Aq2001 Fall Ok



Production adjusts to sales through the third
quarter in 2001

In the aftershock of the attacks on the US, the already slowing
economy in Canada has noticeably weakened. Production cutbacks and
layoffs in both vehicle and parts plants are on the rise, as sales
both retail and fleet have slumped. Total light vehicle production
in Canada is down 15.0% through the first three quarters of 2001
at 1.9 million units. Among all Canadian vehicle plants, only Honda
is ahead in terms of unit output compared to last year. However,
production at CAMI climbed 29.1% in September compared to the same
month in 2000 due to a 107.3% increase in compact SUV output (Chevrolet
Tracker and Suzuki Vitara).

Combined production at Honda (HCM), Toyota (TMMC) and CAMI is up
1.9% at 473,000 units for the first nine months of 2001. HCM output
jumped 15.8%, while TMMC dropped 5.7% and CAMI lost 25.9% compared
to last year. Exports of vehicles from these three plants gained
4.3% to almost 381,000 units, an export ratio of 80.5% for the year
to date.

Vehicle shipments to Canada from Japan, the US and Mexico rose
10.0% to 232,000 units for the year to date. NAFTA imports were
up 14.1% to almost 90,000 units, while shipments from Japan were
7.5% higher at 142,000 units for the same period.

Overall new vehicle sales in Canada during September dropped 12.7%
to 125,127 units compared to September 2000. Passenger car sales
lost 9.5%, while light truck sales were 16.4% lower than last year.
All of the ‘Big 3’ recorded fewer sales in September, but Chrysler
was the hardest hit falling 32.9%. Ford and GM were down 16.1% and
15.2% respectively.

In September, Japanese automakers as a group fared very well in
spite of the turmoil with total light vehicle sales marginally lower
0.7% for the month. Among JAMA Canada members, Mazda sales jumped
12.5%, Nissan was up 8.9% and Suzuki grew 2.1% in September. On
the other hand, Honda sales declined 10.0%, Subaru fell 2.5% and
Toyota dipped 1.8%. Notable among other automakers sales were Hyundai
(up almost 45%) and Kia (up 36%).

For the year to date, the overall Canadian vehicle market is down
2.1% at 1.185 million units. Passenger cars are almost unchanged
at 664,000 units, while light trucks are off 4.6% at 521,000 units.
The Big 3 are collectively down 65,000 units, a 7.5% drop for the
first three quarters of 2001 to 800,000 units.

Japanese automakers by contrast are up 9.4% as a group to almost
325,000 units. In fact, all JAMA Canada members light vehicle sales
have risen compared to 2000. Mazda Canada is ahead 33.0% for the
first three quarters of 2001, Nissan Canada sales are up 10.6%,
Honda sales have increased 7.7%, Suzuki Canada has gained 7.4%,
Subaru Canada is up 4.7% and Toyota Canada has improved 1.4% over
last year.

In terms of market share, the Big 3 have lost over 5% share for
the year to date, while the Japanese share is up 3 points to 27.5%,
the Korean share has gained 2 points to 5.5% and the Europeans are
unchanged.

Although Canadian vehicle sales so far in 2001 have been stronger
than originally forecast, the market outlook for the remainder of
the calendar year is rather gloomier in the aftermath of Sept 11,
as consumer confidence has been shaken and the economic slowdown
will continue in the short term. To counter these developments,
some automakers have introduced 0% financing incentives on virtually
all of their popular models in the US in an effort to ‘Keep America
Rolling’. The same 0% financing incentive was also adopted in Canada
by the Big 3 in November. Most analysts view such incentives as
both risky and costly, as incentives of this magnitude tend to only
draw forward future sales, so that when the programs end, sales
will likely fall off dramatically. At the same time, assuming that
the economic slowdown will be relatively short-lived, such incentives
ideally can help reduce inventories and bring down days supply levels
to the point where production can be stabilized until the recovery
gets underway.


     



Border Issues – Impact of Sept 11 on the
Canadian Auto Industry

Trucks line the Ambassador Bridge, waiting for entry into the US at Detroit

The tragic and horrifying attack on September 11 without doubt
has altered the outlook for the 21st century in much
the same way that other cataclysmic events in the past were turning
points in history. While the full impact will be realized over time,
the short term impact on already faltering economies in both Canada
and the US likely accelerated the downward trend, particularly in
those sectors such as the auto industry, that relies very heavily
on open and accessible cross-border trade.

Motor vehicle and auto parts plants operating with little or no
inventory require timely deliveries of parts and supplies to maintain
production schedules. As a result of heightened security at key
border crossings with the US such as Windsor/Detroit and Fort Erie/Buffalo,
several parts and vehicle assembly plants in Canada decided to reduce
output and a few were forced to temporarily close until the backlog
was cleared and trucks carrying critical parts could deliver their
goods.

Among Japanese automakers, while Toyota’s plant in Cambridge and
the CAMI plant in Ingersoll continued their regular schedule, the
Honda plant in Alliston was forced to close two shifts, both the
car and the van/SUV lines, a week after the terrorist attacks. Some
suppliers were also minimally affected by the closing of the Honda
plant. While most companies have adjusted and are coping now that
the border situation has stabilized, it is still a rather fragile
equilibrium.

With an integrated auto industry in North America as a result of
the Auto Pact in 1965 and the FTA and NAFTA in the past decade,
it is not unusual for some auto parts to cross the border several
times before the final vehicle is assembled. Moreover, Canadian
automakers export over 85% of all vehicles made in Canada, mostly
to the US, and over 70% of all vehicles sold in Canada are imported,
again largely from within NAFTA. Also, just-in-time production and
delivery requirements, particularly for parts sourced from outside
the country, must rely on open and swift border crossings to meet
production schedules.

In the first week after the US border was re-opened, the backlog
of trucks in Canada waiting to cross the border at the Ambassador
Bridge in Windsor was reported to be over 25 kilometers long and
it took up to 24 hours to pass through into the US. Currently, the
average time for a commercial truck to get through the border into
the US is about one hour, while travelers often face up to two hours
at any time of the day or night. By contrast, trucks and travellers
coming into Canada from the US face only minimal delays, if at all.
However, even this situation will be difficult to sustain in the
event that traffic, both goods and people, return to pre-Sept 11
levels.

In fact, Canadian and US officials have been talking for years
about improving border crossings. The main issue is the rapid and
ongoing rise in trade volume between Canada and the US in the wake
of the FTA and NAFTA for which the current border facilities have
not been able to match. If there is anything positive in the events
of September 11, it may be that the urgency of addressing these
problems has been raised and that finally something will be done
to ease the situation. According to critics, the current border
system is outdated, overwhelmed and requires oversight by too many
government agencies. Moreover, trade between Canada and the US increased
12% in 2000 from the previous year, and is forecast to triple in
the next two decades. Going back to where things were on September
10 will not be enough.

A number of improvements are being considered, such as a second
bridge between Windsor and Detroit, and a new Canadian Customs Self
Assessment (CSA) Program that promises to streamline commercial
traffic along the 49th parallel. At the same time, the
US is piloting a new customs program specifically in the auto sector
called the National Customs Automation Program (NCAP). However,
some critics in Canada of the CSA program claim that it is overly
complex and rather expensive to justify switching from current customs
procedures. While the CSA Program was set to be rolled out starting
in early December of this year (CSA has been hampered by several
delays), a second bridge in Windsor could take up to ten years to
complete.

Clearly additional measures will be necessary to deal with current
and expanding cross-border trade by government and industry in both
countries including using technology to create a ‘smart border’
encompassing electronic filing, pre-clearance, improved infrastructure,
expanded high tech screening equipment, and integrated information
sharing and coordinated custom procedures.

According to data provided by an official of the Ambassador Bridge,
more than US$110 billion in goods traversed the bridge between Windsor
and Detroit in 2000, carried by more than 3.5 million trucks. Truck
traffic after Sept 11 declined 20% for the rest of the month compared
to the same period in 2000, while auto traffic dropped 47% over
the same period. In October, as the border backlog was cleared,
truck traffic on the Ambassador Bridge was down 8% compared to October
2000, while auto traffic (mainly travelers) was 38% lower than last
year. In general, it is estimated that on average US$1.3 billion
in goods crosses between Canada and the US each day, and that $300
million of that total is automotive related.

In response to the events of Sept 11 and the border issues arising
in the aftermath, a coalition representing a broad cross-section
of Canadian business has been formed under the aegis of the Canadian
Manufacturers and Exporters Association. On October 31, the coalition
released a report urging the Canadian Government to present a ‘comprehensive
and integrated solution’ to security and border issues in the wake
of the attacks in the US.

Central to an integrated solution, according to the report ‘Rethinking
Our Borders’
by the Coalition for Secure and Trade-Efficient
Borders, is a coordinated approach that would ease Canada-US border
crossings by increasing Canada’s ability to guarantee security at
other points of entry. The report calls for the Government to use
a risk management system that would enable low-risk goods and people
to cross the border securely and efficiently, while focussing on
high-risk cargo and travellers. This system would entail three lines
of border management security:

  • offshore interception
  • first point of entry into North America
  • the Canada / US border



By increasing, sharing and coordinating intelligence efforts, the
report calls for Canada to take steps to stop high-risk cargo and
travellers from getting here in the first place. At the same time,
the Canada/US border could be made ‘smarter’ by moving low-risk
identification processing away from the border crossing itself,
which would ease congestion and allow border authorities to concentrate
on high-risk movements.

The report addresses the often contentious matter of sovereignty
by pointing out that a ‘perimeter’ or ‘zone of confidence’ approach
does not mean erasing the Canada / US border, nor does it mean that
Canada has to adopt American immigration and customs policies. While
collaboration is essential, Canada and the US need to develop shared
goals and objectives on providing economic and personal security
for their citizens. But this does not mean that both countries have
to achieve these objectives in exactly the same way.

At the same time, the Federal Liberal caucus Economic Development
Committee has indicated they plan to investigate the idea
of a European Union style customs union between Canada and the US.
A customs union would virtually eliminate the border for goods and
travellers, as well as adopt common trade and tariff policies. While
the debate on following the FTA and NAFTA into deeper economic integration
with the US will likely become more controversial due to the inevitable
quid pro quo
on sovereignty, others suggest that harmonization
should be based on mutual recognition agreements, which allows each
country to maintain their own policies and procedures.

The Coalition includes over 40 business and trade associations
as well as individual companies. Auto-related members include JAMA
Canada, Association of International Automobile Manufacturers of
Canada (AIAMC), Canadian Vehicle Manufacturers Association (CVMA)
and Automotive Parts Manufacturers Association (APMA). The full
Coalition Report is now available on a newly established website
– www.cme-mec.ca/coalition.

After Sept. 11, the line of trucks waiting to cross the border into the US stretched for over 25 km along the 401 highway and the streets of Windsor, OntarioApart
from the work of the coalition, there have been a number of industry/government
consultations in recent weeks on the border issue. In late October,
the Parliamentary Committee on Industry Science & Technology
invited auto industry representatives to deliver their views and
concerns about border delays and new security measures. A few days
later, Round Table Discussions were held simultaneously in Toronto
and Windsor by the Ontario and Federal Governments respectively
on the economic impact of the border problems. Most recently, a
US Congressional Committee held special hearings in Windsor on the
importance and scope of the cross-border trade, particularly between
Windsor and Detroit.

While the focus on bilateral trade (Canada/US) is understandable
given the size of this commercial activity, particularly in the
auto sector, there is a concern among some companies including JAMA
Canada members, that any new border measures should not create a
‘Fortress North America’ which could have a potential negative impact
on trade with countries outside of North America. In a globalized
industry, of which automotive is a prime example, local operations
in various countries are often dependent on international sourcing
of both parts and finished vehicles. Even a small part, if not available
on a timely basis, will cause a vehicle production line to grind
to a halt. While there is no question that security for citizens
is paramount in the face of terrorist threats; at the same time,
Canada’s economic security is closely linked with the multilateral
trading system, based on the precepts and principles of open, transparent
and non-discriminatory trade established in the GATT and WTO. In
short, improved bilateral border access with the US should not come
at the expense of multilateral trade. Any trade related border measures
should perforce be consistent with global trade rules, and should
aim to simplify the exchange of low-risk goods, services and travellers
in a secure and stable environment.




Suzuki Plans ATV Plant in Georgia

Responding
to robust growth in the all-terrain market over the past three years
in North America, Suzuki Motor Corporation recently began construction
of an ATV (all terrain vehicle) manufacturing plant in Rome, Georgia.
This will be Suzuki’s first manufacturing facility in the United
States of their own brand, and is scheduled to begin production
in the spring of 2002.

According to officials, Suzuki decided to have its own plant in
the US to reduce exchange risk, as well as production cost and logistics.
Suzuki plans to boost ATV sales in the US, its largest single market
for all-terrain vehicles, and to export to several countries including
Canada, Australia, New Zealand and Europe. The plant is expected
to produce up-market models such as the Eiger and Vinson.

Suzuki Motor Corporation is also a 50-50 joint venture partner
with General Motors of Canada in CAMI Automotive in Ingersoll Ontario,
which began in 1989 and currently manufactures compact sport utility
vehicles – the Suzuki Vitara and the Chevrolet Tracker
for markets in Canada, the US and several other countries.

Basic outline of the ATV plant:

Name: American Suzuki Motor Manufacturing

Location: Rome, Georgia, USA

Capital: approx. US $30 million

Site: 35 acres

Building: 100,000 sq. ft.

Employees: 150 to start, 300 in 3rd year

Capacity: 40,000 units annually

Start-up: Spring 2002

Investment: US $40 million (in first two years)

Ownership: 20% – Suzuki Motor Corporation

                 80%
– American Suzuki Motor Corporation

 

Highlights of the 35th Tokyo
Motor Show

The 35th Tokyo Motor Show (TMS) opened on October 27,
2001 at Makuhari Messe in Chiba but without the usual official opening
ceremonies and reception which were cancelled by the organizers
out of respect for the victims of the attacks of September 11 in
the US. As a result of a languishing world economy and a more subdued
atmosphere for the TMS, the focus of this year’s event was clearly
the vehicles themselves. The Tokyo Motor Show is always a spectacular
show, and this year featured a wide array of concept vehicles, along
with new technologies to improve the environment, safety and performance
of the motor vehicle.

While the TMS attracts exhibitors from around the world, the primary
target of the exhibition is the market in Japan, which is dominated
by small cars. Currently the top three best selling cars in Japan
are the Honda Fit, the Toyota Corolla and the Suzuki Wagon R – all
of which are low emission, fuel efficient, fun-to-drive subcompacts.
At the show, Nissan unveiled a pre-production version of the new
March (Micra), called the ‘mm’ which is clearly aimed to compete
with the Fit and Corolla.

Also unveiled in Tokyo was the new Chevrolet Cruze, the first Chevrolet
vehicle that will be built in Japan by Suzuki for the Japanese and
Asian markets. In the Mazda booth, two new models were featured
that will show up in North America – the RX-8 and the Atenza, the
latter a 5-door version of the 2002/2003 replacement for the 626,
which will be badged Mazda 6 in North America. The Mazda 6 will
likely be built at the Flat Rock plant in Michigan starting in the
latter half of 2002. Subaru also unveiled a future new vehicle for
the North American market, the ST-X, a cross between a sedan and
a pick-up truck, which features 4 doors and an open rear box.

While the main event is passenger vehicles, the TMS also is a showcase
for parts, motorcycles and international government booths. For
the past fifteen years or so, Canada has participated in every TMS
with a group of primarily Canadian auto parts suppliers interested
in doing business as suppliers, joint venture partners or other
forms of strategic alliances with Japanese automakers and parts
makers. This year, there were ten companies in the Canada booth:

Gerry Fedchum, President, APMA introduces the Canada Booth exhibit to the press

  • ABC Group
  • Alcan Aluminium Ltd.
  • Dofasco Inc.
  • Ford of Canada
  • JIT Automation Inc.
  • Meridian Technologies Inc.
  • The Narmco Group
  • Ventra Group Inc.
  • Wescast Industries Inc.
  • The Woodbridge Group

At the same time, a Team Canada Auto Parts Mission went to Japan,
led by the President of the Auto Parts Manufacturers Association,
Mr. Gerald Fedchun, and by Mr, Ron Watkins, Director General, Aerospace
and Automotive Division, Industry Canada from the Federal Government.

 



Chevrolet Cruze – built in Japan by Suzuki for Asia


Nissan “mm” (March/Micra)


Honda Civic Hybrid


Subaru ST-X


Mazda Atenza (Mazda 6 in N.A.)


Suzuki Covie – electric minicar concept


Mitsubishi CZ2 concept vehicle


Toyota Estima Hybrid


Nissan introduced the new 3.5Z at the Tokyo Motor Show
 






Further tariff cuts urged in new WTO trade
negotiations

Pierre Pettigrew; Minister for International TradeAfter
the failure to launch a new round of global trade talks in Seattle
in 1999, the recent WTO ministerial meeting in Doha, Qatar appears
to have not only reached agreement to admit China into the WTO,
but also agreed among the 142 member countries on a new round of
trade negotiations which will begin in 2002 and conclude by January
1, 2005.

According to the Federal Department of Foreign Affairs and International
Trade, the WTO is the cornerstone of Canadian trade policy and the
foundation for Canada’s relations with our trading partners. As
the most trade-dependant of the G-8 countries, Canada benefits significantly
from an open world trading system based on clear rules.

Pierre Pettigrew, Minister for International Trade said, “This
Round would look both forward and backward, as it would be devoted
to completing the work of the last Round – to ensure that the developing
world can reap the full benefits of its WTO membership – and to
pressing forward with innovations so that the WTO reflects the democratic
values that have become the norm in much of the world. This would
be a Round that addresses the clear needs of the South, the strong
expectations of the North, and the best hopes of us all.”

For our part, JAMA Canada is urging the Canadian Government to
seize this opportunity to eliminate Most Favoured Nation (MFN) tariffs
on finished motor vehicles. When the Auto Pact was repealed earlier
this year, the tariff on finished vehicles was not changed, although
it would have made sense to do so. Government officials felt that
it was appropriate to consider tariff reductions in the context
of a multilateral negotiation rather than a unilateral undertaking.
With a weakening Canadian economy and softer automotive markets
in North America, eliminating tariffs makes sense to reduce cost.
Over 80% of all vehicles built in Canada are exported, while the
majority of vehicles consumed in Canada are imported. While most
of those imported vehicles are already duty free, the existing tariff
on other imported vehicles is a unnecessary burden for both automakers
and consumers.




Toyota Canada donates $500,000 to Rouge
Valley Health System

Toyota Canada President Yoshio Nakatani today announced a half-million
dollar contribution to the Rouge Valley Health System’s Vital Investments
campaign. The announcement was made at a ceremony at Centenary Health
Centre to celebrate the campaign’s first victory – delivery of the
magnet around which the hospital’s new Magnetic Resonance Imager
(MRI) will be built. Ontario Minister of Health and Long-Term Care
Tony Clement, and over 250 staff, donors and members of the community
attended the celebration.

Clement said arrival of the MRI magnet marked “a great day for
the east GTA community” and also announced that the Centenary Health
Centre would be the site of a stand-alone angioplasty service, to
be up and running in April 2002.

With its head office located in Scarborough, Toyota has been a
dedicated supporter of the $34 million fund raising campaign, making
its first donation to the MRI project in 1999, even before it was
officially approved. Since then, in addition to financial support,
Toyota Canada and Scarborough Lexus Toyota have contributed cars
to the annual fund-raising lottery, including this year’s grand
prize, a new Lexus ES 300.

“Toyota is part of this community and we know how important good
healthcare is – to our employees, our customers and our neighbours,”
said Nakatani.




Odyssey production begins at Honda’s Alabama
plant

The first Odyssey at the Honda plant in AlabamaIn
mid- November, some six months ahead of schedule, Honda Manufacturing
of Alabama (HMA) began production of Odyssey minivans and V-6 engines
in their newest North American plant located in Lincoln Alabama.
This will be the second plant to make the popular Odyssey minivan,
joining Honda of Canada Manufacturing (HCM) in Alliston, Ontario.

While HMA is currently on a single shift with an output of 100
units per day, a second shift will be added in the spring of 2002.
By the end of the year, production is targeted at 650 units per
day, which represents an annual capacity of 150,000vehicles and
engines. Employment is expected to grow from 1,100 currently to
2,300 at full production in the fall of 2002. Honda’s total investment
in HMA stands at US$580 million, up from US$400 million originally
announced in May 1999.

Over time, HMA is expected to become the lead plant for the Odyssey,
which will allow HCM to increase output of the Acura MDX sport utility
vehicle and in the near future, add a new SUV at Plant No.2 in Alliston,
which currently makes the MDX along with the Odyssey. The new yet
to be named SUV for HCM is expected to replace the Honda Passport,
which is currently produced by Isuzu for Honda in the US. The Alabama
plant gives Honda the flexibility to make a number of vehicles on
the same line in response to market demand in North America. It
is expected that a second vehicle will also be produced at HMA.




Commentary – William C. Duncan, General Director, JAMA Washington

The
Demise of Import Sales Reports by Country

With this issue of Japan Auto Trends we are retiring our
import sales report categorized by country of export. Hereafter
we will present this report only by company. The reason for the
change is that the Japan Automobile Importers Association, which
compiles this data, recently informed us that due to the increase
in the number of international corporate alliances and to the expanding
multi-national nature of vehicle sourcing, it is no longer meaningful
to report vehicle sales on a country basis.



Their point is well taken. For example, consider the following:

· among British imports into Japan, Land Rover and Jaguar are now
owned by Ford; the Mini is owned by BMW; Rolls Royce and Bentley
are owned by VW.

· in Italy, GM owns 20 percent of Fiat. VW owns Lamborghini.

· among the Swedish imports into Japan, GM owns Saab and Ford owns
Volvo.

· DaimlerChrysler imports Mercedes into Japan both from the U.S.
and from Europe. BMWs are also imported into Japan from both Germany
and the U.S. From Germany also come GM’s Opel, Ford’s Focus and
DaimlerChrysler’s Smart.

· Toyota, Honda, Isuzu and other Japanese companies import into
Japan from various affiliates around the world, including the U.S.


No wonder statisticians are reformatting their data to more properly
represent the global nature of the auto industry. The significance
of this change, however, goes beyond making the statistician’s life
somewhat easier. It lies with the globalization of an industry brought
about by the high costs of environmentally friendly technology and
facilitated by new and more effective means of international communication.
Examples of this are seen throughout this issue as well as in past
issues of Japan Auto Trends. Note in particular the alliances
to develop fuel cells. Toyota, GM and Exxon are working together
on a gasoline-powered fuel cell. So, too, are Renault and Nissan.
Ford, Mazda and DaimlerChrysler are collaborating on the development
of methanol-powered fuel cell technology.

As this issue goes to press, Ford has announced that it will procure
gasoline-electric hybrid powertrains from Japan’s Aisin Company.
This is made possible by Ford’s acquisition of Volvo, which has
been developing this technology with Aisin for a number of years.

The Future

Future success, indeed survival, in tomorrow’s automobile industry
will depend on how individual auto companies meet rapidly growing
worldwide concerns over environmental quality and scarce energy
resources. This requires an intense focus on rapid innovation at
lower cost, which in turn means an increase in a wide variety of
corporate alliances and technical agreements across national borders.
In this process, winners will be measured by their skill at managing
global alliances long before their products are ultimately tested
in the market place. The erosion of meaningful auto sales statistics
by country is more than symbolic. It further validates that internationalization
is already well advanced.