Audit at a Glance—Chapter 5—Support to the Automotive Sector
Audit at a Glance
Chapter 5—Support to the Automotive Sector
What we examined (see Focus of the audit)
The audit examined whether Industry Canada, the Department of Finance Canada, and Export Development Canada, in fulfilling their respective roles and responsibilities, 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.
What we found
Planning the restructuring assistance
Overall, we found that Industry Canada sought and obtained relevant information and analysis to help it understand the prospects for Chrysler’s and GM’s recoveries, and to help the government decide whether to participate in the financing of the companies’ restructuring. However, the Department had limited analysis performed on the restructuring plans for the Canadian subsidiaries, and its analyses of the required concessions from unionized labour, suppliers, and dealerships were at a high level. Industry Canada had limited documentation to show how it determined the amount of financial assistance provided to help GM Canada deal with its health care costs and pension deficits.
Industry Canada gathered relevant information to assess the recovery prospects of Chrysler and General Motors (see paragraphs 5.24-5.27)
Industry Canada had limited information on the restructuring of Canadian operations (see paragraphs 5.28-5.40)
Monitoring the restructuring assistance
Overall, we found that while Industry Canada monitored the companies’ commitments, its information on the use of the funds was limited to broad categories, except for the assistance provided to GM Canada that was used to help cover its health care and pension costs. The Department of Finance Canada prudently estimated the financial risks of assisting the companies.
Industry Canada monitored the use of the financial assistance, but only at a high level (see paragraphs 5.43-5.47)
Industry Canada adequately monitored production commitments (see paragraphs 5.48-5.50)
The governments have so far recovered about $5.4 billion of their funds (see paragraphs 5.51-5.59)
Reporting on the restructuring assistance
Overall, we found that entities reported individually on the restructuring assistance they provided, but there was no comprehensive reporting of the information to Parliament. This is important because the lack of comprehensive reporting limits the usefulness of the information. As the information is scattered across a number of separate reports, it was impossible for us to gain a complete picture of the assistance provided, the difference the assistance made to the viability of the companies, and the amounts recovered and lost.
There was no comprehensive reporting to Parliament (see paragraphs 5.62-5.65)
Recommendation. Industry Canada, in collaboration with the Department of Finance Canada, Export Development Canada, and other relevant entities, should publish a report with clear information on the financial assistance provided to Chrysler and General Motors, and on the impact the assistance had on the viability of the companies. Information on the financial assistance should include the total amounts disbursed, the use of the funds, the amounts recovered so far, the value of shares outstanding, and the cost of the financial assistance.
Learning from the assistance provided to Chrysler and General Motors (see paragraphs 5.66-5.67)
Recommendation. Industry Canada, in cooperation with the other entities involved, should conduct a review of the management of the financial assistance provided to restructure Chrysler and General Motors and should identify lessons learned.
Managing the Automotive Innovation Fund
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 is more comprehensive than required. Industry Canada has adequate information coming from progress reports and site visits to allow the progress of each project to be tracked. We found that Industry Canada has yet to use this information to determine whether the program is achieving its objectives.
Industry Canada’s risk assessments were consistent with the program’s requirements (see paragraphs 5.70-5.76)
Recommendation. Industry Canada should review its management procedures for the Automotive Innovation Fund to ensure that risk profiles of projects and applicants are taken into account during project assessment.
Industry Canada adequately monitors projects, but has yet to use this information to assess program performance and report on results (see paragraphs 5.77-5.86)
Recommendation. Industry Canada should continue to monitor the performance of the projects and should use this information to determine whether the Automotive Innovation Fund is achieving its objectives of bringing environmental, economic, and innovation benefits to Canada and fostering competitiveness of the automotive sector. It should also report on the program’s results.
The audited entities agree with our recommendations, and have responded (see List of Recommendations).
Why we did this audit
The Canadian automotive industry consists of five car manufacturers and hundreds of Canadian suppliers of automotive parts. The industry is largely concentrated in Ontario. Approximately 85 percent of cars produced in Canada are exported, and these exports are sent almost exclusively to the United States. Exported vehicles and parts represent about 15 percent of Canada’s manufactured product exports.
The global economic recession of 2008 negatively affected Canada’s production and employment in the automotive industry. The federal government has put in place a number of initiatives to support the automotive sector. In November 2008, the Chrysler and GM parent companies approached the US government for financial assistance. Shortly thereafter, the governments of Canada and Ontario joined the US government and offered financial assistance to Chrysler Canada and GM Canada.
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.
Details of the audit
|Report of the||Auditor General of Canada|
|Type of product||Performance audit|
|Completion date||26 September 2014|
|Tabling date||25 November 2014|
|Related audits||Chapter 6—Transfer Payments to the Aerospace Sector—Industry Canada, 2012 Fall Report of the Auditor General of Canada|
For more information
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Tel.: 613 952 0213, extension 6292
The Auditor General’s Comments
Financial support to the automotive sector helped short-term viability, weaknesses noted in information and monitoring