Auto industry competition and industry issues discussed at private meeting at Canadian International AutoShow
Federal Finance Minister Joe Oliver met with leaders of Canada’s dealer associations, leading auto dealers, and OEM leaders at a briefing at the Canadian International AutoShow. PHOTO CREDIT: MICHELLE SIU
CANADA’S AUTO INDUSTRY is shifting into high gear, with 2014 marking a record year in auto sales. Canadians bought a whopping 1.85 million vehicles — up 6.1 per cent over 2013. Many predict another banner year for 2015.
To keep the momentum rolling, Federal Finance Minister Joe Oliver met with leaders from the Canadian Automobile Dealers Association (CADA), the Trillium Automobile Dealers Association (TADA) along with a select group of Canadian OEMs, to discuss how to keep Canada’s auto industry competitive.
The Canadian International AutoShow (CIAS) was the venue for the more than two dozen executives and government officials who met behind closed doors for nearly an hour before the official opening of Canada’s largest auto show in Toronto on Feb. 13, 2015.
At the table were CEOs or senior government relations officials from General Motors of Canada, FCA Canada Inc., Ford Motor Company of Canada, Honda Canada Inc., and Toyota Canada Inc. — all OEMs with a Canadian manufacturing footprint.
“It was an interesting round table,” said participant Jerry Chenkin, CEO, Honda Canada Inc., following the discussion. “Not only did he [Oliver] have representatives from the five manufacturers, but also the dealer associations,” he said, adding that having representatives from manufacturing and retail side gave him a picture of what the challenges are.
The biggest challenge facing OEMs is remaining competitive. “They’re in competition, particularly with southern United States and Mexico. And the issue is to make Canada and Ontario, in particular, as cost competitive as possible. That relates to labour costs, infrastructure, energy costs, and so on,” said Minister Oliver, in an interview following the CIAS’s ribbon-cutting ceremony with Toronto Mayor John Tory.
In 2014, Canada’s share of the North American auto output fell to 14.1 per cent, while Mexico’s share spiked to 18.9 percent with production hitting more than 3.2 million vehicles, up nearly 10 per cent over 2013.
According to the Center for Automotive Research in Michigan, global carmakers invested $7 billion into Mexico last year versus only $750 million for Canada. Mexico’s low wages, 45 free trade agreements, and hassle-free shipping from its ports make it an attractive place to do business.
In an interview after the meeting, Rick Gauthier, President & CEO of the Canadian Automobile Dealers Association, said Minister Oliver appeared to be receptive to the information he was receiving from participants.
“You’ve got to figure out a way to incentivize the manufacturers. You’ve got to be competitive with others who are trying to attract that business,” said Gauthier. “The cost of doing business in Canada is high relative to those other places. It all comes back to the right kinds of incentives to offset some of the labour costs. That’s what the key message was. The Minister showed a great deal of interest and receptiveness to that.”
The attendees weren’t looking for handouts, they were just urging the government to promote Canada as an attractive place to do business.
Steve Chipman, CADA Chairman and President and CEO of Birchwood Automotive Group, the largest auto dealer group in Manitoba, thanked Minister Oliver for the government’s continued support for dealers.
CADA leaders say the current government have been helpful to the auto industry — and appear to really appreciate the importance of the industry and the dealer network to the overall Canadian economy. For example, the government has been helpful by lowering the GST to 5 per cent, providing access to liquidity when there was none in 2009 through the $12 billion Canadian Secured Credit Facility, and providing financial assistance to two OEMs that allowed 1,000 car dealers to continue to survive.
Chipman and the CADA asked the Minister to review the government policy to allow dealers fair access to the small business deduction (SBD) — something they’ve requested for more than a decade.
Under the current rules, dealers lose access to the SBD once the accumulated taxable capital hits the $15 million threshold.
More importantly, under the current rules lien notes are excluded from the calculation for capital. The CADA pointed out to the Minister this is unfair because lien notes are a unique form of financing that pertains to car and truck dealers and discriminates against car dealers when compared to other types of small businesses.
Gauthier was then asked by MP John Carmichael, a former GM dealer and former CADA Chairman who helped secure the Finance Minister for the high-powered talks, to prepare a full briefing document on the issue. They plan to meet later to further discuss.
Dennis DesRosiers, auto analyst at DesRosiers Automotive Consultants, is also optimistic for Canadian dealers. “At this point, I don’t see any downside to car dealers to the growth of Mexico or the U.S. south. If anything, I see upsides,” he said during a telephone interview.
“Production in North America has exploded so much in Mexico, in particular. Canada is holding and the U.S. is doing really well so delivering a product for our market is quite good. With the possible concern about exchange-rate volatility, our car dealers are in pretty good shape in terms of more North American-built products. It’s better for our car dealers than playing with overseas exchange rate risks. “
He continued, “I would argue, unrelated to the manufacturing issues, that the car dealer in Canada today is facing their best 5-8 years in their history in front of them.”
Record level new vehicle sales with the potential for a continued upswing, a potential 50 per cent growth in the used vehicle market, and a spike in fixed operations, are all positive signs. “I see little to no downside threat to the car dealer in Canada today,” said DesRosiers.
Other big news at the CIAS included GM’s investment of $560 million into its CAMI manufacturing facility in Ingersoll, Ont., where the Equinox rolls off the line, and Ford’s decision to build its next GT supercar at Multimatic Inc., in Markham, Ont.
The auto manufacturing sector employs more than 117,000 Canadians directly and another 377,000 indirectly. It generates almost $17 billion annually in real GDP or 10 per cent of Canada’s manufacturing output.
