Show Transcript – January 16

ACTING HOST – SEAN O’SHEA

Transcript for Saturday, January 16, 2010 – 1830

Encore Presentation Sunday, January 17, 2010 – 0700 and 2400

Future of the Auto Industry

GUESTS –

Ken Lewenza, President CAW Canada

Tony Faria, Marketing Professor, Odette School of Business,

University of Windsor

SEAN O’SHEA: Last year’s recession hit just about every economic sector one way or another. Canadians lost jobs, went bankrupt, collectively felt a lot of pain. Among all the industries hit by the downturn the automotive sector was affected more than most. GM and Chrysler got government bailouts. Many companies sold or shed big-brand names. Getting smaller and more efficient was part of the price of taking the money. As for consumers they just weren’t buying new cars the way they used to. Now that the recovery is apparently under way, what’s the future like for the North American auto industry.

(video clip – Detroit Auto Show)

It’s eye candy for car buffs. This week’s Detroit auto show displayed more than just new models – more like a change of vision for the auto industry and the vehicles it produces.

They need to be smaller vehicles, more efficient vehicles, because right now that is what consumers are looking for.

A new road after a year that changed everything.

Even though 2009 was a year we will never forget, we continue to make great progress on our plan to create an exciting, viable, and a profitability going forward for the good of all of us.

Of the traditional Big Three North American auto makers, Ford has fared the best during the economic catastrophe, capturing two prestigious awards for Car of the Year for the new Ford Fusion hybrid, and Truck of the Year in its petite-sized Transit Connect.

Toyota isn’t complaining either, ending the year with sales soaring.

As challenging as it was, by year-end it had proven to be pretty solid performance.

As an industry what lies ahead for companies, their employees, and the consumers who buy their product. The future of the North American auto industry on this week’s Focus Ontario.

From the Global News Room in Toronto, this is Focus Ontario with Sean Mallen. Sitting in this week, here is Sean O’Shea.

SEAN O’SHEA: Hello and welcome. Sean Mallen will be back here next week. Well, as sure as the January season rolls around, so too does the annual North American International Auto Show in Detroit. For years it’s been one of the places the auto industry has unveiled new concepts, new production vehicles. In short, it’s been a place to see what’s coming to showrooms. A little bit later on on Focus Ontario I’ll take you to the previews we saw in Detroit this year.

But first, let’s take a look back over the past year to an industry that’s a critical one in Ontario. 2009 was not one to remember, at least not in a good way. Our first guest, Ken Lewenza, he’s President of the CAW which represents Canadian auto workers. Mr Lewenza, welcome to Focus Ontario. So you tell me what kind of a year 2009 was for auto workers and your members last year.

Ken Lewenza: I think the best description would be turbulent times, uncertain times, incredible times. I mean the reality is we’ve lost 20,000 members and the challenges we had at General Motors, Chrysler, and to a lesser extent, Ford Motor Company, was unprecedented.

SEAN O’SHEA: Now you know a lot of people don’t feel sorry for auto workers because auto workers are seen in many circles as people who had it pretty good, had a good income, had good benefits. What’s your case for the fact that auto workers played an important role in the economy beyond just their own jobs?

Ken Lewenza: Well, I think if we’ve learned anything in the last year was the importance of the auto industry, in particular to the province of Ontario. Premier McGuinty made it perfectly clear, so has study after study that indicate anywhere between 450,000 – 600,000 jobs directly tied to the province of Ontario, and good-paying jobs that provide good taxes to government. So these are incredible jobs to the economy and the communities in which the auto industry has the presence.

SEAN O’SHEA: One of the arguments I know you’ve heard probably over the years is the unions brought on themselves a lot of the pain that was caused last year. What’s your response to that? In other words, if the unions hadn’t been so greedy at a certain time when times were better, the industry in North America wouldn’t be where it is.

Ken Lewenza: Well, you know when there’s a financial crisis people like to blame others. In the labour movement, trade unions were blamed as a result of the crisis. But when one recognizes and understands seven per cent of the total cost of a vehicle is related to labour, and then when one goes a step further and takes a look at the competitors that have done reasonably well in that area, and I’m talking about Honda and Toyota, wages and benefits are comparable.

SEAN O’SHEA: So put in perspective as we talk about 2009, what kind of pain individual members felt in places you know like Oshawa and Oakville and Windsor.

Ken Lewenza: Well, let’s just take a global look at it. Twenty thousand jobs were lost in the last twelve months. The reality, Windsor Ontario, the community that relies on this incredible manufacturing automobile industry, has an unemployment rate officially around the neighbourhood of 15 per cent, which is the highest unemployment rate in any country. And then if you take a look at London, St Catharines, Oshawa, there is a correlation between high unemployment and the crisis in the auto industry which hurts the communities that rely on those industries.

SEAN O’SHEA: Well, we were in Windsor for the auto show, and Detroit, and we could see there were boarded up buildings and it was not the same as it was a year ago. So let’s go from the past to the future. What do you as president of a union say to and with the presidents of the auto companies to try to turn things around?

Ken Lewenza: Well, number one it all begins with product. I mean there’s a real focus on product today. I think all of the companies recognize maybe that might have been an area that quite frankly they were behind, in terms of GM, Ford and Chrysler, and there’s a lot of good product coming out, there’s a lot of excitement, but there still needs to be some consumer confidence, especially in the United States.

SEAN O’SHEA: Now there was a feeling sometime ago that North American cars weren’t built as well as foreign cars. Is that a bygone sort of approach to things? Are the domestic-made vehicles as good in your view?

Ken Lewenza: Absolutely. It’s not just in my view. I mean the reality is all the consumers’ reports show that from the best car to the worst car, the gap is not even there any more. It’s not even measurable in terms of what consumers want. So there’s been a big push for quality and if anybody takes a look at consumer reports they’ll see the improvements in vehicles that are built by the Big Three.

SEAN O’SHEA: How worried are you about Chrysler?

Ken Lewenza: Well, I have to be worried. I mean tens of thousands of jobs are involved at Chrysler corporation. The level of confidence I have is in the new management team. I mean Sergio Marchionne is a real guy; he’s not the typical CEO that we’ve known in the past. This guy lifts up his sleeves, goes to work every day, and he’s really looking at product. He’s really looking at designing, looking at what consumers want, and he’s investing a lot of capital in that particular area and moving forward.

SEAN O’SHEA: And what’s an area of optimism. Ford did pretty well at the auto show. Is that an area of optimism?

Ken Lewenza: No, Ford is a success story. I mean they’ve got some good products out. Obviously they benefited as a result of not needing the loan, relative to what General Motors and Chrysler had to do. But there’s a sense of momentum at Ford that is quite frankly exciting, but in saying that the auto industry as we knew it ten years ago is not going to be the same, whether it’s Ford Motor Company, GM, Chrysler or the foreign producers. It’s going to be a smaller market with a lot of competition.

SEAN O’SHEA: Ken Lewenza, President of CAW Canada, thank you for your opinion tonight.

Ken Lewenza: Thank you very much.

SEAN O’SHEA: Coming up on Focus Ontario, an auto industry analyst weighs in on the state of the domestic industry, and a little later a look at what the industry is selling now. That’s as Focus Ontario continues.

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SEAN O’SHEA: And welcome back. Well, we’ve heard from the union leader, now we get the perspective of someone who knows a little bit more about the business side of the auto industry. In Windsor, Tony Faria, marketing professor in the Odette School of Business at the University of Windsor, and director of the office of automotive research, thanks very much for joining us on Focus Ontario.

Tony Faria: Oh, very happy to be here.

SEAN O’SHEA: Well, I asked Ken Lewenza a few minutes ago how bad 2009 was in the auto industry. Give me your take on that particular question.

Tony Faria: 2009 was certainly a terrible year for the auto industry at whatever level we want to look at. Globally automotive production was down by 10 million units in 2009. North America-wide we had one of our worst years in about twenty years production-wise in the auto industry. In Canada our automotive production fell to only half of what our peak year of production was, and that was in 2003. So at whatever level we want to look at in the auto industry it was a terrible year in terms of production volume, the financial performance of all of the major assemblers, and the financial performance of all of the major automotive parts manufacturers. So it was a terrible year, and certainly from Ken Lewenza’s perspective and the perspective of everybody, it was a terrible year for employment in the automotive industry.

SEAN O’SHEA: How much of it was directly due to the economic downturn, the recession, and how much of it was due to the fact that the auto industry just wasn’t keeping up with what it needed to be doing to stay current and ahead of the curve?

Tony Faria: Well, it was primarily due to the downturn in the economy, but also a couple other factors worked into it. It wasn’t so much the auto companies not keeping up with what’s going on in the marketplace. Certainly on a company-by-company basis we could criticize some companies for having product lineups that didn’t match the marketplace needs, but across all companies combined certainly we had product lineups that met all of the needs in the marketplace, and yet the whole industry had a terrible time.

We went through a period in North America from 1999 – 2007, which represented the nine best years in the history of the North American auto market. Production and sales were at historically high levels, credit was very easy, consumers were buying automobiles in massive numbers, the amount of vehicles on the road, the amount of registered vehicles, the amount of vehicles in relation to the driving population, everything was increasing enormously, and suddenly we hit the credit crisis. Money was not as readily available, consumers could not borrow as easily, the economy turned down, jobs were lost and people stopped buying vehicles, and that was the primary reason, but also fuelled by the fact that we had come off of nine exceptionally good years in the North American auto industry.

SEAN O’SHEA: Give us the pulse of the auto companies that we’re most familiar with – Ford, General Motors and Chrysler. Let’s start with Chrysler. How badly is Chrysler doing right now?

Tony Faria: Well, Chrysler is in very, very tough shape across the company. Right now they have the oldest vehicle lineup of all of the companies. They’ve got certainly some good vehicles out there; their RAM pick-ups are terrific vehicles; Jeep has a globally solid reputation. Of course we’re proud of their mini-vans here in Windsor. They are the leading seller of mini-vans. So they have some very good vehicles, but they’re all dated under the ownerships of Cerberus and before that Daimler AG. Chrysler was starved of money for product development. They have an older lineup in the marketplace. They don’t have the compact and highly fuel efficient vehicles in their lineup that they need to have right now in the marketplace. That’s hopefully coming with Fiat.

Chrysler’s sales in this past year were at levels almost half of what they were in their peak years. 95 per cent of their sales are in North America, so they were hit the hardest because North American markets were hit the hardest. They have very limited global sales, and they’re at a point right now where they really have to refresh their lineup. Sergio Marchionne is hopeful they’re going to make money by 2011. That may be optimistic. I hope he’s correct; I hope they can turn their sales around; I hope they can break even and start making a profit by 2011 and shortly after. We’ll have to wait and see on that.

SEAN O’SHEA: Quickly, if you could take us to General Motors if you would. Are they in better shape?

Tony Faria: General Motors is certainly in better shape. They have downsized nicely to get their capacity more in line where it needs to be in North America. They had a wonderful year in China, where their sales grew 67 per cent. They have good facilities all around the world. They weren’t hit quite as hard company-wide in terms of vehicle unit sales volume because they are not as dependent on North America as Chrysler is. However, financially of course we know they were in tough shape because their costs were way out of line, and their capacity, particularly in North America in relation to their sales volume, was way out of line. But right now General Motors have pared down their lineup from eight major vehicle name-plates to just four. They’ve cut their capacity enormously. They’ve cut their operating costs enormously.

They have beautiful vehicles in their lineup. I had a chance to drive many of their 2010 vehicles at the proving grounds at Milford, Michigan several months ago. They’re wonderful driving vehicles, wonderful looking vehicles. They have the Chevy Volt coming out of course later this year. They’re hoping that they can break even by 2010, start making money in 2011, paying back some of their government loans early. So they’re in pretty good shape.

SEAN O’SHEA: Got about a minute left here. I want to ask about Ford briefly. Is Ford kind of the darling of the Big Three right now? Have they done more things right than just about everybody else?

Tony Faria: Ford has done a lot of things right. Under the leadership of Alan Mulally they were ahead of the game in terms of anticipating their needs for cash, borrowed while money was still available several years before the drying up of the credit market in the drying up of funds from the banks. Their quality ratings have been soaring; they’ve gotten great safety ratings. They’ve just won of course as we know, the North American car and truck of the year awards at the North American International Auto Show. They’ve had two consecutive quarters of profitability, although they’re going to announce losses for the entire fiscal year, but they are in a good cash position. They’re ready to start making a profit. They’ve got very good vehicles in their lineup. They’re refreshing their vehicles at a quicker pace than General Motors and Chrysler, and Ford is in great shape right now.

SEAN O’SHEA: Just a few seconds left. Overall if you’re looking at the North American auto picture, particularly for people in Ontario, are you optimistic about 2010?

Tony Faria: I’m optimistic about 2010. It will be a better year than 2009, but it almost has to be, 2009 was so bad. We’re going to pick up North America-wide probably a million and a half units of sales and maybe close to a million units of production. Production will be up in Canada. We’re seeing a third shift at Camy now; Toyota has got their Woodstock plant in operation at this point, and they’re going to be adding a second shift at Woodstock.

SEAN O’SHEA: Mr Faria, I’m afraid we’re out of time. Great insights, I want to thank you very much for joining us.

Tony Faria: Oh, very good talking with you.

SEAN O’SHEA: Tony Faria, marketing professor at the University of Windsor.

Well, after the break – as they say in the auto business – it’s all about the product. A preview and some more perspective when Focus Ontario continues.

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SEAN O’SHEA: Welcome back to Focus Ontario. For millions of people a car is more than just four wheels and a way to get from point A to point B. There’s an emotional side to auto ownership. Prestige has a lot to do with it for many consumers too. The auto industry depends on consumers to get excited about what is usually their second most-sizeable purchase. In a recession people accept that they have to do with less, but as we come out of a recession what’s the future of what we’ll be able to buy. We drove to Motor City to find out.

(video clip – Detroit Auto Show)

Sean O’Shea: When it comes to auto shows Detroit has a long history. This is, after all, the heartland of the North American auto industry. And Cobo Hall – the city’s convention hub – is where for years car companies have shown off some of their hottest models. But something’s different this year.

Charlie Vogelheim, Executive Editor, Intellichoice.com: You know a lot of times you see at the auto show concept cars, and then, the more powerful, the faster, the bigger and we’re seeing the opposite here. First of all, we’re not seeing a lot of concept cars, we’re seeing a lot of cars that are ready for the market, or close to being ready for the market, and then again, more efficient vehicles.

Sean O’Shea: The “˜Michelin man’ was even squeezing into Motor City’s new scaled-down look. Where concept cars used to be measured in terms of torque and horsepower, the focus here is on making everything smaller.

Sean O’Shea: Ford got the message, taking a page from its European designers. It’s retooled and re-released a brand new Focus model. Where once the company would have showcased pickup trucks and sport utility machines, Ford proudly rolls out an affordable car, one of the vehicles it’s staking its future on.

And Henry Ford’s great grandson told me it’s the right thing to do.

Bill Ford, Jr, Executive Chairman, Ford Motor Company: I think it’s very important. I think the car, the car market in general, is very important to Ford because you know if you look at us over the last ten years we’ve been predominantly an SUV and a truck company in the U.S. Globally it was a different story. In the U.S. and in Canada that’s been the case, but that’s changing dramatically as we’re bringing these fabulous platforms from around the world to bear in North America and I feel really good about it.

Sean O’Shea: Has Ford turned the corner?

Bill Ford: Yes, I think we are on the right road. You saw that we made money in the third quarter, and I feel good about where we’re headed. But as I say, the last thing I want to do is convey a sense of complacency because there is none of that here, there is a tremendous sense of urgency.

Sean O’Shea: For its part, Chrysler didn’t even hold the traditional news conference. The company had nothing new to unveil, choosing to line up its female show models instead. Questions about the company’s future persist.

Long a leader in pioneering hybrid technology, Toyota showed off a vehicle concept intended to appeal to a younger demographic.

Stephen Beatty, Toyota Canada: For that young buyer and his friends to take on. So it makes leading edge advanced technology affordable to that first-time buyer. So far hybrid technology has been, you know, in the $30,000 or above range for the most part and that’s really not affordable for that entry-level buyer. This new car opens that opportunity to the marketplace.

Sean O’Shea: But as Detroit shows more hybrids, plug-in electrics, and a range of smaller cars that offer the promise of lower fuel consumption, not everyone is convinced that car makers are going in the right direction. David Booth is a senior auto writer for the National Post.

David Booth, National Post: Trying to get society to change en masse for this environmental conscious drive is just – I don’t think it’s a realistic expectation. For instance, I’ll drive a hundred kilometres down the highway and then stop for two hours while it recharges, while I go another hundred kilometres and stop yet again. I don’t see people buying into this as a lifestyle change. I don’t see it. We are the society that invented the drive-through lane because fast food wasn’t convenient enough. We are not going to change our lifestyles.

Sean O’Shea: There’s political pressure for companies to be building leaner, more efficient machines, but ultimately buyers will decide whether it’s the right way to go.

Charlie Vogelheim: I think what the manufacturers are going to have to provide is flexibility in providing a vehicle that they think the consumers want, but able to change it quickly as we consumers start to come out of this economic downturn and decide the cars that we want. But for the most part, they need to be smaller vehicles, more efficient vehicles, because right now that is what consumers are looking for.

Sean O’Shea: And while foreign-made brands may not have to worry much about losing the reputations they’ve built up over the last couple of decades, it’s not all bad news for domestic auto makers. At least not if you listen to what the car critics think.

Here at the auto show, Ford did what few auto makers have done before, capturing awards for its best truck, the new Transit Connect, and for the best car, the Ford Fusion hybrid.

As the one North American manufacturer that didn’t take government bailout money, Ford is impressing auto reviewers, and more importantly, impressing auto buyers. Like other auto manufacturers, it’s hoping 2010 will look a lot better than last year.

The Detroit auto show is open to the public for another week. Canada’s largest show in Toronto opens in February. We’ll be right back.

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Focus Ontario always wants to hear what’s on your mind. Got an opinion on anything you saw on the show this week. Don’t keep it to yourself, get in touch and here is how. You can send us a letter to:

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And that’s the show for this week. Sean Mallen will be back next week. I’m Sean O’Shea, thanks for watching. Have a good weekend.

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