March 11, 2009 Open Industry Update on the Liquidity Crisis APMA has been working on your behalf to obtain government assistance for a year and a half. This all began with our first letter to Prime Minister Harper on October 7, 2007 because for automotive suppliers, the liquidity crises had already begun. In hindsight, our industry was the “canary in the coal mine” for the North American economy. After that time we had further correspondence leading up to the winter budgets of 2008. In those budgets the federal and Ontario governments included several items that were very helpful for our industry. We laud them for responding positively to our recommendations. As much as the 2008 budgets were helpful, we maintained our dialogue with government as there were still issues outstanding and the truth was that automotive suppliers needed still more assistance. In a letter to Ministers Flaherty and Duncan in the fall, 2008, APMA updated the difficulties that automotive suppliers were having and the urgency of the situation caused by the rapid deterioration of North American vehicle sales. Our plea was verified by the request by GM and Chrysler for financial assistance, followed by other vehicle manufacturers. When GM Canada and Chrysler Canada submitted their formal requests for assistance on December 5, 2008, APMA also submitted its request on behalf of Canadian automotive suppliers. APMA pointed out the simple truth that as go the customers, so go the suppliers. At that time APMA requested the following: 1. Ensure suppliers are paid in accordance with normal trade terms. 2. Direct financial assistance to suppliers through loans or loan guarantees. 3. Receivables insurance availability for suppliers to vehicle assemblers and other Tier suppliers at reasonable rates. 4. Continue accelerated depreciation through 2012. 5. Reduce border crossing times. 6. Expand R&D funding through several mechanisms. Each of the above were identified to reduce supplier costs or to increase access to funding. The funding issue became acute as regular financial institutions continued to withdraw from the automotive industry. Again the federal and Ontario governments reacted positively to APMA’s request in two ways. Firstly, in the government’s response to the vehicle assembler funding requests, the government specifically put in a condition that suppliers must continue to be paid under normal trade practices and; secondly, EDC and BDC were allocated increased funds for the auto industry. However, these funds were still being lent under normal trade terms so that as industry fundamentals continued to deteriorate access to these funds became more difficult to obtain. Notwithstanding this, it was still helpful due to the withdrawal of other financial institutions from the market as mentioned above.
1
In January 2009, APMA continued an extensive campaign to make known to all relevant departments and ministries the acute needs of the Canadian automotive supply industry. Short term requirements of the industry were now all financial and were distilled into three asks: 1. Continue to ensure our customers are able to pay suppliers in the normal course. 2. Receivables insurance available at reasonable rates. 3. Direct support to suppliers in the form of repayable loans on the same conditions as to the vehicle assemblers, namely “Can the company emerge from the current market crisis as a viable, sustainable company and repay the Canadian taxpayers the funds lent to it?” APMA believes that the most efficient and expeditious method of delivering this assistance is through EDC and BDC and has put this forward in Ottawa and Queen’s Park through many meetings and briefs including assisting in formulating an evaluation formula to answer the sustainability question. APMA’s latest appearance was before the Automotive Subcommittee of the House of Commons Industry, Science and Technology Committee. To testify before this committee, APMA was given a 12 hour lead time and APMA testified in Ottawa at 8:30 pm the same day. Vehicle assemblers, dealers associations, and other industry associations have appeared before this committee, which is due to report its findings before the end of the month. I attach a summary of my testimony before this committee. The next phase for APMA to obtain funds for our members is to qualify the amount that is needed. To that end, APMA is preparing a CONFIDENTIAL SURVEY on the effect of the economic downturn on automotive suppliers with a focus on their funding needs. This survey will be distributed next week. APMA needs a quick turnaround to have real data to justify APMA’s request to government. As I said in this month’s newsletter, this may be the most important survey some companies ever participate in. So when the survey arrives, your CEOs and finance people need to QUICKLY REVIEW and RESPOND. This is especially true for smaller companies and companies that need funds now. Armed with the results of the survey, APMA will work with our governments to craft an assistance program for suppliers. At this time, I wish to thank our dedicated politicians and civil servants. They have been responsive and dedicated in working on a solution to this unprecedented (in my lifetime anyway) production decline and liquidity crisis. We will continue to work together to come out of this difficult year, stronger than ever. To do that APMA also needs your participation. So do three things to help
2
yourself – pay your APMA membership, write your MP and MPP when we ask you to and fill out the survey coming next week. ~~~~~~~~~~~~~~~~~~~ Transcript of Gerry Fedchun, President, APMA presentation to the Automotive Sub-committee of the House of Commons, Industry, Science and Technology Committee, March 5, 2009
I am Gerry Fedchun, President, APMA, I have appeared before the full committee a few times before. APMA represents the suppliers for the assemblers of new vehicles. Most of our factories are in Ontario and Quebec. 2/3 of our parts are exported as parts, mostly to the USA. First, I wish to say that suppliers appreciate measures taken to date to stabilize our important customers and the liquidity measures in the budget. Since our first representation to government a year ago and even more recent representations, circumstances have deteriorated dramatically. You heard from General Motors, February was another disaster for sales. APMA has 3 asks of government: 1. Ensure our customers, the assemblers, are able to pay us in the normal course. Financial assistance to them is needed and we support doing what is necessary. The automotive industry is 1 out of 7 jobs in Ontario. We, suppliers, are the web of the spider web. See the Martinrea rear suspension assembly diagram. This is an example; I could give you a hundred more. This suspension goes into the Equinox/Torrent built in Ingersoll, Ontario. 80% of the production from Ingersoll sold is in USA. If GM goes down it will take many suppliers with it. This is because suppliers also supply many other North American assemblers. If just a few major suppliers go down, shortly thereafter all of North American production will come to a grinding halt and many months will pass before the survivors are back up and running again. The cost would far exceed the cost of assisting GM and Chrysler now. In this situation, “a stitch in time saves 9,” is a very relevant saying. (ASK 1) The automotive industry in North America was practically shut down from mid December to the end of January so our pay day on March 2nd (on March 2nd suppliers were paid for January deliveries) was very slim. February production is better but still slow so April 2nd will be slim. We are being paid what we are owed but for lack of production are owed very
3
little. This means good suppliers are running out of cash. Suppliers can’t go to the bank and borrow on accounts receivable because banks will not take it as collateral. Suppliers can’t borrow on machinery as collateral because it is mostly idle and there is no market for it. This is a real squeeze. So suppliers need DIRECT assistance in 2 ways. 2. Receivable insurance from EDC/BDC at reasonable rates. (ASK 2) 3. Direct assistance for many, similar to what the assemblers have received. We are at a 30/40 year low in production. (ASK3) Many good suppliers cannot survive much longer. They need the money that is in the budget now. We need to pass the budget and release the funds or the supply base will be decimated. Even suppliers that survive now may not be able to afford to buy raw materials and pay employees to produce goods when production ramps up again. So we need help – The vital question to have answered in order to receive help is the same as for the assemblers. “Can the company emerge from the current market crisis as a viable, sustainable company and repay the Canadian taxpayers the funds lent to it?” If the answer is yes, funds should be available. We believe EDC/BDC are the vehicles to quickly dispense the funds. We also believe that the Canada Account must be used. We cannot wait for a new agency. Time is of the essence. We have been through recessions before and emerged stronger but this time suppliers went into this recession with less money in the bank because sales have been declining for 2 years, and shrinking profit margins depleted suppliers’ cash reserves. We will emerge again as a vital, profitable industry, but need help now. People in North America are NOT changing their habits. They will continue to buy and use personal transportation. The form of the personal transportation may change somewhat but for the foreseeable future it will look the same and 90% of it will have a similar function. It will still have windows, doors, a steering wheel, bumpers, etc. Only the drive train and controls may change radically. We want Canadian suppliers to be there to make the parts – both the 90% that are similar and the 10% that are new. Thank you for allowing APMA to make this presentation.
4