Canada's depressed auto sector needs a massive stimulus program to nurse it back to health, including a $350-million effort to encourage owners to trade in old cars for new ones, the chief executive of Ford Motor Co. of Canada Ltd., said on Monday.
In a parliamentary committee hearing Monday night, David Mondragon said his company is not looking for a direct bailout, although he added that Ford Canada will have to slash labour costs to regain its competitive advantage in North America and keep its current proportion of jobs here.
He said the crisis goes far beyond the threatened assembly plants in Ontario and the United States, and extends to parts suppliers and dealerships in towns across the country.
As a result, the best medicine for the ailing industry is not direct bailout of manufacturers, but stimulus for the entire industry, which has seen North American sales plummet and a devastating freeze on its ability to finance sales and leases, Mr. Mondragon said.
"The key to turning this around is to find the bottom," he told members of Parliament. "The U.S. hasn't found the bottom and, quite frankly, we haven't found the bottom here."
He urged the government to introduce a "scrappage" program that would provide consumers with a $3,500 payment when they trade in a vehicle at least 11 years old and buy a new one. About 35 per cent of Canadian vehicles on the road are at least 11 years old, he said, and estimated the program could result in the sale of 100,000 new cars and light trucks.
Mr. Mondragon also urged the government to speed up the implementation of its $12-billion plan to provide additional financing by purchasing loans and leases from banks and auto-financing companies. He also urged Ottawa to significantly increase the size of the financial aid, though he didn't put a figure on the request.
But boosting sales in Canada won't solve the industry's problem, given that Canada represents about one-tenth of North American sales and that 80 per cent of Ford Canada's production is sold in the United States.
Unlike General Motors Corp. and Chrysler LLC, Ford insists that it has the financial strength to survive the downturn without a direct government bailout. But Mr. Mondragon said the company needs to reduce labour costs in Canada to keep its plants here competitive.
Ford's unionized workers in the United States yesterday ratified a deal aimed at cutting costs there, and the Canadian division will soon enter bargaining with the Canadian Auto Workers union in an effort to hammer out a deal similar to the one reached with GM Canada on the weekend.
CAW president Ken Lewenza told MPs last night that the GM agreement will ensure that its Canadian operations have higher productivity than U.S.-based plants, and continue to attract their share of investment to Canada.
"On an active worker cost-per [unit] basis, Canadian workers are cheaper. That's a fact," Mr. Lewenza said. "We are convinced we maintained our Canadian advantage against those we compete with in the industrial world — Germany, Japan and the United States."
The CAW acknowledged, however, that the cost of supporting retirees drives up costs for Detroit-based companies.
The federal and Ontario governments both praised the tentative agreement between GM and the CAW yesterday, despite criticism that the deal would saddle the industry with uncompetitive labour costs in Canada.
Ontario Premier Dalton McGuinty indicated yesterday the deal sets the stage for the province and the federal government to approve requests from GM and Chrysler LLC for nearly $10-billion in loans to keep jobs in Canada.
"We are very pleased to hear they made these concessions and we think that facilitates us reaching a final conclusion with the auto sector," the Premier told the legislature.
Federal ministers also commended the CAW for showing flexibility, but said more work needs to be done before Ottawa agrees to provide GM Canada with up to $7-billion in loans, and Chrysler with as much as $2.5-billion.
Industry Minister Tony Clement has said GM and Chrysler need to provide credible plans for their long-term viability, and the labour costs are only part of the issue.
"It's part of the general consideration of how we're examining GM's plans," he told reporters in Halifax. "So, is [the agreement] enough, in and of itself? No it's not. We still have to arrive at the conclusion that GM is viable, that on a go-forward basis that our money will be put to good use, all of these issues."
CAW chief economist Jim Stanford said yesterday average GM per-hour wages top out around $34. But costs total about $70 an hour when benefits and support costs for retirees are factored in.
Veteran industry analyst Dennis DesRosiers said it appears the GM agreement would shave around $7 off GM Canada's hourly wage and benefit cost, bringing it to about $63, but that the company needs to reduce it by $20 to be competitive.
"The key is convincing consumers who are skeptical that they are going to be around for the long term," Mr. DesRosiers said yesterday. "And there is nothing in this agreement that indicates they've gotten rid of the fat-cat mentality."
With reports from Josh Wingrove in Toronto and Oliver Moore in Halifax
