Aq Spring 99

1999 Shaping Up To
Be A Bumper Year

Based on the overall results of the
first quarter, production and sales of Japanese automakers in Canada may reach record
levels again in 1999. Plant expansions at both Honda in Alliston and Toyota in Cambridge
are expected to boost output to capacity based on two-shift operations in 1999. What’s
more, CAMI’s output is set to rebound as a result of the new compact sport utility vehicle
(SUV) now being built in Ingersoll. At the same time, the outlook for new vehicle sales,
particularly light trucks, remains generally buoyant, although more moderate demand than
in the two previous years is expected in the remainder of 1999.

Production

Output among Japanese affiliated
plants in Canada soared in the first quarter of 1999, rising 56.3% over 1998 to over
145,000 units. Individually, Honda (HCM) recorded a gain of 45.4% to 63,200 units, largely
due to Plant No. 2 which builds the new Odyssey minivan. Production at Toyota (TMMC)
jumped 33.8% in the first three months of 1999 to just under 55,000 units. Most of the
increase comes from the Camry Solara which is being built in the refitted Plant No. 1,
after Corolla production shifted to Plant No. 2 in late 1997. Finally, production at CAMI
more than tripled in the first quarter over the same period in 1998, up 216.1% to an
estimated 27,500 units. Last fall, CAMI started production of the new Vitara compact sport
utility vehicle which has boosted output significantly.

Exports

A majority of vehicles produced in
Canada are exported, primarily to markets in the U.S. This is true for all automakers in
Canada, both American and Japanese-owned manufacturing operations, made possible by the
integration of the auto sector as a result of various trade agreements including the Auto
Pact, the FTA and NAFTA.

Overall exports from Japanese
affiliated plants in Canada mirrored the rise in production, gaining 56.8% in the first
quarter to almost 117,000 units. Continuing strong demand in the U.S., combined with
popular models, some of which are exclusively built in Canada were major contributing
factors. Honda exports increased 26.1%, Toyota exports leapt 55.0% and CAMI more than
tripled their shipments, up 218.7% over the previous year.

Imports (Shipments)

With an export based industry in Canada,
imported vehicles are critical to meeting demand from Canadian consumers, particularly in
segments and niches for which there is no Canadian production.

For the first quarter of 1999,
shipments of vehicles to Canada from Japanese plants in Japan and in North America
declined 11.1% overall to just over 66,000 units from 74,000 units in the same period in
1998. Vehicles shipped from Japan dipped 2.9% to 43,658 units, while imports from the U.S.
and Mexico slipped 23.5% lower than last year to 22,450 units.

For the fiscal year, April ’98 to
March ’99, finished vehicle shipments from Japan to Canada dropped 10.1% to 144,436 units
from 160,518 units in the previous fiscal year.

Sales in Canada

Light duty vehicle sales for JAMA
Canada members in the first quarter of 1999 grew 7.8% overall to just over 103,000 units.
Sales of models built in North America rose 16.2% to 58,000 units, representing 56.3% of
total sales during the period, while those imported from Japan declined 1.3% to 45,000
units.

Sales growth was led by light
trucks with a gain of 19.5% compared with only 4.2% for passenger car sales. While sales
of passenger cars built in Japan fell 4.2%, those made in North America rose 10.4%. On the
light truck side, sales of U.S. and Canadian made models jumped 45.3%, and those from
Japan gained 5.0% over the previous year.

Sales performance of individual JAMA
Canada

members can be found in the accompanying table.

Honda Global
Purchasing Strategy Unveiled

at APMA Annual Conference

On April 14, Mr. Hirotada Komatsu, Managing
Director, Purchasing at Honda Motor Co. Ltd. in Japan delivered a keynote address to the
1999 Annual Conference of the Auto Parts Manufacturers Association in Hamilton, Ontario.

Speaking to several hundred
delegates attending the convention, Mr. Komatsu reviewed Honda’s manufacturing operations
in Canada which have grown significantly since start-up in 1986. When current expansions
are fully operational, annual capacity will reach 330,000 units with four models assembled
at two plants, over 75% of which are exported, mainly to the U.S., but also to Japan and
other countries.

Mr. Komatsu also outlined Honda’s
purchasing policy from a global perspective. Honda’s approach to surviving in the 21st
century is summed up in three goals:

1. Value creation: to create
leading-edge technologies.

2. Glocalization: remaining rooted
in local communities while maintaining a global perspective.

3. Eco-solution: co-creation for the
sake of co-existence with the Earth.

According to Mr. Komatsu, drawing on
their experience in launching the new Odyssey, which is made exclusively at the Alliston
plant, Honda is aiming to be co-creators with suppliers on a global scale, with quality
and delivery to be concurrently organized worldwide. As with the so-called ‘design-in’
approach to new vehicle development and launch, suppliers will be brought in at an early
stage of product development. And to ensure a well-timed launch of products worldwide,
Honda wants to use concepts of co-creation and bi-directional information networks to link
all suppliers throughout the world. In doing so, Honda will strive to achieve the highest
levels of QCDD – quality, cost, delivery and development.

Honda SUV to be
made in Alliston

Honda Motor Co. Ltd. announced in
early May that a new SUV (sport utility vehicle) will be produced at Honda of Canada
Manufacturing. The newly designed SUV will be made alongside the Odyssey minivan in Plant
No. 2 at HCM’s facility in Alliston, Ontario. This addition will create about 300 new jobs
when fully operational, bringing the total number of associates at HCM to 3,500 by next
year. And to prepare for production of the new SUV, slated for start-up in 2000,
approximately $46 million will be invested to primarily upgrade the paint facility in the
plant. The as-yet-unnamed SUV will be the fourth vehicle for production at Honda’s
Canadian manufacturing operation, joining the Odyssey minivan, the Civic 3 & 4 door
and the Acura 1.6EL.

At the same time, Honda also
unveiled plans for a $400 million (U.S.) manufacturing plant in Lincoln, Alabama. This
will be the third Honda automotive plant in the U.S. after the Marysville and Anna plants
in Ohio. The Alabama plant is expected to make minivans and/or SUVs beginning in 2002 with
a two-shift capacity of 120,000 units annually. The plans also include an engine plant to
supply the new vehicles. At full capacity targeted for 2003 depending on market
conditions, the Alabama plant will employ 1,500 associates.

Study rates Toyota
Cambridge most efficient plant in N.A.

Toyota Motor Manufacturing Canada
(TMMC) in Cambridge, Ontario was recently named as the most efficient vehicle assembly
operation in North America in the 1999 Harbour Report, an independent annual study of
North American auto manufacturers.

TMMC achieved the top spot by
averaging 17.66 hours to assemble the 4-door Corolla. TMMC Plant 2 makes the Corolla and
Plant 1 assembles the Camry Solara coupe. In 1998, TMMC produced over 150,000 Corollas and
21,000 Camry Solaras for markets in Canada, the US and Puerto Rico.

The Harbour Report charts
productivity, labour costs and over-all profitability. Among industry analysts, the study
is useful in gauging the competitiveness of assembly plants. According to TMMC officials,
many factors contributed to their success, particularly the motivated team members and
their focus on quality, safety and waste elimination.

Japanese automakers took four of
the top ten positions in the 1999 Harbour Report. Nissan’s plant in Smyrna Tennessee, came
in fourth with an average assembly time of 18.97 hours; while Honda’s East Liberty plant
in Ohio was fifth with an average of 19.17 hours; and Toyota’s plant in Georgetown,
Kentucky ranked sixth at 19.55 hours. While Nissan’s plant in Tennessee, which makes three
different models, was rated the most efficient over the past five years, a model
changeover in 1998 likely affected their study results. Sentra production was shifted to
Mexico last fall and production of the Xterra SUV began earlier this spring.

Commentary:

Facts Reveal Truth

by William C. Duncan, Ph.D., Director
General, JAMA U.S.A.

Facts reveal the truth about a
hidden agenda. In their annual spring ritual, the Detroit auto companies and the U.S.
Government cast judgment on Japan’s auto regulations based on fluctuating U.S. vehicle
exports to Japan. If sales of U.S. vehicle imports in Japan are up, progress towards
deregulation advances. If these sales are down, regulations and market access are
partially to blame. This overly simplistic approach deserves closer examination.

Ford, General Motors and the
DaimlerChrysler Corporation are troubled, or at least so says their newly created
Automotive Trade Policy Council (ATPC). According to the ATPC, sales of U.S.-built
vehicles in Japan’s market by these companies fell last year by 34 percent compared with a
17 percent drop in the overall market. The Detroit auto companies’ new trade lobbying arm
echoes recent U.S. Trade Representative reports suggesting that the gap between these
numbers means there is more than Japan’s recession at work here. Market access and
regulatory issues also are to blame for declining sales of U.S.-built cars in Japan, says
USTR.

Recession has taken a toll on auto
sales in Japan–although actually not as serious as the "Big Three" suggest.
Overall vehicle sales in Japan fell 12.6 percent in 1998. Sales of passenger cars, where
96 percent of import model offerings in Japan are to be found, did somewhat better, but
still declined by 8.9 percent in 1998. And as reported by ATPC, U.S.-built cars in Japan
fared worse than the overall Japanese car market–down some 25 percent in 1998. They fell
another 15.8 percent through March of this year when overall passenger car sales actually
increased. But to what degree does performing below the market really reflect a lack of
market access? The facts reveal the hidden agenda.

Take DaimlerChrysler, for example.
Sales in Japan of its U.S.-built cars fell 36.9 percent last year. So far this year, they
are down 23.7 percent. Yet look at the Daimler side of the corporate equation. Mercedes
sales from Germany declined only 5.7 percent last year and during the first three months
of this year increased sharply by 15.7 percent. Can regulations and market access issues
really hurt one half of the company and not the other?

General Motors’ U.S.-built cars, on
the other hand, beat the market last year, declining only 6.5 percent. So far this year,
GM sales are down about 2.3 percent. And what about Ford? Ford’s U.S.-built cars fell a
whopping 49 percent last year. But the president of Ford Japan blames this on a failure to
provide cars that meet consumer requirements. Accordingly Ford, along with other
importers, is seeking to introduce new models and to restructure its marketing strategies
to prepare for a rebound in the market.

Japan’s economy will recover,
although perhaps not as rapidly as the world would like. So, too, will vehicle
sales–imports and domestic models alike. When this happens it will not be regulation or
deregulation that gets the credit or the blame. It will be a vibrant economy and the
competitive strategies of vehicle manufacturers wherever they may be located.

This was originally published in
the June 99 edition of ‘Japan Auto Trends’ and was reprinted here with permission of JAMA.
Other articles, statistics, etc. contained in ‘Japan Auto Trends’ are available on the
internet at ‘www.japanauto.com’.

Report from the
22nd Canada Japan Business Conference

The 1999 CJBC was held from May 16
to 18 in Vancouver with about 250 delegates from Canada and Japan led by CJBC Co-Chairmen:
Mr. Hiroshi Okuda, President, Toyota Motor Corporation, and Chairman, Nikkeiren; and Mr.
Jacques Bougie, President & CEO, Alcan Aluminum Ltd. The theme for the conference was
"Opportunity in Crisis". Considerable attention was paid to the current economic
problems in Japan, as well as Canadian business perspectives on revitalizing and deepening
Canada’s overall relationship with Japan in the 21st century.

Automotive related presentations
were made in both Plenary and Sector meetings. A Keynote Address was made by Mr. Don
Walker, President & CEO, Magna International on May 17, which focussed on ‘Trends in
the Automotive Industry’. In the Automotive Sector Committee meeting on May 18,
presentations were made on strategic alliances as well as success stories of business
ventures in Canada and Japan by Mr. Yoshiki Kotani, President, Waterville TG Inc. and Mr.
Robert Magee, President, The Woodbridge Group, respectively.

In this issue, we will examine one
of the success stories presented at the Automotive Sector meeting by The Woodbridge Group,
and look at other key presentations in future issues.

Canada/Japan Joint
Venture Success:

The Woodbridge Group and Inoac Corporation

Among various forms of strategic
alliances, industry statistics show that joint ventures have a high failure rate in the
range of 70% to 80%. But some joint ventures are clearly built on the strengths of
commitment to partnership, open communication and shared vision. This seems to be the case
with The Woodbridge Group and Inoac Corporation.

Woodbridge and Inoac had first
established their relationship in North America beginning in the latter half of the 1980’s
with JV plants in Canada and the U.S. While Woodbridge sold their interest in the Canadian
plant in St. Mary’s (now called Intertec Systems Inc.), they continue to hold a majority
interest in the slab foam operation with Inoac located in Chattanooga, Tennessee.

More recently, Woodbridge and Inoac
began a new JV in Japan. At the Automotive Sector Meeting on May 18 at the CJBC in
Vancouver, Robert Magee, President of The Woodridge Group outlined the key elements of
their success in Japan.

In March of 1997, Inoac Woodbridge
Foam Corporation (IWFC), a 50/50 joint venture, began their first moulded foam plant in
Anjo, Japan. The uniqueness of this business venture is twofold: first, the new JV
operation is in Japan; and secondly, moulded foam technology developed by Woodbridge in
Canada is being licensed by IWFC in Japan. Moreover, the success of this endeavour is
highlighted by the fact that their second plant is scheduled to open in Nanno in June
1999. When the second plant is operational, the total number of employees in IWFC will
rise to more than 100.

Sales from IWFC have grown rapidly
in two years from 2 customers and 2 car models to 3 customers and 6 car models in 1999.
What’s more in April 1999, IWFC achieved No.1 ranking from Toyota’s Business Research
& Seat Development Division.

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