Automotive News Canada - May 2019 - v2 - 18

* MAY 2019

Hasenfratz: Lack
of corporate tax
cut cost Canada

Linamar boss cites U.S.
rate cut to 21 per cent
from 35 in late 2017
By JOHN IRWIN
TORONTO BUREAU

THE FEDERAL GOVERNMENT LOST
an opportunity to help Canada regain
its competitive edge over the United
States by not cutting corporate taxes in
the 2019 budget, according to Linamar
Corp. CEO Linda Hasenfratz.
"I think it's unfortunate that more
attention was not paid to areas where
Canada needs more of a competitive
boost," Hasenfratz told Automotive
News Canada. "It's important to have
that competitive advantage.
"We're a smaller player. ... We need
that tax advantage to compete against
bigger players that have different regulatory regimes. Addressing the competitiveness piece specifically around
taxes is important."
In March, the majority Liberal
government unveiled its 2019 budget, which included $300 million over
three years for rebates of up to $5,000
on some electric and hydrogen fuel-cell
vehicles. But it did not have a corpo-

rate tax cut that some executives in the
auto industry, including Hasenfratz,
had called for.
Canada's tax advantage disappeared
when in late 2017 the United States
passed a 14-per-cent cut in its corporate
rate, dropping it to 21 per cent from 35,
Hasenfratz said.
According to the federal government, the net corporate tax rate in
Canada is 15 per cent after tax abatements and a general tax reduction.
While six percentage points lower than
the United States' rate, the amount
many corporations owe in Canada is

While operating earnings from
Linamar's nonautomotive business
more than doubled last year, they fell
13 per cent in the automotive division.
Linamar Corp.'s headquarters are in
Guelph, Ont. P H O T O : B L O O M B E R G

As Linamar diversifies, parts
are still part of the plan
CONTINUED FROM PA GE 1

Meanwhile, operating earnings
in the company's automotive division fell 13 per cent to $473.7 million,
while sales rose 5.6 per cent to $5.73
billion. The company attributed the
decline to slumping markets in Asia
and in Europe, as automakers there
struggle to adapt to new emissions
regulations.
Linamar ranked No. 62 on sibling
publication Automotive News' 2018
list of the top 100 global suppliers,
with US $3.8 billion in sales to automakers in 2017.

A HEDGE AGAINST AUTO SLUMP
Diversifying products beyond the
auto industry is a strategy several
suppliers have undertaken globally
to stabilize earnings when the auto
market dips or becomes unstable.
In Canada, Linamar's diversification strategy is a prime example of that: As the company feels
the effects of declining European
and Asian markets and braces for a
shrinking North American market,
it has seen revenue and earnings
explode elsewhere.
Linamar remains interested in
acquiring more nonautomotive
businesses, Hasenfratz said. It did
just that in December 2017 when it
announced the MacDon acquisition.
The strategy has been playing out over several years under

SUPPLIER
DIVERSITY

Hasenfratz, as evidenced by
Linamar's 2002 acquisition of
boom and scissor-lift manufacturer
Skyjack, which remains important
to the supplier.
"We see a lot of opportunity to
grow each one of those businesses
just based on further global expansion, diversifying the product lineup
and continuing to invest in innovation," Hasenfratz said.

ACQUIRING KNOWLEDGE
Linamar's method of diversifying
is unusual, in that it does not simply buy businesses and leave them
to operate on their own, Hasenfratz
said. The automotive and agricultural-equipment businesses, for
instance, can learn from each other's processes in purchasing, design
or manufacturing, she said.
"I think that has allowed us to
unlock some significant value in
these businesses in a really meaningful way," Hasenfratz said. "Our
traditional automotive business
got stronger thanks to Skyjack and
MacDon, and Skyjack and MacDon
have gotten stronger thanks to the
other components.
"They may appear unconnected, but in fact, they are quite deeply connected. And they are, after all,
all manufacturing businesses based
on metallic products. There's commonality around processing in each
one." - ANC

Linamar CEO Linda
Hasenfratz says
the company's
diversification reflects a
strategy to leverage its
strengths in areas such
as manufacturing, not
a desire to move away
from its auto business.
PHOTO: BLOOMBERG

now higher than in the United States
when accounting for provincial and
state taxes. Provincial tax rates are
generally higher than those in most
states.
Larger corporations in Ontario,
where most of the Canadian auto
industry is based, pay an 11.5 per cent
rate, putting the effective corporate tax
rate for auto companies at 26.5 per cent.
That's about even with the 27 per cent
combined rate corporations would pay
in Michigan, and more than it would
cost in Ohio, which has no state corporate income tax.
Hasenfratz did, however, praise the
budget, the Liberals' last before this
year's election, for including $631 million over five years for the Student
Work Placement Program, which
would expand work-integrated learning. In an economy with a low unemployment rate, she said, it is difficult to
find both skilled and unskilled work-

ers. Boosting integrated learning can
help change that over the long term,
Hasenfratz said.
"We need to do everything we can to
make sure the people we have have the
skills we need, whether that be through
education and work-integrated learning, or retraining programs to give people new skills."
Attracting skilled immigrants to
Canada should be a top priority of both
the federal and Ontario governments,
Hasenfratz said, as it is another way to
address the shortage.
She pointed to Guelph, Ont. -
where Linamar is headquartered -
which has one of the lowest jobless
rates in Canada at four per cent, as a
sign that workers are tough to come by.
"We need to bring people in,"
Hasenfratz said. "I think our governments have been supportive of that, but
there's always more we can be doing in
that regard." - ANC

India's auto market has huge
potential for Canadian companies
CONTINUED FROM PA GE 16

supplier-based company where they love to
integrate more of their
suppliers in the supply
chain and create healthy
supplier relationships,"
Azzopardi said.

'LAND OF OPPORTUNITIES'
Sahni of Bennett
Jones says India is "a
land of opportunities" for
Canadian automotive companies and suppliers.
On a per capita basis,
India has a relatively
small saturation of vehicles, Sahni said. For every
1,000 people of driving
age, about 20 own cars. By
comparison, Canada's rate
is more than 700 cars for
every 1,000 people.
That number in India
will grow in the coming
years, Sahni said. "As the
middle class gains more
wealth, one of the first
things they do is move
from having two-wheeled
vehicles - motorcycles -
into automobiles," he said.
"So there's a huge demand
that's already existing in
India that can't be met."
Canada can help India

"As the middle class
gains more wealth, one
of the first things they
do is move from having
two-wheeled vehicles
- motorcycles - into
automobiles," says Raj
Sahni, a partner with
Toronto law firm
Bennett Jones.
PHOTO: ROSEANN DANESE

develop its industry as
vehicle ownership grows
across the country, Sahni
said.
"India has a make-inIndia policy, so the vast
majority of cars 20 years
ago were all imported
vehicles," he said. "Now,
India has a base of manufacturing of its own with
cars. There's still a need
for parts and technology."

The adoption of technology, such as electric
and autonomous vehicles, lags well behind
North American standards, Azzopardi said.
"Technologicallyspeaking, the industry is
where Canada was in the
1980s. So that's an opportunity because we can
help them get to 2019. It's
using our technical knowledge and our experience to
advance them faster."
India's population is
the second-largest in the
world, and the median
age of 28 is young by global standards, said Dinesh
Bhatia, India's consul general in Canada.
"If you're looking at
automotive parts or the
automotive industry,
India has probably the
largest number of [driving age] population on the
roads," Bhatia said.
"And that means all the
major car manufacturers
around the world are present in India, and there's a
need for auto parts.
"The market is huge.
So when the market is
huge, naturally, the potential is huge." - ANC

Automotive News Canada - May 2019 - v2

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