Aq2001 Summer

Production mixed but sales climb in first half of 2001

Through
the first half of 2001, JAMA Canada members’ combined sales performance
has shown a remarkable strength in the face of a softening economy
with all companies recording higher light vehicle sales over 2000. 
To put the current market in perspective, JAMA Canada members
together have sold more light vehicles in the first six months of
2001 than they did during the entire year in 1995 when 204,037 units
were sold.

The final tally at the end of June shows 210,465 sold,
an increase of 12.1% over the same period last year. Passenger
car sales climbed 10.8% to 156,072 units, while light
trucks jumped 16.1% to 54,393 units.During the
second quarter, Toyota Canada recorded their highest single month
sales in May, while Suzuki Canada broke an eight year sales record
in June. Mazda Canada continues to be the growth leader, up 33.7%
over 2000 to 34,000 units, followed by Nissan Canada, with a sales
gain of 15.4% to 25,740 for the first half. Honda Canada holds the
top spot in unit sales, up 10.9% in the first two quarters to 73,777
units. Subaru Canada continues to surpass their previous sales record,
up 3.6% in 2001 to 7,163 units.

Vehicle production at three Japanese affiliated plants in Canada
(Honda, Toyota and CAMI) during the first half of 2001 is ahead
marginally in the aggregate but individually mixed. Combined
output rose 0.5% to 329,036 units through the end of June. Production
at Honda (HCM) in Alliston jumped 14.2% for the year to date to
194,833 units, slightly above current capacity due to strong markets
in North America for the Odyssey minivan, the Acura MDX sport utility
vehicle and the new Civic. During the same period, output at Toyota
(TMMC) in Cambridge slid 7.4% to 90,356 units, while CAMI production
dropped 25.8% due to the termination of the subcompact passenger
vehicle line in April 2001. TMMC continues to build the Corolla
as well as the Solara coupe and convertible. Production of the new
model Corolla, as well as the new Toyota Matrix will begin early
in 2002. CAMI continues to build the compact SUV, Suzuki Vitara
and Chevrolet Tracker for Suzuki and General Motors respectively.

Vehicles exported from the above three plants followed the pattern
set by production, and rose 4.5% to just under 267,000 units. During
the first half of 2001, over 81% of total production was exported
with the majority going to the US, while about 12,300 units were
shipped to several other countries.

With respect to imports, vehicle shipments from Japan are down
3.5% at the end of June, while shipments from plants in the US and
Mexico are up 5.3%. Overall, imported units were down slightly for
the first half of 2001 to 140,912 vehicles.

CAW withdraws request for union vote at
TMMC

Over the past few months, the Canadian Auto Workers (CAW) have
been stepping up their campaign in an effort to hold the first union
certification vote at Toyota Motor Manufacturing Canada (TMMC) in
Cambridge, Ontario. The CAW applied to the Ontario Labour Relations
Board (OLRB), and a vote was held on July 6. However, TMMC challenged
the CAW calculations regarding the total number of eligible workers
in the plant. At an OLRB hearing in late July, the CAW admitted
that they had failed to get the 40% support of the team members
at TMMC required by law, and have asked the OLRB to withdraw their
request. Under current labour law in Ontario, the union cannot request
another certification vote at TMMC for at least a year. The ballots
that were cast in the vote held in early July are invalid and will
not be counted.

Report on 24^th Canada Japan
Business Conference

In mid-May, over 200 senior business and industry representatives
from Canada and Japan gathered in Calgary, Alberta to discuss the
current state of the bilateral trade and economic relationship.
Co-chaired by Hiroshi Okuda, Chairman of Toyota Motor Corporation
and Paul Tellier, Chairman of Canadian National Railways, the plenary
sessions focused for the second consecutive year on proposals for
governments and the private sectors to explore ways for advancing
the economic relationship. Speakers from Japan included Yoshio Nakamura,
Keidanren; Hiroshi Zaizen, Mitsubishi Corporation; and Yasuhiko
Nara, Tokyo Electric Power. Canadian speakers included Wendy Dobson,
University of Toronto; Tom D’Aquino, BCNI and Richard Egelton, Bank
of Montreal.

While remaining committed to multilateralism and the start of a
new WTO trade negotiation at the next meeting in Qatar later this
year, both sides proposed in a joint statement that the two national
governments, in close consultation with the private sectors, ‘explore
the idea of a new comprehensive partnership framework for enhancing
the economic relationship’. The Business Council on National Issues
(BCNI) went a step further in stating that the relationship was
stagnating and badly needs a ‘shot in the arm’ and a ‘total re-thinking’.
The BCNI announced the creation of a new committee to be headed
by Dominic D’Alessandro, President & CEO of Manulife Financial
to explore a proposed Canada-Japan Transpacific Partnership Agreement.

Various sector meetings were held on the second day, including
the Automotive Sector. Highlights of the auto sector meeting included
outlook presentations by Michael Robinet, CSM Worlwide, on vehicle
production in North America, and by Takeo Fukui, Honda Motor on
the outlook for the auto industry in Japan. In addition, there was
an auto parts panel which focused on globalization. Panelists included
Toru Onda (Honda Motor), Tsugio Kadowaki (Toyota Motor Manufacturing
North America), Don Walker (Intier Automotive) and Robert Magee
(The Woodbridge Group).

The 25^th Canada Japan Business Conference will be held
in Sendai, Japan on May 9 and 10, 2002.

New Ambassadors in Canada and Japan

At
the beginning of June, Mr. Kensaku Hogen arrived in Ottawa to become
the 19^th Ambassador of Japan to Canada, succeeding Ambassador
Katsuhisa Uchida.

Born in 1941, Ambassador Hogen studied Law at Tokyo University
and is a graduate of Cambridge University. He entered the Ministry
of Foreign Affairs (MOFA) in 1964, holding various positions over
the years including President of the Foreign Service Training Institute
from 1996 to 1998.

Overseas postings included First Secretary at the Embassy of Japan
in Ottawa from 1975 to 1977, Economic Counsellor at the Embassy
in Washington D.C. in the early 1980s, Consul General in Boston
from 1989 to 1991, and Consul General in Honolulu from 1991 to 1994.
Prior to being named Ambassador to Canada, Mr. Hogen was Under-Secretary-General
at the United Nations in charge of Communications and Public Information.

In a statement to the Governor-General, Her Excellency the Right
Honourable Adrienne Clarkson, Ambassador Hogen said, “… I have
been entrusted to further develop the friendly relations between
our two countries and to deepen Canadians’ understanding of Japan.
… I am also determined to enhance ongoing political and economic
dialogues between our governments, and to strengthen our co-operation
in multilateral fora such as the G8 and the United Nations.”

Also
in June, the Canadian Government announced that former Deputy Minister
for International Trade, Robert Wright would become the next Ambassador
to Japan succeeding former Ambassador Len Edwards, who would replace
Mr. Wright as Deputy Minister for International Trade. This switch
of high level officials underscores the importance for Canada of
the trade relationship with Japan.

Ambassador Wright joined the federal government in 1971, and was
posted to Geneva with the Canadian delegation during the Tokyo Round
of GATT negotiations in the late 1970’s. In 1985, he was appointed
Minister (Economic) and Deputy Head of the Canadian Delegation to
the Uruguay Round in Geneva. From 1993 to 1995, Mr Wright served
at the Canadian Embassy in Washington, and in December 1995 was
appointed Deputy Minister for International Trade. On June 21, 2001
Mr Wright presented his credentials to His Majesty the Emperor as
Canadian Ambassador to Japan.

New Clean Air Initiatives includes MOU
on Low Emission Vehicles in Canada

A Memorandum of Understanding (MOU) between the Federal Minister
of the Environment and motor vehicle manufacturers in Canada (represented
by the AIAMC and the CVMA) was concluded which set out the terms
and conditions for light duty vehicle emissions for the 2001 – 2003
model years. This voluntary agreement furthers the harmonization
of vehicle emission technology in North America.

Automakers in Canada, through the 2003 model year, have committed
to offer the same low emission vehicles as in the US under the Voluntary
Low-Emission Vehicle Program. Cleaner vehicles,
along with cleaner fuels, have the potential to reduce smog-inducing
hydrocarbon and nitrogen oxide emissions by about 99% and 95%, respectively,
compared to uncontrolled levels, thereby generating health and environmental
benefits for Canadians. The MOU can be found on Environment Canada’s
website – www.ec.gc.ca

The MOU was part of the Canadian Government’s urban transportation
strategy announced on June 11 in Toronto. The Government intends
to invest more than $109 million in various programs as part of
the $500 million Action Plan 2000 on Climate Change announced
last October:

• $40 million in the Urban Transportation Showcase Program to
  demonstrate ways of reducing greenhouse gas emission from transportation;
• $30 million over 5 years to fund the development, integration
  and deployment of Intelligent Transportation Systems (ITS) across
  Canada;
• $23 million investment in the Canadian Transportation Fuel Cell
  Alliance to investigate different fuelling options for fuel cell
  vehicles;
• $16 million Motor Vehicle Fuel Efficiency Initiative to improve
  new motor vehicle fuel efficiency in Canada through negotiation
  of a voluntary agreement with the automotive industry and the
  United States.

Mitsubishi Fuso Trucks in Canada

After
Mitsubishi Fuso, the medium duty truck manufacturer in the Mitsubishi
group, set up sales and distribution in the US a few years ago,
it was only a matter of time until they came to Canada. So in October
1999, MFTA Canada Inc., a wholly owned subsidiary of Mitsubishi
Fuso Truck of America, was launched with its head office in Mississauga
Ontario. In July 2001, Isao Toda became President of Mitsubishi
Fuso Truck of America, Inc. and MFTA Canada, Inc.

According to Brian Shantz, Director-Sales of MFTA Canada, Mitsubishi
Fuso offers a full range of medium duty trucks as in the US, but
sees specific business opportunities in the lighter end (Class 3-5)
of the medium truck segment (Class 3-7), which represents about
80% of current medium duty market in North America. In general,
the medium duty cab-over truck is largely an urban-based delivery
vehicle. The market for these trucks is highly competitive, requiring
among other things fast turnaround and a high level of service.

MFTA Canada currently has 7 dealers with five more to be
operating by this fall, all in key truck markets across Canada.
While MFTA Canada hopes to reach 300 unit sales this year, Mr Shantz
said, ‘Growth will be driven by getting good dealers. We would
like to have 25 – 30 points across the country, and sell 1000 units
annually in 5 years.’

New President at Hino Diesel Trucks Canada

On
May 15^th, Mr. Frank Suzuki officially took up his new
responsibilities as President of Hino Diesel Trucks Canada Ltd.
Mr Suzuki succeeds Kenichi (Ken) Sekine who was President of Hino
Canada since April,1996.

Hino Diesel Trucks Canada was established in Canada in 1974, and
for several years ran a knock-down assembly truck operation in British
Columbia. Sales, distribution and service is centred in the head
office, located in Mississauga Ontario, for a current range of medium
duty trucks in Class 5, 6 and 7 categories. In addition, Hino has
regional offices in Burnaby, B.C. and Montreal, Quebec. In 2000,
Hino Canada sold 788 units, the second best tally after the current
peak of 810 units sold in 1999.

Ontario 2001 Budget: Hybrid Electric Vehicles
Now Qualify for Tax Rebate

In
his first budget as Ontario Minister of Finance, James Flaherty
introduced two measures about which JAMA Canada and other auto industry
groups had serious concerns. First, as of May 9, hybrid electric
cars will be eligible for the Ontario retail sales tax rebate program
for alternative fuel vehicles. This is a significant incentive as
purchasers can claim up to $1000 sales tax rebate.

JAMA Canada strongly supported changes to make the program more
flexible by expanding the rebate to include all light duty hybrid
electric vehicles, recognizing that the important policy objective
is to obtain desired environmental results rather than attempt to
distinguish among alternative fuel technologies.

Unfortunately, the budget proposal is not retroactive which would
allow those who purchased hybrid electric vehicles (Honda Insight
and Toyota Prius) prior to May 9, 2001 to claim the rebate.

Secondly, while there was no change to the Tax for Fuel Conservation
(TFFC), the Ontario Government indicated that the TFFC will be reviewed.
The auto industry in Ontario shares the view that the TFFC is a
deeply flawed program that should be eliminated as it increases
the cost of most new vehicles and at the same time encourages consumers
to keep older, higher emission vehicles on the road.

Highlights of the 2001 Harbour Report

The 2001 Harbour Report, an annual plant-by-plant benchmarking
analysis of automotive manufacturing in North America, was released
in June.  While the analysis covers assembly, stamping,
engines and powertrain, the key measure of productivity is ‘labour
hours per vehicle’ (HPV). There are numerous factors that impact
HPV including product design, capacity utilization, automation,
the number of welds, modularization, option variations and model
mix to name a few.

Highlights of the 2001 report:

• Among the ten most productive companies, the top five with the
  highest assembly productivity ratings (hours per vehicle) in North
  America were Japanese affiliates: Nissan (17.37), Honda (19.31),
  Toyota (21.60), NUMMI (21.94), Mitsubishi (23.89).
  
  
  
• Toyota Motor Manufacturing Canada’s North Plant in Cambridge
  Ontario, which makes the Corolla, had the highest assembly productivity
  (17.73 HPV) in 2000 in the subcompact segment. Honda’s East Liberty,
  Ohio plant (Civic) and the NUMMI plant in California placed second
  and third respectively.
  
  
  
• For overall productivity in vehicle assembly, Nissan’ plant
  in Smyrna Tennessee remained the No. 1 company for the 7th consecutive
  year in assembly hours per vehicle at 17.37, a 7.1% improvement
  over 1999.
  
  
  
• Mitsubishi was the most improved manufacturer in assembly at
  21.6%, moving from 9th to 5th overall.
  
  
  
• For company average engine productivity (hours per engine),
  Honda was the leader at 3.05 in 2000, followed closely by Toyota
  at 3.17 hours per engine.

TMMC Wins J.D.Power 2001 IQS Gold Plant
Award

Toyota
Motor Manufacturing Canada (TMMC) has won the J.D.Power 2001 Initial
Quality Study  Gold Plant Award for the highest
quality assembly plant in North And South America. This is the fourth
Gold Plant Award for TMMC – they also won in 1991, 1995 and 1996.

The Worldwide Platinum Plant Quality Award was given to Toyota’s
plant in Kyushu Japan, while Honda’s plant in Marysville, Ohio and
Toyota’s plant in Georgetown, Kentucky tied for the 2001 Silver
Plant Award.

The J.D.Power Initial Quality Study examines the vehicle quality
dynamics of 130 cars and 80 light trucks manufactured for sale in
the United States by 37 different nameplates around the world. Results
of the 2001 study are based on a survey of over 54,000 new vehicle
owners after the first 90 days of ownership which covers 135 potential
problem symptoms.

Other results of the 2001 IQS survey:

1. Car models ranking highest in their segment:

2. Light Truck models ranking highest in their segment:

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 3^rd 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

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

FOREIGN
COMPANIES VS. DOMESTIC COMPANIES DISTINCTIONS GETTING BLURRED

The Office of the U.S. Trade Representative in its trade priorities
report to Congress released on April 30 expressed “disappointment”
that foreign auto and auto parts sales in Japan had not met their
expectations due in part to the weakness of the Japanese economy
over the past three years. The report concludes: “the effects of
the Japanese recession have been disproportionately felt by foreign
firms.” Inherent in this conclusion is the premise that success
in the automobile industry in Japan, and elsewhere for that matter,
is still measured by the performance of imports relative to domestic
brands.

Import statistics can, of course, be compiled to support the old
“we-versus-them” premise. After all, last year import auto sales
in Japan hit bottom at 68 percent below their 1996 peak. The Japanese
market, on the other hand, is now only about 9 percent below 1996
levels having recovered slightly over the last couple of years.
Using these statistics one might conclude that imports are not keeping
up with the market. However, the picture this presents is incomplete.

The compiled numbers disguise the fact that auto markets, including
Japan’s auto market, are becoming increasingly global. A true analysis
is not reflected in country vs. country statistics but rather company
vs. company statistics. BMW, for example, now sells its US built
cars in Japan. DaimlerChrysler sells US and German built Mercedes
in Japan as well as US made Chryslers. GM sells US built Chevrolets
as well as Opels made in Germany.

Furthermore, not all imports move together. There are winners amongst
the import companies as well as some losers. For example, VW/Audi,
Japan’s leading importer sold a record volume last year, about 8.5
percent more than they did in 1996. Mercedes, Japan’s second largest
importer, lost sales last year but, even so, Mercedes volume was
up 14 percent over 1996. These two companies have also performed
well in the first quarter of this year compared to the same period
last year. VW sales in Japan are up 12 percent and Mercedes sales
are up 28.5 percent in an overall auto market that declined by 0.2
percent over the same period last year. The two largest import sellers
in Japan are beating the market in a weak economy. In short, all
imports are not alike.

By contrast, the Detroit companies have experienced a reverse pattern.
The Detroit companies’ sales did well in the early days of Japan’s
downturn until about 1996 but since then have declined sharply.
Last year GM, Ford and Chrysler sold 55 percent fewer of their U.S.-built
cars in the Japanese market than they did in 1996, their peak year.
So far this year, GM and Ford sales are down 55 and 40 percent,
respectively. GM recently announced that it was withdrawing its
Saturn from Japan. Certainly sales from these companies have been
declining in the Japanese market while others are gaining. But even
this is not the entire picture. Chrysler, now DaimlerChrysler, is
a German company with its Mercedes division cars, some of which
are built in the U.S., beating the market, while its Chrysler division
cars, also built in the U.S., are losing sales in Japan.

The “foreign firm” versus “domestic firm” picture is further blurred
by the integration of the two. Over the past several years enterprising
vehicle manufacturers from both Europe and America have seized opportunities
by purchasing equity in Japanese vehicle manufacturers. As a result
many foreign companies, including the Detroit companies, are positioning
themselves as part of the domestic Japanese industry to take advantage
of a recovering vehicle market. We have documented this trend in
detail in previous issues of Japan Auto Trends.

Future!

While politics between the U.S. and Japan may strive for a while
to perpetuate past rhetoric, the internationalization of the automotive
industry is rapidly overtaking the ability to credibly sustain the
“we-versus-them” approach to the U.S.-Japan automotive dialogue.
In the future, governments will be unable to delineate benefits
accruing solely to “domestic firms” versus “foreign firms.” In global
auto markets some companies may win and some companies may lose,
but when it comes to corporate nationality, drawing distinctions
will border on the impossible if not the absurd.