The Canada-U.S. Auto Trade Pact

Head Table Guests

Diana Chant, C.A., Partner, Price Waterhouse and Treasurer, The Empire Club of Canada; Stien Lal, Deputy Minister, Consumer and Commercial Relations, Government of Ontario; Mildred Istona, Associate Editor, The Hamilton Spectator, formerly editor of Chatelaine magazine; Alf Powis, Director, Noranda Inc. and Member of the President's Advisory Council, Ford of Canada; The Hon. William G. Davis, P.C., C.C., Q.C., Tory Tory DesLaurier and Binnington, Member of the President's Advisory Council, Ford of Canada and the Honorary Solicitor, The Empire Club of Canada; Her Worship, Ann Mulvale, Mayor of Oakville, home of Ford of Canada; Blake Goldring, President and COO, AGF Management Limited and a Director, The Empire Club of Canada; Rev. Christopher King, Rector, Little Trinity United Church; Dezso Horvath, Dean, Schulich School of Business, York University; Christine Smith, Chair, Canadian Breast Cancer Foundation, National and Ontario Chapters, Instigators of "Run for the Cure"; Michelle Whyle, an all-round "top" OAC Student at Danforth Collegiate and Technical Institute; and John Sadler, Senior Vice-President, Newcourt Credit Group and a Director, The Empire Club of Canada.

Introduction by Gareth Seltzer

Some months ago, I was approached by one of our Past Presidents who was very pleased to hear of Ms. Gaunt's appointment. She raised the issue that Ms. Gaunt is the first female to hold the title of Chief Executive at Ford of Canada--and Catherine Charlton, who proposed we invite Bobbie Gaunt, was the first female manager at Ford of Canada and the first woman president of the Empire Club of Canada since its inception as Canada's foremost forum of public record in 1903.

Charlotte Whitton said that whatever women do they must do twice as well as men to be thought half as good. "Luckily," she said, "this is not difficult." In today's competitive environment, there has been a convergence of market intellect, work smarts, street smarts and the stubbornness necessary to succeed which has driven the best to the forefront of Canadian business. Our head table itself is a reflection not only of our audience, but of excellence in service to business and industry, to our community and to social responsibility.

Bertrand Russell said there are two kinds of work. The first, altering the position of matter at or near the earth's surface relative to other matter; the second, telling other people to do so. The first kind is unpleasant and ill-paid and the second is pleasant and highly paid. Bobbie Gaunt may be at the top here in Canada, but she has earned her position by moving a lot of matter around. She has talked publicly about trying unsuccessfully to join both GM and Chrysler but found they were not taking women into their management training programmes. At Ford, she was told the company was changing its policy to admit women to its training programme--and so Ms. Gaunt was hired as a stenographer--and was to be first in line when the policy changed. Now, 25 years and 20 different jobs later, she is the "grand pooh bah" of Ford of Canada.

Active in community organisations and in the fight against breast cancer, Ms. Gaunt is an example to us all. Interestingly enough, Henry Ford 11 spoke to the Empire Club in February 1981 and the Empire Club of Canada is delighted to ask Ms. Gaunt, President of Ford of Canada, to address the Club today.

Thank you, Gareth, for your kind introduction and for giving me the opportunity to speak to the members and guests of the Empire Club on a subject that I believe has significant implications for Canada and its economic well-being.

You referred to the pioneering role of women in business. In the relatively short time I have been in Canada, I have encountered firsts for women in various activities. Last month, for example, I was introduced by the first woman to lead the Canadian Chamber of Commerce after 71 years, Carole Lafrance, who founded and built a very successful human resources company into a multi-million-dollar international enterprise. I recently became aware that Catherine Charlton was the first woman president of your Club, and that she had also been a pioneer in management at Ford of Canada before going on to other business pursuits.

Ford's involvement with the CIBC "Run for the Cure" for breast cancer research a few weeks ago also brought me into contact with many more women who have led the way in their respective fields. I share the pride of these accomplishments and salute the achievements of Canadian women on behalf of all women. My own philosophy is that I want to be judged by my performance as a president, who happens to be a woman, and not as a woman, who happens to be a president.

October is a reflective month for those of us in the automobile industry, and not because of what the stock markets might or might not do. It marks the start of a new model year, when hope springs eternal and rosy predictions pour forth in abundance.

When the books closed on the 1997-model year on September 30, combined car and truck sales by all companies totalled 1,356,000 vehicles and that was 17 per cent higher than the previous model year. It was a come-back year for the industry, reversing two straight model years of lower sales and reflecting stronger consumer confidence and continued improvement in the Canadian economy.

At Ford of Canada, we're forecasting even further improvement in the 1998-model year to about 1,380,000 or at most, 1,400,000 vehicles. The trend lines are definitely pointing in the right direction, but industry sales in Canada are still below the record model year of 1,563,000 set in 1988. As the new player on the Canadian automobile scene, I just want to make sure we keep moving towards that peak and that Ford of Canada makes a big contribution. So for business reasons, it seems like a good time to be coming to Canada.

On a personal note, my husband Bob and I were absolutely thrilled to learn we were coming to Canada. We had visited Canada many times and were anxious to spend some real time in your country. After six months, we have not been disappointed. I have received the warmest of welcomes from Ford of Canada employees, our dealers, our suppliers, representatives of the local, provincial, and federal governments, and the Canadian Auto Workers union. I would add the news media to that list, and while I recognise their role is not necessarily to extend warm welcomes, their reports have been fair and balanced with respect to my comments and activities.

I have come to a company with a proud Canadian heritage, a company that has continually strived to earn the loyalty of Canadian consumers for five generations now, and a company whose investments and jobs have helped provide Canadians with one of the highest standards of living in the world.

My inheritance from my predecessors and the 17,000 men and women employed by Ford of Canada and our 600 Ford and Mercury dealers has been most generous. They have handed me the reins of an organisation that has just completed the most extensive investment programme, by far, in our 93-year history--nearly $6 billion and 2,000 jobs created in Canada since 1990. In a way, they also have made the job more challenging because of the unprecedented growth in market share and customer satisfaction they have won in recent years. Those impressive achievements pretty well leave me, and our employees and dealers, with a simple strategy--to keep winning.

Although no one could have known at the time, the founding of Ford of Canada in 1904 was the beginning of a revolution that is sweeping trade and commerce today, particularly the auto industry. The revolution is called globalisation and it is in full flight wherever you go in the world. When you consider the fact that over the next 100 years, 98 per cent of the world's population growth will take place in Asia, Latin America and Africa combined, it's easy to understand the motivation for globalisation.

When I'm not in Canada, I spend a lot of time with a group of Ford men and women from around the world who are studying how the world is changing, how those changes will affect our company and industry, and making sure that Ford will be leaders, and not followers, as we enter the 21st century. It is easily the most intellectually stimulating experience of my 25-year career at Ford.

At Ford, we recognise that we have entered the greatest buyer's market in history what is being called the customer revolution. The bottom line, of course, is intense competition and more intense competition. Some companies, familiar companies, won't be around in 10 years or less. Others will be combined and consolidated.

The business news pages will report more and more joint ventures, partnerships and mergers.

The companies that win, and therefore remain, will keep trying to make things better, faster, with higher value, and more convenience and appealing for the customer. They will also be leaner, with fewer layers of management and minimal bureaucracy--thank goodness!

And they will be global in vision while retaining a strong focus on meeting the needs of their local market.

That's a thumbnail description of a process we began three years ago called Ford 2000. It has been described as the largest re-engineering effort of any company anywhere in the world. What we've done is consolidate our regional automotive operations into a single global organisation to increase economies of scale and share best practices throughout the company, worldwide.

How does all of this impact on the consumer? Information-age technology has allowed us to significantly improve the way we develop, manufacture, deliver and service our vehicles. Everything we do must maximise quality, value and timeliness of our products for our customers, or we shouldn't be doing it. And although Ford 2000 is a long-term process, we're already seeing good results. Strong gains in quality, productivity and customer satisfaction--combined with reduced costs--have led to the record worldwide earnings announced yesterday.

So if everything's coming up roses, should I be worried? When the late Henry Ford 11 spoke to the Empire Club 16 years ago, his remarks revolved around international trade and the challenges facing governments and industry to create free, but also fair, trade policies. He spoke of the Canada-U.S. Auto Trade Pact, signed in 1965, as being "the symbol of an enlightened approach to such concerns." Mr. Ford went on to say that "the mutual benefits growing out of the Pact represent one of the success stories of modern international co-operation." I can only imagine how Mr. Ford would react today as the Auto Pact comes under attack by import manufacturers seeking to change the rules after the game has begun. Having had the pleasure of meeting Mr. Ford much earlier in my career, I think his defence of the Auto Pact would have been immediate, direct and uncompromising.

So what's so special about the Auto Pact that makes it worth fighting for? It has been acclaimed as Canada's most successful trade policy in the last 30 years because it spawned the development of a world-class automotive parts and manufacturing industry in Canada.

Ford, Chrysler and GM signed commitments that we would produce at least one vehicle in Canada for each vehicle sold here, and that we would achieve a Canadian Value Added content of at least 60 per cent. We have exceeded those obligations by a country mile. Together, we have created a strategic, high-tech industry that is Canada's leading exporter and accounts for 12 per cent of Canada's manufacturing gross domestic product. Together, our Canadian plants have increased their share of total North American production from 7 per cent in 1964--the year before the Auto Pact--to nearly 16 per cent currently. And together, in the 1990s alone, we have spent nearly $400 million in R and D, another $400 million in high-tech training, and almost $5 billion in new-generation tooling.

What has the Auto Pact done for the Canadian consumer? Through economies of scale, Ford, GM, and Chrysler have been able to reduce costs and improve quality. This may be a little known fact, but did you know that vehicle prices in Canada are among the lowest in the industrialised world? Pre-Auto Pact prices in Canada were nearly 10 per cent higher than in the U.S. Today, prices in Canada are 7.4 per cent lower. In short, the Auto Pact and the domestic auto industry's record of overachievement with respect to its commitments have sown the seeds of economic growth and a high standard of living for all Canadians.

The opponents of the Auto Pact and its enormous benefit to Canada--namely, the import manufacturers, some government bureaucrats, and at least one editorial writer--raise some interesting questions from time to time. For example, Toyota and Honda assemble vehicles in Canada and employ Canadians, so why haven't they earned the right to import vehicles into Canada duty free like the Big Three?

Here are the facts. After more than a decade in Canada, their commitment to Canadian suppliers is marginal at best. In 1995, their purchases of Canadian parts was less than 4 per cent of total Canadian parts purchases, even though they accounted for 10 per cent of vehicle production in Canada and 12 per cent of vehicle sales. After the reduction in Canada's parts tariff in 1995, purchases by the transplant manufacturers and their affiliated tier one and two suppliers from Canadian parts suppliers actually decreased by almost 6 per cent.

The Big Three, on the other hand, continue to increase their business with Canadian parts suppliers and now account for 93 per cent of all of their sales, with a corresponding increase in employment in that vital sector of our economy.

Ford of Canada, along with Chrysler and General Motors, are fully supportive of efforts by the Automotive Parts Manufacturers Association, representing the Canadian parts industry, that is urging the federal government to reinstate the parts tariff to 2.5 per cent. The association said: "This will keep the industry competitive with the U.S. in terms of new plant location and at the same time encourage more parts purchasing in Canada by overseas-owned assemblers." Even if Honda and Toyota's contribution to the Canadian economy was proportionate to that of the Big Three, world trade rules do not permit the removal of tariffs on imported vehicles for Toyota and Honda alone. The tariff would have to be removed for all countries and all manufacturers, including those with absolutely no assembly or production presence in Canada.

And that brings me back to the overcapacity crisis. By the turn of the century, just three years away, world production capacity is forecasted to exceed market demand by 22 million units. That translates into 88 surplus plants, 88 plants whose employees will not be required, whose communities will be deprived of the purchasing power and quality of life generated by those jobs. To bring this stark picture closer to home, North American overcapacity accounts for six million of the 22 million vehicles worldwide that won't be built because there are not enough consumers to go around. And that means lights out permanently for 25 plants in North America.

Even closer to home, can you imagine the devastating impact of closing Ford plants in Oakville, or GM plants in Oshawa, or Chrysler plants in Windsor? It doesn't stop there. Supplier plants in places like Milton, Chatham, Hamilton, Peterborough, Mississauga--the list could go on--would also close shop, just as permanently.

Is this a doomsday scenario, a scare tactic by the domestic producers? Consider this fact. By 2001, production of vehicles in Korea will approach six million vehicles and the Korean market will absorb just two million of those vehicles. A wide-open North American market would be ideally suited for a large portion of the almost four million vehicles that can't be sold at home.

At the same time, Korea continues to restrict imports into its own market. How restrictive, you might wonder? All Canadian manufacturers shipped fewer than 500 vehicles into Korea in 1995, despite the fact we met all of their federal standards. At the same time, nearly 20,000 Korean-built vehicles came into Canada.

Should we even consider changing the rules in Canada, providing an open door to other countries such as Japan and Korea, the primary drivers of overcapacity, without an equal opportunity to compete in their markets? With one of the most open automotive markets in the world, is this the time to throw open Canada's market even wider--which is what Canada did in 1995 by removing the tariff on original equipment parts used by transplant assemblers, resulting in fewer parts purchased in Canada and more being purchased from their home countries?

Is this the time to dismantle the Auto Pact, widely regarded as Canada's most successful trade policy in the last 30 years? The elimination of the Auto Pact and its most favoured nation tariff on finished vehicles would result in a direct loss of government revenues, a reduction in Canadian parts sales, a flood of imports from offshore, and the potential closure of Canadian assembly plants. If the Auto Pact is dismantled, it is estimated that the negative impact on the Canadian economy over the next five years would be a reduction in the real GDP of nearly $10 billion and the loss of almost 120,000 person-years of employment.

It is inconceivable to me that today we would even consider dismantling the Auto Pact. Instead, my colleagues at GM and Chrysler and I believe that we should work closely with the Canadian government as it conducts its sectoral review of the Canadian auto industry, and continue to articulate our case to the Canadian people. The domestic auto industry is simply too important to the economic well-being of all Canadians to do anything less.

I remain hopeful that the Canadian government will agree that until fairness is the driving principle of trade agreements, the Auto Pact and its related vehicle and parts tariffs should be maintained as an instrument of growth and prosperity for Canada.

Rather than weakening, we should be strengthening the Canadian auto industry in the face of growing global competition and the harsh realities of severe automotive overcapacity To that end, we are asking the federal government to:

• Restore the parts tariff duty rate that has been temporarily suspended;

• Maintain the present duty rate on finished vehicles; and

• Obtain reciprocal access to foreign markets before negotiating further tariff reductions.

Ladies and gentlemen, I am truly honoured to join the list of presidents of Ford of Canada to address your Club going back 50 years or more. I was interested to learn that the Empire Club has been providing a forum for diverse points of views since 1903. That was just one year before Henry Ford and a group of young Canadian businessmen, headed by Gordon McGregor, embarked on a venture that marks the beginning of the Canadian automobile industry as we know it today.

There were no guarantees that either your Club, or our Company, would survive its first few years, let alone most of the 20th century.

That we have both endured is a tribute to the men and women who have guided and supported the Empire Club. As for Ford of Canada, I believe it is a tribute to our employees, our dealer organisation, our loyal customers and certainly the foresight of our government for creating the environment in which we have been able and will continue to contribute to the national well-being.

Thank you for your interest and attention.

The appreciation of the meeting was expressed by The Hon. William G. Davis, P.C., C.C., Q.C., Tory Tory DesLaurier and Binnington, Member of the President's Advisory Council, Ford of Canada and the Honorary Solicitor, The Empire Club of Canada.