1 February 2002 Canadas Automotive Sector: An Investment Opportunity Aerospace and Automotive Branch Industry Canada Industry Industrie Canada

2 The automotive industry is a key sector in Canada… Canada is the 7th largest auto producing nation in the world. Canada produced 2.5 million light vehicles, 16% of NAFTA output. Canadians bought 1.6 million new vehicles. Auto industry shipments totaled $106.9 billion. Of this, $33.8 billion was parts. Canada-U.S. auto trade reached $153.9 billion, with a Canadian surplus of $26.0 billion. The auto industry is concentrated in Ontario and Quebec, and it accounts for 14% of Canadas manufacturing GDP. Source: Statistics Canada Output Employment Auto Industry Shipments and Manufacturing Employment (Index: 1990 = 100) $106.9 billion 184,000

3...and is integrated with the worlds largest vehicle market -- the United States Los Angeles Detroit/Windsor Chicago Milwaukee Atlanta Vancouver Toronto Montreal Seattle Miami Mexico City Winnipeg 800 km 480 km CANADA U.S.A. MEXICO Through the NAFTA, Canada provides integrated access to a market of nearly 400 million people and annual light vehicle sales of 20 million units. Nearly half of the North American population lives within a 10-hour drive of Toronto. The NAFTA has facilitated: -border procedures; -movement of personnel; -investment and intellectual property protection. -product certification; and 90% of Canadian-built vehicles are exported, mainly to the U.S.

4 Canada has world-class auto assembly and parts manufacturing operations… Auto Assembly - 15 plants - Auto Parts plants - Parts Product Lines Magna International Stamping, interior and exterior trim, powertrain components Linamar Machined components Ventra Group Plastics, interior and exterior trim systems Woodbridge Group Molded foam, interior trim, seating ABC Group Plastics, blow and injection molded Lear Seating Canada Seating Dana Canada Chassis components TRW Canada Steering, suspension components Arvin Meritor Brakes, suspension components, controls

5...but Canada is still looking to increase investment Annual capital investment in the Canadian auto sector is $2.4 billion and has grown at 9% per year, more than double the U.S. rate. Canada is looking for expanded assembly capacity and new investment from Tier 1 suppliers.

6 Government committed to future growth of the auto sector in Canada New Industry Minister supports process. -Phase 1 (Jan-May 2002): Stakeholder consultation and discussion paper. -Phase 2 (summer 2002): Automotive Colloquium and ministerial advisory body -Phase 3 (fall 2002): Analysis, recommendations and work plan. Federal government has launched a consultation process with the Canadian automotive sector – industry executives, labor and provinces. Objective: Strengthen investment, production and innovation.

7 Canadas business climate is among the worlds best… Canadas business environment rates as 4th best of 60 countries -- and 3rd among major auto producing nations. Improved conditions for growth: -budget surplus -tax regime -low inflation -low interest rates -trade policy / market access -innovation policy -programs December 2001 budget measures for border – critical to auto sector. Foreign investors have access to supportive governments. World Rank -- Business Environment Automotive Countries U.S. U.K. Canada Germany France Italy Korea Japan Mexico Source: Economist Intelligence Unit, Aug 2001, assessment of 70 indicators of business friendliness, infrastructure and competition. 4th 2nd

8 …with competitive corporate taxes… Canada compares well in terms of corporate income taxes with U.S. auto producing regions. -e.g., the combined federal- provincial tax rates in Ontario and Quebec are lower, compared to the minimum U.S. federal rate of 34%. No restriction on repatriation of profits. Sources: Pricewaterhouse Cooper, Tax Facts & Figures 2001; and CCH State Tax Handbook Corporate Tax Rates Minimum US federal tax

9 …and real advantages in R&D Strong capabilities in advanced technologies – e.g., fuel cells, light metals, manufacturing processes and plastics. Skilled personnel and dynamic automotive R&D partnerships. Automotive education and training infrastructure that includes technical colleges, trade schools and universities. The most generous tax treatment for R&D in the G-7. Additional government support through programs, research organizations and the newly launched Innovation Plan.

10 Business costs are among the lowest in the G-7 New 2002 KPMG international business cost comparison study launched Jan. 29. Canadas cost advantage over the U.S. is 10% for manufacturing, 11% for auto parts and 33% for R&D. Companies in Canada have specific cost advantages in: -construction / start up; -labor and benefits; and -many annual operating expenses such as office rents, utilities and corporate income tax. Source: KPMG, The Competitive Alternatives G-7 Edition (2002) * Index based on initial investment and annual operating costs. Business Costs Advantage by Type of Operation (Index: US = 100)

11 Land and construction costs are competitive… When compared to the U.S.: -construction costs are 19% lower in Canada; -land costs are comparable; and -office lease costs -- including utilities, taxes and insurance -- are 37% less. Canada U.S. Office Lease Costs (Index: US = 100) Source: KPMG, The Competitive Alternatives G-7 edition (2002) Canada U.S. Construction Costs (Index: US = 100) Canada U.S. Land Costs (Index: US = 100)

12 Labor savings in Canada are substantial When compared to the U.S. … Hourly wages are significantly lower. Benefits are lower, due largely to government-funded health care. Source: KPMG, The Competitive Alternatives G-7 Edition (2002) U.S. Statutory and Employer- Sponsored Benefits (% of wages) 8.6% lower Canada Wages – Motor Vehicle and Equipment Manufacturing (in US$/hour) OhioS. Carolina Sources: Statistics Canada and US Bureau of Labor Statistics Alabama OntarioTennesseeKentuckyMichigan 19.47

13 …transportation and energy costs are lower too Transportation costs in Canada are, on average, 24% lower than those in the U.S. for manufacturing industries. Electricity costs for industrial users are significantly lower in Canada than in the U.S. A recent study pegged the difference at 30% per annum. Canada U.S. Annual Electricity Costs (Index: US = 100) Source: KPMG, The Competitive Alternatives G-7 edition (2002) Canada U.S. Annual Transportation and Distribution Costs (Index: US = 100)

14 Canada has a productivity advantage over the U.S. … Canada has a 7% advantage in assembly hours per vehicle. Canadian assembly plants have won 10 of the 30 J.D. Power plant quality awards since From 1990 to 2000, Canadas labor productivity grew 12% per annum, compared to 10% in the U.S. (value- added per employee.) Index: 1990 = 100 Sources: Statistics Canada and US Dept. of Commerce Productivity Growth Automotive Assembly Source: 2001 Harbour Report U.S. Labor Productivity -- Assembly (in hours per vehicle) 7.3% better Canada

15 …so it takes less time to make the same vehicle in Canada Takanori (Tak) Sakaue, President Toyota Motor Manufacturing Canada Inc. Our records for safety and productivity place the TMMC team among the industrys best. And when it comes to quality, vehicles built at our Cambridge facility are among the highest rated vehicles in North America. Harbour Report Report Toyota Corolla DaimlerChrysler minivans GM pickups Ford F-series Assembly Plant Hours per Vehicle Pontiac East Oshawa St. Louis NUMMI Cambridge Windsor Kansas City Oakville U.S. Canada

16 Canadas workforce is skilled and educated Canada ranks 3rd among auto producing nations based on availability of skilled workers. Canadian universities and colleges produce more than 25,000 new graduates per year in math, engineering and science. Canada ranks 2nd among 59 countries based on availability of management education in first-class business schools. Source: IMD, World Competitiveness Yearbook 2001 Availability of Skilled Workers Japan U.S. Canada Germany France Korea Mexico Italy U.K. 13th 18th Management Education U.S. Canada U.K. France Germany Japan Italy 2nd Source: WEF, Global Competitiveness Report st

17 Canada is a great place to live – safe, clean and inexpensive Source: IMD, World Competitiveness Yearbook 2001 U.S. Canada Overall quality of life 5th 11th Cost of living 20th 25th Apartment rent 12th 42nd Personal security 8th 12th Harassment and violence 18th 28th Pollution problems 13th 21st World Rank - Quality of Life Factors Among major auto producing nations, Canada: -has the highest quality of life; -has the second lowest cost of living index and the lowest apartment rents; -is among the safest places to live and do business; and -is among the least affected by pollution. Other Canadian advantages include: -high-quality, low-cost education; -universal health care; -cosmopolitan cities; and -diverse cultural and recreational amenities.

18 In conclusion, when you think automotive, remember to think Canada! Access to Markets: -Integrated NAFTA region -20 million light vehicles sold in North America -Ties with Asia and Europe Cost Competitiveness: -Lowest cost manufacturing location in G-7 -Land and construction costs 20% and 16% less than in US -Labor and benefits also cost less -Transportation, energy and many other operating costs lower than US Domestic Auto Sector: -Worlds 7th largest auto producer -15 light vehicle assembly plants and 550+ parts manufacturers -16% of NAFTA production (2.5 million units) -90% exported to U.S. and other markets Business Climate: -Top-ranked business environment -Competitive corporate taxes -Low inflation, low interest rates -Best R&D tax benefits in the G-7 -Access to supportive governments Labor and Productivity: -Availability of skilled labor -Auto manufacturing wages 10% lower than US -Employee benefits cost 9% less also -7% advantage over US in hours/vehicle -10 JD Power plant quality awards since 1991 Quality of Life: -Top-rated quality of life -Lowest cost of living in G-7 -Safe, clean and cosmopolitan cities -Diverse cultural and recreational amenities