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The Canadian Automotive Sector Overview and Competitive Advantages

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1 The Canadian Automotive Sector Overview and Competitive Advantages
Jerry Suyavong President, M.E. International Inc. Vice President, Linear Transfer Automation Inc. ProExport Colombia Seminar July 23, 2013

2 TABLE OF CONTENTS Canada Automotive Industry Overview
Competitive Advantage Automotive R&D Centre Next Generation Vehicles Outlook, Challenges and Opportunities

3 Snapshot of Canada’s Auto Sector
Manufacturing – Canada produces passenger and commercial vehicles, auto parts and systems, truck bodies and trailers, as well as machines-tools-dies-moulds (MTDM) and tires Automotive is the largest manufacturing sector in Canada In 2012 it accounted for: 10% of manufacturing GDP $80.4 billion in revenues 115,025 in direct employment 21% of merchandise trade 16% of NAFTA vehicle production (2.45 million units) Highly concentrated in Ontario; also in Quebec, Manitoba and B.C. Very export intensive (three-quarters of annual output)

4 Snapshot of Canada’s Auto Sector
Assembly: 19 passenger and commercial vehicle plants, 37,155 employed 87% exported,16.5% of North American vehicle production over the last 5 years 2.45M vehicles produced in 2012 Auto parts: ~10% of North American parts shipments ~350 automotive parts plants, including leading Canadian parts supplier and large Multinationals ~300 Tool, Die and Mould makers 1,240 facilities, 64,305 employed, $27.5 billion revenues, 46% exported Key Inputs & Services: Reliable access to raw materials, such as, steel, metals, plastics, alternative materials, as well as business services and automotive sales and service

5 Vehicle Assembly Locations

6 Assembly Plants in Canada
Parent Plant / Location Products Chrysler [FIAT] Brampton Assembly Plant (Brampton ON) Chrysler 300/300C; Dodge Charger and Challenger; Lancia Thema Windsor Assembly Plant (Windsor ON) Chrysler Town & Country; Dodge Grand Caravan; Lancia Voyager; Ram Cargo Van Ford Oakville Assembly Complex (Oakville ON) Ford Edge and Flex; Lincoln MKX and MKT GM CAMI Automotive (Ingersoll ON) Chevrolet Equinox (2010MY) and GMC Terrain (2010MY) Oshawa Car Plants 1-2 (Oshawa ON) Buick Regal and Regal eAssist; Cadillac XTS; Chevrolet Camaro, Equinox and Impala Honda HCM Plants 1-2 (Alliston ON) Acura MDX and ZDX; Honda Civic and CR-V Toyota North and South Plants (Cambridge ON) Toyota Corolla and Matrix; Lexus RX 350 West Plant (Woodstock ON) Toyota RAV4 and RAV4 EV Light Vehicles Parent Plant / Location Products Blue Bird Micro Bird (Drummondville PQ) Type A school buses Hino [Toyota] Hino Motors Canada (Woodstock ON) Class 4-7 trucks (CKD) Lion Bus Lion Bus Inc. (St. Jerome PQ) Type C school buses MCI MCI International (Winnipeg MB) intercity buses New Flyer New Flyer Industries Canada (Winnipeg MB) urban transit buses PACCAR PACCAR of Canada (Ste. Therese PQ) Class 6-7 trucks Volvo Bus Nova Bus Corporation (St. Eustache PQ) Prévost Car (Ste. Claire PQ) Heavy Trucks and Buses

7 J.D. Power Plant Quality Awards
Exceptional Quality and Productivity The J.D. Power & Associates Initial Quality Awards are the auto industry’s benchmark for new vehicle quality manufacturing Canadian assembly plants have won one-third of all J.D. Power plant quality awards for North America, which is double Canada’s share of regional production Twenty-one J.D. Power & Associates Initial Quality Awards have been presented to Ontario plants since 1990 The only Toyota plant outside Japan to produce Lexus vehicles is in Canada Also home to the production of luxury vehicles by Acura, Cadillac and Lincoln. J.D. Power Plant Quality Awards 1990 Toyota Cambridge (Gold) 1991 1992 Toyota Cambridge (Silver) 1993 Toyota Cambridge (Bronze) 1994 Ford St. Thomas (Silver) 1995 1996 Toyota Cambridge (Gold), Honda Alliston (Silver) 1998 Ford St. Thomas (Gold) 1999 GM Oshawa 1 (Bronze) 2000 2001 2002 GM Oshawa 2 (Gold) 2003 GM Oshawa 1 (Gold) 2005 GM Oshawa 2 (Gold), GM Oshawa 1 (Silver) 2006 GM Oshawa 2 (Gold), Chrysler Windsor (Silver) 2007 GM Oshawa 2 (Silver) 2009 GM Oshawa 1 (Silver) 2010 2011 Toyota Cambridge (Platinum) 2012 Toyota Cambridge (Gold) + Woodstock (Bronze)

8 Canadian Vehicle Production
Country 2007 2008 2009 2010 2011 2012 NORTH AMERICA 15,102,752 12,616,916 8,626,384 11,954,843 13,153,240 15,449,563 Canada 2,542,150 2,045,539 1,479,162 2,062,653 2,145,241 2,453,969 Mexico 2,006,871 2,060,921 1,526,257 2,257,617 2,551,771 2,874,460 United States 10,553,731 8,510,456 5,620,966 7,634,573 8,476,228 10,121,034 OEM 2007 2008 2009 2010 2011 2012 GM 964,239 589,323 347,363 529,568 661,884 683,058 Chrysler 534,774 479,046 314,504 475,382 496,081 585,923 Toyota 302,749 287,395 319,547 458,729 412,829 519,215 Honda 390,580 383,011 259,796 278,366 254,051 409,849 Ford 349,808 306,764 237,952 320,608 320,396 255,924 Total 2,542,150 2,045,539 1,479,162 2,062,653 2,145,241 2,453,969

9 Ontario has been NAFTA’s Leading Sub-National Jurisdiction for Vehicle Assembly since 2004
Michigan Ohio Indiana Kentucky Alabama Source: Wards Automotive

10 Part of a Huge North American Market
Canada is part of a fully integrated North American market with annual sales of 20 million units, normally Although the U.S. market collapsed in , sales have started to recover and should return to peak levels by 2013 Lost production is being restored, and North America should remain one of the world’s largest and most lucrative automotive markets The N.A. Free Trade Agreement (NAFTA) ensures duty-free trade for originating goods throughout the region Motor Vehicle Sales in North America (in millions of units) Forecast Source: Industry Canada, from IHS | CSM Worldwide Note: Figures include passenger and commercial vehicles

11 Top 15 Countries Light Vehicle Production & Global Ranking
Source – Wards/AMIP/AutomotiveCompass (Brazil, Russia, India, China)

12 Top 15 Global Brands Light Vehicle Production & Global Ranking
Source – Wards/AMIP/AutomotiveCompass


14 Part of an Integrated North American Market
Los Angeles Detroit/Windsor Chicago Atlanta Seattle Miami Mexico City 800 km 400 km CANADA U.S.A. MEXICO Montreal Toronto The N.A. Free Trade Agreement integrates Canada into a market with annual sales of 20 million vehicles. No tariffs on OE parts imported into Canada (vs 2.5% tariff in the U.S.) Canada and the U.S. are actively expanding border capacity.

15 Canada is Strategically Located
© Automotive News There are 37 high-volume assembly plants within a 500 km radius of the Windsor-Detroit border. These plants produced 7.2 million vehicles in 2012. Canada is also close to all major automotive R&D centres in Michigan and Ohio.

16 139 Million Consumers within a Day’s Drive
Daily Two-way Goods Trade between Ontario-USA for 2011 Valued at C$716 million Ontario-US, (imports + domestic exports) / 365, C$715.5 Million, US$723.4 Million. Source: Industry Canada, with data from Statistics Canada, Accessed on October 1, 2012. US Population estimates (2010) US – 400km Count:  162 ; Sum:    23,642,124 US – 800km Count:  835; Sum:    117,876,450 US km Count:  1,523 ; Sum:    161,780,414 Note: One day’s drive defined as 800km Methodology: Using ArcGIS software Radii were created with Toronto, Ontario as the center. Three Radii were set - 400km (1/2 day drive), 800km (1 day drive) and 1200km (1.5 day drive) - from the center. Radii are based on as the crow flies not drive time.  All US counties falling completely or partially within a radius were included in the population counts. Population estimate for select Provinces (Source Statistics Canada, July 1, 2010) Ontario: 13.2 million Québec: 7.9 million Last update for notes on two-way goods trade: October 1, 2012 Sources: Industry Canada, Statistics Canada and US Census Bureau 16

17 Low Import Tariffs $ millions
Average Applied MFN Tariffs On $100 Million In Imports $ millions This slide illustrates how much cost savings global firms can achieve by locating in Canada rather than in the EU countries or the U.S. After Canada eliminates all tariffs on Machinery and Equipment and goods imported for further manufacturing, average applied manufacturing tariffs on $100 million in imports will be: $4.3 million in the EU, $3 million in the U.S. and zero in Canada for Transport Equipments $2.8 million in the EU, $1.7 million in the U.S. and zero in Canada for Electrical Machinery $1.9 million in the EU, $1.2 million in the U.S. and zero in Canada for Non-electrical Machinery Transport equipment Electrical machinery Non-electrical machinery Source: Finance Canada. The Federal Budget, and World Trade Organization. Trade Profiles.

18 Competitive Corporate Taxes on Manufacturing
2010 Combined Federal and State/Provincial 18

19 Corporate Income Tax Rates on Manufacturing
2011 2012 Federal 16.5% 15.0% Ontario 10.0% Combined 26.5% 25.0%

20 Accelerated Capital Cost Allowance
Manufacturing and Processing Equipment (M&P): Since 2007, the depreciation rate for eligible M&P equipment has been temporarily increased to a 50% straight line rate (Class 29 as defined by the Canada Revenue Agency) for eligible machinery and equipment purchased after March 18, and before 2014. Companies who locate in Ontario can take advantage of this generous rate of write-off for capital expenditures in manufacturing or processing machinery and equipment each year up to the end of 2013. ACCA claims can be deferred indefinitely to subsequent years. Source: 2011 Ontario Budget paper: Chapter I: Ontario's Plan for Jobs and Growth: Section A, March 29, 2011 Last Update: April 2011

21 Accelerated Capital Cost Allowance
Asset Class Eligible Allowance Depreciation Rate Depreciation Method “Half-Year” Rule 43 Capital Cost Allowance (CCA) 30% Declining Balance Yes 29 Accelerated Capital Cost Allowance (ACCA) 50% Straight Line ACCA Benefits Allows business to completely depreciate qualified capital cost over a three year period. Provides additional cash flow in the three years following the capital expenditure by reducing the taxable income. Provides higher return on capital in the long term. Source: 2011 Ontario Budget paper: Chapter I: Ontario's Plan for Jobs and Growth: Section A, March 29, 2011 Last Update: April 2011

22 Training Tax Credits in Ontario
The Ontario government offers Training Tax Credits to encourage employers to hire and train apprentices and workers in specific skilled trades. Ministry of Training, Colleges and Universities: Apprenticeship Training Tax Credit: Maximum $10,000 per apprentice over 48 months. Employer Signing Bonus: $2,000 signing bonus if a new apprentice is registered. Employment Ontario: Wage incentives and other recruitment support. Ontario Youth Apprenticeship: School to work transition program. Ministry of Finance: Co-op Education Tax Credit: Refundable tax credit of up to $3,000 per placement.

23 Tax Rates & Other Support for the Auto Industry
Corporate Tax Reform: The government’s comprehensive tax package is providing $4.8 billion in overall tax relief over three years, including CIT cuts that started July 1, 2010: - The general Corporate Income Tax (CIT) rate was lowered from 14 per cent to 12 per cent - The CIT rate for manufacturing and processing was lowered from 12 per cent to 10 per cent Infrastructure Investment: Support for Detroit-Windsor gateway, including the Detroit River International Crossing and the Windsor-Essex Parkway to ensure people and goods move safely and efficiently through the US-Canada border

24 For example, Ontario Attracts Investors from Many Countries
Foreign direct investment projects in Ontario, by source country, 2011 Notes: 135 FDI projects into Ontario in Source: fDi Intelligence, Review of FDI Trends into N. America with a focus on Ontario in A report prepared by fDi Intelligence on behalf of Ontario Ministry of Economic Development and Trade. March Updated: October 1, 2012. Source: FDI Intelligence, March 2012 24

25 AND ... Ontario is Home to the Majority of Foreign-Controlled Head Offices in Canada
Foreign Head Office Distribution in Canada, 2011 Source: Statistics Canada – July 2011 Last update: October 2011 Source: Statistics Canada 25

26 Canada has Suppliers in Every Product Category
AUTOMOTIVE INTERIORS ABC Group AGS Automotive Systems Aisin Canada ArcelorMittal Tubular Bend All Brose Canada Canadian General-Tower Limited Commercial Spring and Tool Co. DBG Enstel Manufacturing Inc. Exco Technologies Limited Falcon Tool & Die (1979) Ltd. Freeway Washer Limited H. Paulin & Co. Ltd. Hayashi Canada Inc. Hematite Manufacturing Invotronics JYCO Sealing Technology Lear Canada Magna International Inc. Martinrea International Inc. Marwood Metal Fabrication Matcor Automotive Inc. MetriCan Stamping Co. Inc. Mitchell Plastics Omron Dualtec Automotive Inc. Papp Plastics PlasmaTreat North America Inc. Salflex Polymers Ltd. Samuel Automotive Schukra Of North America Ltd. Sealed Air (Canada) Co./Cie. Stahlschmidt Cable Systems The NARMCO Group The Woodbridge Group Tiercon TG Minto Corp. Toyota Boshoku Canada TS Tech Van-Rob Inc. Vari-Form Velcro Canada Inc. Windsor Mold Group Woodstock Stampings Inc. PRODUCTION HANDLING ABB Inc. ODG Group Panasonic Canada Inc. Schaefer Systems Inc. Schenker DB Logistics SEW Eurodrive Valiant Tool & Mold Inc. AUTOMOTIVE EXTERIORS 3M Amino North America Corp. Essar Steel Algoma Inc. ArcelorMittal Canadian General-Tower Ltd. Delhi-Solac Inc. F&P Manufacturing Inc. Flex N Gate Henkel Canada Corporation KSR International Inc. Lanex Manufacturing Inc. Maxtech Manufacturing Inc. PPG Canada Quality Safety Systems Company Sinteris The Butcher Engineering Limited Trimont Manufacturing Inc. Warren Industries WEGU Manufacturing HVAC Burlington Technologies Inc. DANA Corporation Linamar Corporation Nichirin Incorporated COMFORT & CONVENIENCE QNX Software Systems PRODUCTION CONTROL EQUIPMENT AUTOMATION & DESIGN Altair Engineering Canada, Ltd. Applied Precision Inc. Armada Toolworks Ltd. Cannon Automotive Solutions Centreline Clover Tool Mfg. Ltd. Engineered Solutions Corp. (ESC) FANUC Robotics Canada Ltd. Giffels Associates Limited/IBI Group Husky Injection Molding Huzura Manufacturing Ltd. Logikor OES, Inc. Omega Tool PricewaterhouseCoopers LLP RWDI AIR Inc. Sanyo Canadian Machine Works Siemens PLM Software (CA) Ltd. Solarsoft Business Systems Tech Con Automation Tutelar Technologies CHASSIS Canadian Autoparts Toyota Inc. DYNA-MIG Manufacturing Inc. Electromac Group Global Technologies Jefferson Elora Corporation Kautex-Textron Kumi Canada Corp. MMSC Canada Musashi Auto Parts Canada Inc. Sanoh Canada Ltd. Showa Canada Inc. Toyotetsu Canada Inc. Wescast Industries Inc. Windsor Machine & Stamping Woodbine Tool & Die BRAKING CTS Systems COMMUNICATION & INFORMATION POWERTRAIN D & V Electronics Ltd. Electrovaya F&P Manufacturing Inc. Freudenberg-NOK Inc. NTN Bearing Mfg Canada UltraFit Manufacturing Zenn Motor Company AIR INTAKE / EXHAUST SYSTEMS Huarong Purification Inc. THE NARMCO GROUP ENGINE MANAGEMENT TRAINING HumberCollege Ontario Centres of Excellence The PIC Group ECONOMIC DEVELOPMENT Canada's Automotive Corridor Canada's Technology Triangle Inc. City of Brantford City of Hamilton Durham Region Greater Toronto Marketing Alliance London Economic Development Corp. Municipality of Chatham-Kent Niagara Economic Development Corp. Regional Municipality of Halton Sarnia-Lambton Economic Partnership South Western Ontario Marketing Alliance WindsorEssex Economic Development EDUCATION & RESEARCH Advanced Design & Manufacturing Institute (ADMI) AUTO21 Inc. CON*NECT Conestoga College Georgian College Humber College McMaster University-MAC Auto Mohawk College Seneca College of Applied Arts & Technology University of Waterloo - WatCAR University of Windsor MANUFACTURING MACHINERY, TOOLS & EQUIPMENT J.P. Bowman Limited Anchor Danly Nachi Robotic Systems Inc. Yaskawa Motoman Canada Ltd. TRW ENGINE COOLING Denso Manufacturing BODY SYSTEMS Multimatic Yachiyo of Ontario Manufacturing SAFETY Intertec Systems Quality Safety Systems Co. Tyco Electronics Canada Ltd. ELECTRICAL & ELECTRONICS D&V Electronics Ltd. Denso Manufacturing Canada Digital Dash Kasai Canada Inc. Spatial View

27 Canada Supply Base is Second to None
Top OEM Suppliers with Plants in Canada Global Rank 2011 #2 Denso (Japan) #3 Continental (Germany) #4 Magna International (Canada) #5 Aisin Seiki (Japan) #6 Faurecia (France) #7 Johnson Controls (U.S.) #10 Delphi (U.S.) #12 TRW (U.S.) #13 Lear (U.S.) #17 Toyota Boshoku (Japan) #20 Autoliv (Sweden) #22 Visteon (U.S.) #35 Toyoda Gosei (Japan) #37 Brose (Germany) #54 Nemak (Mexico) #56 Flex-n-Gate (U.S.) #76 Linamar (Canada) #78 Martinrea (Canada) Source: Automotive News Many of the largest global suppliers have facilities in Canada, along with steel and other material producers Some of the biggest and most capable suppliers are Canadian-based including ABC Group, AGS Automotive, Linamar, Magna, Martinrea, Multimatic, Valiant, Wescast and Woodbridge Foam Other Canadian companies – such as Ballard, QNX Software and Westport Innovations – are recognized global leaders in their field Assemblers and Tier 1s in Canada also have access to supply chains in the U.S. and Mexico

28 For Example, Ontario is a Significant Player in the NAFTA Auto Parts Industry
Share of NAFTA Parts Shipments, 2009 Ontario parts firms are leaders in the development of innovative components, such as, stampings, modules and systems, & lightweight and composite materials Source: Statistics Canada, US Bureau of Economic Analysis

29 Areas of Automotive Expertise
Metal Processing Advanced casting of light metals Cutting and machining Sheet and tube forming Welding and joining Powder metallurgy Information and Communications Technology Software engineering Navigation and positioning Wireless technologies and networks Microchip design, system-on-chip, engineering Semi-conductor technologies (MEMS, RF) Telematics, communications Micromachining Intelligent systems Photonics and optoelectronics Nanotechnology Enhanced synthetic vision Advanced Materials Lightweight materials Nano-materials Bio-materials Advanced Design, Visualization and Manufacturing Inspection and vision systems Laser imaging Tooling and robotics Stereo-lithography, laser deposition Virtual design Advanced Technologies Mechatronics Powertrain engineering Clean diesels Homogenous charge compression ignition Fuel cells, hydrogen and alternative fuels

30 Canada Has Highly Educated and Multicultural Workforce
Canada ranks #1 in the OECD for its college completion rates (23.6% of working-age Canadians have graduated from college)1 Canada ranks #2 in the G7 in terms of the availability of qualified engineers in its workforce, according to the IMD 3 We know that global business leaders want to work with capable and creative workers who can help them gain a competitive advantage in today’s economy. Canada's highly skilled and multi-cultural workforce is one of the main reasons cited by global companies when asked why they choose Canada over other jurisdictions. Canada has a culture of learning that begins with publicly-funded early childhood education programs. Canada also has a flexible tertiary education system that focuses not only on university education, but also on technical trades. Canada ranks #1 in the OECD for its college completion rates (23.6% of working-age Canadians have graduated from college). Canada ranks #8 among member countries of the Organisation for Economic Co-operation and Development (OECD) for its high school completion rates (87.1% of working-age Canadians have a high school diploma). Canada ranks #7 in the OECD for its university completion rates (25.2% of working-age Canadians have a university degree). All of these rankings are complemented by the world-class engineering and management education available in Canada. The WEF ranks Canada third in a 139-country study on the quality of management schools. Canada ranks second in the G7 in terms of the availability of qualified engineers in its workforce, according to the IMD (2010). Sources: 1 OECD. Education at a Glance 2010. 2 International Institute of Management Development. World Competitiveness Yearbook 2010. 3 World Economic Forum. Global competitiveness report, The WEF ranks Canada #3 in a 139- country study on the quality of management schools 2 1 OECD. Education at a Glance 2009 2 International Institute of Management Development. World Competitiveness Yearbook 2010. 3 World Economic Forum. Global Competitiveness Report

31 Ontario has a Highly Educated Population
Post-secondary Educational Attainment (%), Select Markets, 2010 (Age 25-64) Overall, 64% of Ontario’s population has completed post-secondary education University: 30% College: 27% Apprenticeship: 7% Sources: Educational Indicators in Canada: An International Perspective, Statistics Canada Education at a Glance 2012, OECD Indicators, OECD 2012. Ranking based on OECD membership (34 countries). MOF Note: Total post-secondary education is defined as completed college or university education. For many jurisdictions, including Canada and Ontario, this includes college- based apprenticeship and short training programs that do not lead to a post-secondary certificate or diploma. In many European countries, apprenticeship training is part of the secondary education system and is not included in the post-secondary education category. In some other key countries (e.g. U.S.), apprenticeship training is reported under the secondary category due to methodological differences across national statistical agencies. Data was released in 2012 but pertains to 2010 for the countries indicated. Last update: September 2012 Note: Not all jurisdictions count apprenticeship as post-secondary education Sources: Statistics Canada and OECD, 2012 31

32 Overall People-Risk Rankings, 2012
Ontario is a Leader in Recruiting and Retaining a Highly Skilled Workforce Overall People-Risk Rankings, 2012 Out of 131 global cities examined, Toronto ranked second for low risks associated with employment and redeployment. Canada’s strengths are derived from strict enforcement of equal opportunity laws, clear government-mandated health and retirement benefits, low levels of corruption, and the high quality and broad availability of training facilities. Rank City 1 New York City 2 Toronto 3 Singapore 4 Montreal London 6 Los Angeles 7 Boston 8 Chicago 9 Vancouver Copenhagen Hong Kong Notes: People Risk™ Index Ratings that provides an overview of risks associated with recruitment, employment and relocation in 131 cities worldwide. The 131 cities were selected based on population size, population growth rate, the level of foreign investment and geographic spread. The index evaluates employers’ abilities to recruit and retain workers through risks associated with recruitment, employment, restructuring, retirement, and retrenchment using twenty-five variables categorized into five areas of people-risk: - demographics - government support - education - talent development - employment practices. Companies operating in low-risk cities are less likely to be blind-sided by unexpected changes in government policies on employment, health care, and retirement. They face fewer difficulties finding and retaining educated and experienced talent. Plus, they have more flexibility to restructure their operations without the fear of incurring significant unanticipated costs or obstructions. Government-related factors were found to be most significant in affecting overall people risk. Cities with the lowest risk were found to have governments which were transparent, non-confrontational, and dealt with employment issues fairly. Last update: May 2012 Source: AON Consulting, 2012 32

33 Canada is a Great Place to Live!
Among major auto producing nations*, Canada: has the highest quality of life; has the second lowest cost of living and the lowest apartment rents; is among the safest places to live and do business; and is among the least afflicted by pollution. Other Canadian advantages include: high-quality, low-cost education; universal health care; cosmopolitan cities; and Multi cultural society World Rank - Quality of Life Factors 8th 25th 15th 12th 10th 20 19th 17th 54th 18th 27th Source: IMD, World Competitiveness Yearbook 2006 US=1.00 * US, Canada, UK, France, Germany, Spain, Korea, Japan, Mexico, China


35 Snapshot of Automotive R&D in Canada
Expertise in light weighting, biomaterials and composites, advanced safety systems, software and the “connected car”, alternative fuels (particularly EVs), vehicle testing, and more Focus on private and collaborative R&D Source: Statistics Canada Automotive R&D Expenditures (in CAD$ millions) average $450M/year Climatic wind tunnel at UOIT-ACE Annual R&D spending in the motor vehicle and parts industry averaged $450 million in the last decade Over 1,400 auto-related patents granted to inventors based in Canada.

36 Automotive OEM R&D Centres
Ford Motor Company of Canada Ltd. Ford Manitoba Extreme Cold Weather Test Facility (Thompson MB) Ford Powertrain Engineering Research & Development Centre (Windsor ON) Chrysler Canada Inc. Automotive Research & Development Centre (Windsor ON) General Motors of Canada Ltd. GM Canadian Regional Engineering Centre (Oshawa ON) GM Cold Weather Development Centre (Kapuskasing ON) Honda R&D Americas Inc. (Canada) Environmental testing laboratory (Dartmouth NS) Toyota Canada Inc. Toyota Canada Cold Weather Research Centre (Timmins ON)

37 Generous R&D Tax Credits/Programs
Scientific Research & Experimental Design SR&ED is a generous federal tax credit which encourages businesses in all sectors to conduct R&D in Canada SR&ED is worth $3 billion/year for the manufacturing sector Industrial Research Assistance Program IRAP helps support innovative R&D and commercialization of new products and services by small- and medium-sized firms Automotive Partnership Canada APC is a five-year, $145 million program that supports collaborative university-industry in four areas: environmental performance, the cognitive car, next-generation manufacturing, and social sciences Automotive Innovation Fund AIF is a 10-year, $500 million program designed to lever large ($75M or more) investments in vehicle assembly, powertrain and R&D operations that focus on innovation and environmental technologies

38 World-class R&D Institutes/Universities
National Research Council - Automotive Network of 20 research institutes, many specializing in automotive-related disciplines such as light materials, aerodynamics, alternative propulsion, sensors and telematics CanmetMATRIALS National laboratory (Hamilton and Calgary) run by Natural Resources Canada for metals, materials and processing research in support of manufacturing innovation AUTO21 National network of centres of excellence for automotive R&D, regroups 200 researchers from 46 universities to conduct applied R&D in partnership with private companies Magna-NRC Composites Centre of Excellence Research centre to develop coEmposite technology for the Canadian and global automotive industries

39 World-class R&D Institutes/Universities
Fraunhofer Project Western Research centre and industrial-scale test facility focused on composite technologies for weight reduction at Western University (London ON) MacAUTO McMaster University Institute for Automotive Research and Technology (Hamilton ON): The University’s numerous automotive-related research institutes and centres work with industry, government and academic partners in developing and commercializing new technologies and materials that will ensure the global competitiveness of Canada’s auto industry. UOIT-ACE Automotive Centre of Excellence at the University of Ontario Institute of Technology (Oshawa ON) WatCAR University of Waterloo Centre for Automotive Research (Waterloo ON) University of Windsor Automotive engineering specialization and research partnerships, such as AUTO21 and Chrysler’s ARDC

40 Government Supported R&D Centres Located throughout Ontario
National Research Council Canada (NRC): Institute for Scientific and Technical Information (Ottawa), Canadian Hydraulics Centre (Ottawa), Canadian Photonics Fabrication Centre (Ottawa); Canadian Neutron Beam Centre (Chalk River), Centre for Surface Transportation Technology (Ottawa), Imaging Network (Ottawa), Industrial Research Assistance Program (Ottawa), Institute for Aerospace Research (Ottawa), Institute for Chemical Process and Environmental Technology (Ottawa), Institute for Microstructural Science (Ottawa), Institute for National Measurements Standards (Ottawa), Institute for Research in Construction (London), National Bio-products Program (Ottawa); Genomics and Health Initiative ( Ottawa); Institute for Biological Sciences (Ottawa); Institute for Molecular Science (Ottawa) Ontario Centres of Excellence (OCE): Centre for Commercialization of Research (Toronto), Centre for Communications and Information Technology (Ottawa), Centre for Earth and Environmental Technology (Toronto) , Centre for Energy (Toronto), Centre for Materials and Manufacturing ( Mississauga) Centre for Photonics (Ottawa; Mississauga), Automotive Centre of Excellence (Oshawa), Centre of Excellence for Mining Innovation (Sudbury), Research Centre (Atikokan); Other: Centre of Excellence for French-Language and Bilingual Postsecondary Education ( Toronto) Networks of Centres of Excellence (NCE): Auto21 NCE (Windsor), Advanced Food and Materials Network (Guelph), Allergy Genes and Environment (Hamilton), Canadian Arthritis Network (Toronto), Canadian Stroke Network (Ottawa), Canadian Water Network (Waterloo), Stem Cell Network (Ottawa), Bioindustrial Innovation Centre (Sarnia), Canadian Digital Media Network (Kitchener), Centre for Commercialization of Regenerative Medicines (Toronto), Centre for Imaging Technology Commercialization (London), Centre for Probe Development and Commercialization (Hamilton), Centre for Surgical Invention and Innovation (Hamilton), GreenCentre Canada (Kingston), MaRS Innovation (Toronto), Green Aviation Research and Development Network (Ottawa) Others: The Stiller Centre (London), Waterloo Accelerator Centre (Waterloo), McMaster Innovation Park (Hamilton) Note: 1. OCE is operating under the NCE to help bridge the gap between research and the marketplace -- bringing universities, industry and government together to help in the application of new science and technology to successful business endeavours. 2. The Ontario Network of Excellence (ONE) is not listed above, but it is a collaborative network of organizations across Ontario. ONE provides educational programs, advisory services, industry- academic programs, customer development and financing supports to businesses, entrepreneurs, researchers, and innovators. The OCE is a key partner of ONE. Last update: September 2011 40

41 Ontario’s R&D Cost Advantage
After-Tax Cost of $100 R&D Expenditure, Small and Medium Sized Manufacturers, 2012 R&D expenditure (general) (at eligible Ontario research institutes) Gross expenditure $100.00 Actual after-tax expenditure $51.57 $40.11 Ontario has a 9.1% cost advantage relative to the US Note: data as of April 13, 2012. Sources: Ontario Ministry of Finance and Canada Revenue Agency R&D Cost Advantage KPMG – Measures the combined impact of 26 significant cost components that are most likely to vary by location (salaries and wages, statutory benefits, other benefits, transportation, utilities etc) as applied to 19 different business operations over 10 years commencing in 2012. KPMG national cost comparison is based on cost information collected primarily between July 2011 and January Taxes reflect tax rates in effect on January 1, 2012, and also incorporate any announced changes at that time to take effect at specified later dates. National results are based on the average results for comparable cities within each country, reflecting R&D cost of major metropolitan regions of each country. The Canadian average is calculated using Toronto and Montréal, the two major Canadian cities. The KMPG report does not provide an average for Ontario. The R&D cost index score for Ontario was calculated internally by MEDI using data from the KPMG Competitive Alternatives cost model. MEDI estimate follows the methodology used to estimate national averages. Ontario city basket is Toronto and Ottawa, Ontario’s largest cities. To estimate the R&D overall, three R&D operations are used: Biomedical R&D, Clinical Trials Management and Electronic System Development / Testing. R&D Tax Credits Ontario Tax Credits: Ontario Innovation Tax Credit (10%) Ontario Business-Research Institute Tax Credit (20%) Ontario Research and Development Tax Credit (4.5%) Federal Scientific Research and Experimental Development (SR&ED) Tax Incentive Program (Note: The 2012 federal budget proposes to reduce the federal ITC rate from 20% to 15% after 2013) Federal Investment Tax Deduction (16.5%) Ontario Investment Tax Deduction (10%) Small size corporations have taxable income of less than $500,000 and taxable capital of less than $10 million for the federal benefits or $25 million for the provincial ones. This type of corporation qualify for 100% of the tax credit calculated on a $3 million limit of qualifying SR&ED Medium-sized companies qualify for a less generous tax credit than the small size corporations, up to the point when they have taxable income of less than $800,000 and taxable capital of less than $50 million. Once this limit has been reached, the tax credit is $0. Eligible Ontario research institutes include universities, colleges of applied arts and technology, research hospitals and other entities in Ontario. Non-refundable tax credits can be carried back three years or forward for 20 years Table presents a potential after-tax cost based on assumptions regarding R&D expenditures, tax incentives and tax rates that may not apply to your business.  This information does not constitute tax advice. Please consult your tax advisor to determine the after-tax cost of R&D expenditures for your business. Confirmed by MOF April 13, 2012. Last update: April 2012. Source Canada Revenue Agency Ontario Ministry of Revenue Source: MEDI analysis, prepared using Cost Model, 2012 version, accessed on March 30, 2012.

42 Benefits of Collaboration
Mitigates the risk of innovation Allows the inclusion of expertise outside a companies historic strengths Widens the reach of expertise Provides access to a wider scope of funding Takes advantage of embedded relationships and contacts Expands the scope of available facilities and equipment Both sides benefit from new ideas


44 Position to Take a Leading Role in the Development of the Next Generation of Vehicles
Automakers are developing a broad spectrum of alternative, environmentally friendly vehicles, especially electric vehicles (EV), among other technologies i.e. advanced hybrids, CNG, fuel cells etc. The government has partnered with a number of firms in order to position the province to take a leading role in vehicle electrification and lightweighting, including: $16.7 million for Electrovaya of Mississauga (Ontario) to develop and manufacture lithium-ion batteries $48.4 million for Magna International and Magna E-Car to develop advanced lightweighting technology, electrification of vehicle components and battery development. $2 million for Dana Canada to develop ‘Thermal Management Systems’ for hybrids and electric vehicles $70.8 million to Toyota Motor Manufacturing of Canada on a spectrum of initiatives, including production of the RAV4 EV An analysis of J.D. Power’s recent report, Drive Green 2020, indicates cumulative BEV and PHEV penetration for Ontario of approximately of 31,700 vehicles by 2020 (23,500 in 2015).

45 At The Forefront Of Next Generation Vehicle Technologies Research
Researchers in Ontario’s network of universities and specialized institutions are conducting leading research in advanced manufacturing and alternative energy: McMaster Automotive Resource Centre (MARC) is leading hub of advanced automotive research and development. Ali Emadi, director of MacAUTO is the holder of the $10- million Canada Excellence Research Chair in Hybrid Powertrain and is one of the world’s foremost developers of electric and hybrid powertrain technologies AUTO21 partners with the public and private sectors and supports more than researchers across Canada in a variety of auto-related research projects WatCAR, an automotive research centre at the University of Waterloo, is focused on leading-edge studies to enhance automotive innovation and competitiveness University of Ontario Institute of Technology’s General Motors of Canada Automotive Centre of Excellence is a state-of-the-art research facility (including a climatic wind tunnel) created to further R&D in the Canadian automotive industry Magna-NRC Composite Centers of Excellence, supports the Canadian automotive industry in developing next-generation vehicles with lighter, more durable parts, that are safe, affordable, environmentally friendly, and fuel efficient

46 Government Actively Supports the Auto Industry
Ontario has made important investments to support the auto sector and to improve the overall business environment in the province, including: Strategic Investments: In 2011 Ontario invested $121.2 million in innovative automotive initiatives with Dana, Magna International, Magna E-Car and Toyota Ontario Automotive Investment Strategy (OAIS): A $500 million, 5-year fund leveraged about $7.8B in total investment in the sector Restructuring of GM and Chrysler: Ontario committed $4.8 billion to the restructuring of GM and Chrysler Next Generation of Jobs Fund: Provided support to a number of automotive firms, such as Ford, Electrovaya, Mitchell Plastics and Alcohol Counter Measures

47 Government Commitments
Commitment to fight climate change and improve air quality The Ontario government aims to have one out of every 20 vehicles driven in Ontario to be electrically powered by 2020, this would support the greenhouse gas emissions target for 2020 set out in our Go Green Action plan. Contribution may be up to 0.6 MT (600,000 tonnes) of GHG savings by 2020 Reducing the environmental impact of the Ontario government’s operations Commitment to purchase 500 electric vehicles for the Ontario Public Service (OPS) passenger fleet by 2020 Contributes to the OPS goal of an annual 5% reduction in fuel consumption Supporting alignment and direction of Ontario’s auto sector ‘Greener’, more sustainable and more competitive with a strong focus on high value- added development and production of innovative auto parts and technologies Supporting the government’s research and innovation agenda Programs applicable to the research, development and commercialization of electric vehicles and their components parts

48 Commitment to Getting Electric Vehicles (EVs) on the Road
The Government of Ontario has been active in encouraging consumer adoption of Electric Vehicles (EVs). Developments include: Consumer Incentives: Rebates of $5,000 - $8,500 offered to consumers to purchase electric vehicles EV Infrastructure Fund: On May 4th 2012, Ontario released a Request for Information (RFI) on electric vehicle infrastructure, including home and public charging. The RFI closed on June 4th The RFI results are currently being analyzed Access to High Occupancy Vehicle (HOV) Lanes: EVs are provided “green” license plates for EVs to drive in commuter lanes (HOV) with one occupant Ontario is establishing a series of charging locations at GO commuter train stations in the Greater Toronto Area (Aurora, Lincolnville, Whitby in 2011 and Ajax, Erindale, Oakville, Burlington in 2012)


50 Light Vehicle Sales Canada and NAFTA, 1990 - 2013
Unit Sales (Mil) Canada % of NAFTA : 19-20 mil. unit NAFTA market for new light vehicle sales; 8% of NAFTA LV sales : Canada outperformed NAFTA as overall sales collapsed; 11% of NAFTA light vehicle demand : Recovery and organic growth (Mexico and Canada) Source – Wards/AMIP/AutomotiveCompass

51 Light Vehicle Production Canada and NAFTA, 1990 - 2019
Unit Production (Mil) Canada % of NAFTA Source – Wards/AMIP/AutomotiveCompass

52 NAFTA LV Production by Jurisdiction Ontario, Michigan, Mexico Volume Trends (Mil), 2000-2019
Unit Production (Mil) Mexico (2008+) and Michigan (2014+) auto output (new investment driven) growing sharply as Ontario declines Mexico B-car/CUV growth from Ford, GM, Nissan, Honda, Toyota, Mazda; C-car and CUV from Volkswagen Michigan B/C/D/E/F/S, CUV and SUV growth from GM, Ford, Chrysler Source – Wards/AMIP/AutomotiveCompass

53 Top 10 Auto Supplier Trends
6. Supply-Chain Transformation 1. Customer Facing Focus Increasing the Value of the Business 10. Core Competencies 9. Systems & Modules 8. Globalization 7. Resource Pressure 2. Growth 3. Cost Reduction 4. Technology 5. Brand Management

54 Sources of Automotive Growth
Products Key Sources of Growth Recovery Geography New/Replacement Products New/Replacement Processes Vertical Integration M&A JVs Marketing Global Crises

55 Megatrends New NAFTA Environmental Regulations
Smaller, lighter vehicles, with upgraded fuel-efficient powertrains Will people want to drive much smaller vehicles? Will vehicle profit be high enough to justify investment? standards require a 65% improvement in fuel economy over current levels. Higher consumer ownership and operating cost. Will consumers accept paying more … possibly much more … for transportation? How do we as suppliers support global platforms and still look after local business opportunities?

56 NAFTA Auto Outlook Key drivers, enablers and constraints 2013 2014-16
Employment/Income Growth Driving Age Population Growth Age of Fleet Ownership and Operating Cost Affluence/Financial Stability Technology Fuel Economy Regs Supply Chain Constraints Source: AutomotiveCompass

57 Challenges for Canada High Exchange Rate
Low investment in new production facilities Fiscally conservative governments at all levels High infrastructure costs – energy, environment A Southern production migration Adaptation of global platforms A conservative attitude Lack of overall confidence

58 Canadian Advantages Health care costs
Stable, business-oriented environment Productivity Quality Resources Infrastructure Tax structure Highly skilled labour/well-educated workforce; positive work ethic Strong product and technology mix Strong supply-base Modern and flexible manufacturing facilities

59 Bridging the Innovation Gap
Innovation is the key to long term success Applies to products, processes, tooling, systems It implies a commitment to product excellence OEM pulling technology rather than suppliers pushing Key Organizations that make it happen (private, associations & government) A commitment that the Automotive Industry is an essential and critical industry that always receives primary attention

60 Collaboration with Academia
Unprecedented amount of technical change in the next years Industry cannot get there on its own Collaboration is the only alternative Must have access to advanced research capabilities It will create an unprecedented demand for HQP (highly qualified personnel) and Technological Capability Opportunities for new manufacturing processes and procedures are abundant Manufacturing shapes our future!!!

61 Challenges for Industry
Protecting Intellectual Property Protecting manufacturing and product “secret sauce” The publish or perish imperative Adhering to automotive industry timing requirements Adhering to cost containment issues Location of facilities in proximity to manufacturing or engineering sites

62 Episode IV – A New Hope Innovation must be our priority
Encouraging progress that supports this initiative MARC Engineering Center CANMET Hamilton WatCAR Engineering Center UOIT Wind Tunnel and Facilities Embrace a new model that encourages public private partnerships (P3) that will drive innovation Be open to learning from around the world Be great partners – the commitment to excellence A unique Canadian Identity

63 The Connected Vehicle - Canadian Stakeholders
CUTA Canadian Urban Transit Association ITS Canada Intelligent Transportation Systems APMA Automotive Parts Manufacturers Academia University Researchers Government Federal & Provincial CTA – OTA Canadian & Ontario Trucking Associations EMC Electric Mobility Canada First Responders Police/ Fire/ Ambulance

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