being here this evening.

I would like some information. Perhaps it is not related, but I often hear that there are Canadians who want to buy a vehicle in the United States, but dealers here in Canada do not want to honour their warranties. It seems that some dealers are claiming that, if someone buys a vehicle in the United States, the warranty will not be honoured.

Is that related to any regulation issues? Is there a connection with the current provisions to correct the bill, in terms of the regulations?

[English]

Mr. Rodgers: I will admit this is something I believe the OEMs themselves would be in a better position to answer. As parts makers, we are of course concerned about production of vehicles rather than sales.

I do know the reason there is concern is that the OEMs always want to provide loyalty to their local dealers. So if they say to their dealers in Windsor, ``Please honour the warrant for a vehicle bought in the United States,'' it would appear that the Canadian division is not being loyal to their dealers from that standpoint. Always, the issue comes down to loyalty to the dealer who is servicing your customer or ultimately loyalty to the end customer.

There are always some issues with respect to vehicles brought in from the United States such as the issue of kilometres versus miles and certain other factors that come into play. Sometimes you can get confusion that comes as a result of the different markings on the interior of the vehicle or certain other factors.

To the best of my knowledge, in the bill and the changes being put forward, this would not significantly change that one way or another with respect to making it easier to bring a vehicle in from the United States rather than supporting a local Canadian dealer.

Again, in this case, I would defer to the OEMs themselves for proper information.

[Translation]

Senator Verner: I was wondering if it was about a difference in the regulations, in the production of automobile parts. I understand now. Thank you very much.

[English]

The Chair: Mr. Rodgers, thank you very much for your testimony. You've made yourself quite clear on this situation. I want to tell the members that our next hearing, which will be on Bill C-31, will be on Tuesday, May 27. We will have WIND Mobile discussing the communications side of the bill. On Wednesday, May 28, the mayors of Montreal and Longueuil will be here. As to possible witnesses for Bill S-4 on the digital privacy legislation, we will keep you informed as soon we have confirmations.

If there are no other comments, thank you very much and have a nice evening.

(The committee adjourned.)


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