Support to the Automotive Sector
Opening Statement to the Standing Committee on Public Accounts
Support to the Automotive Sector
(Chapter 5—2014 Fall Report of the Auditor General of Canada)
30 March 2015
Jerome Berthelette
Assistant Auditor General
Mr. Chair, thank you for this opportunity to discuss Chapter 5 of our 2014 Fall Report on support to the automotive sector. 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 (GM), could not generate sufficient income to fund their operations.
In December 2008, the governments of Canada and Ontario joined the US 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 time frames. 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 the 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 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.
Mr. Chair, 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.