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After three record years, 2001 expected
to be slower
 As
Frank Sinatra sang, ‘It was a very good year’. In fact, the past
three years have been very good. In 2001, several new records were
established among Japanese affiliated automakers in Canada. Overall
vehicle sales for JAMA Canada members reached a new high of 383,961
units, surpassing the previous record in 1999 at 365,487 units.
On the industry side, combined production at Honda (HCM), Toyota
(TMMC) and CAMI topped 618,000 units, up 3.1% from the record set
in 1999 of 599,000 units. Vehicles exported from Canada rose 2.1%
in 2000 to a new high level of 492,000 units, up from 482,000 in
1999.
However, after several years of strong growth and record performance,
a situation most analysts agreed was unsustainable, some dark clouds
are gathering as the North American economy, particularly in the
US, has begun to slow down. In both countries, sales through the
last quarter of 2000 were dropping faster and sooner than most had
expected. December was particularly dismal as overall sales dropped
11.8% and JAMA Canada members saw their sales plunge 15.5% compared
to a year earlier. While the year end slump was not enough to spoil
a record year for Canadian vehicle sales of 1.56 million units,
slower sales are expected to continue through the first and perhaps
second quarter of 2001, particularly because sales during the first
half of 2000 were considerably stronger than forecast.
In spite of the cooling economy, most analysts are predicting that
sales in Canada for 2001 will be down about 4% to 5% to around 1.5
million units. The market in Canada bottomed out in 1995 at 1.16
million units, so any year that promises about 1.5 million sales
is still ‘a very good year’. The risk, however, is mostly
on the downside. The key assumption is that the economy and consumer
demand will turn up in the second half of 2001. With the US
Federal Reserve expected to continue to cut interest rates in the
US, this will put pressure on David Dodge, the new Governor of the
Bank of Canada, to follow suit. With tax cuts continuing to give
Canadians more disposable income, further cuts in interest rates
which should also help boost consumer confidence.
In general, Canada seems in a better position than the US to weather
a slumping economy. However, in the auto industry, most Canadian
production is built for export to the US, and the impact of declining
sales south of the border is being felt as plants in Canada make
adjustments in output. Already in the last quarter, Big 3 automakers
in Canada cut production in a bid to reduce inventories, and several
plants have scheduled weekly plant shutdowns and layoffs during
the first few months of 2001. According to media reports, in the
first quarter of 2001, GM Canada is planning to reduce output by
25%, while Ford will be 17% lower. DaimlerChrysler will trim output
among Chrysler division’s global operations by 15% in 2001.
For Japanese automakers in Canada, the outlook is somewhat brighter.
HCM output in 2001 will likely reach capacity of 340,000 units due
to strong demand for the new Acura MDX, the new Civic and the Odyssey
minivan. TMMC is expected to launch the new Corolla in early 2002,
together with the new Matrix crossover vehicle. Capacity at TMMC
will expand to 220,000 units with the addition of the Matrix next
year and the RX300 in 2003. Last fall, CAMI announced that it will
stop production of subcompact passenger cars in the spring of 2001,
a move that had been expected. CAMI will continue to produce the
popular sport utility vehicles, Vitara and Tracker for the North
American market, and the two-door Grand Vitara for export to 26
countries around the world.
And Japanese automakers in the US are also busy expanding their
operations south of the border. Nissan recently announced that it
will build a US$930 million manufacturing plant in Canton, Mississippi
with an annual capacity of 250,000 units. Production will begin
in mid-2003 and the new facility will make a full-size pick-up truck,
a full-size sport utility vehicle and the next generation Nissan
minivan to replace the Quest currently made at a Ford plant in Ohio.
Nissan has also announced that it will expand its engine plant in
Decherd, Tennessee to include machining and assembly for V-6 and
V-8 engines that are not currently produced in North America. Nissan
also plans to maximize capacity utilization at their vehicle plant
in Smyrna which currently makes the Altima sedan, Xterra sport utility
vehicle and the full range of Frontier pick-up trucks.
Toyota also recently announced that they will put up a new US$220
million engine plant in Alabama to machine and assemble V-8 engines
for the full-size Tundra pickup truck, now being made in Indiana.
The plant will commence operations in the summer of 2003. Meanwhile
Honda is in the midst of building a new US$440 million vehicle manufacturing
plant in Alabama that will make minivans and/or SUVs along with
engines for those vehicles. Initial vehicle production capacity
will be about 120,000 units annually when the plant opens next year.
Finally, in December, Suzuki announced a US$30 million plant in
Georgia that will produce All Terrain Vehicles (ATVs) for the North
American market starting in 2002.
2000 Sales in
Canada
As a group, JAMA Canada members sold 5.1% more light vehicles in
2000 than the previous year. Light vehicle sales reached a new high
of 383,173 units, almost 18,500 more than in 1999. Passenger car
sales climbed 6.2% to 282,666 units, while the tally for light trucks
stood at 100,507 units for the calendar year. Light vehicle market
share for all JAMA Canada members rose to 24.7% in 2000. Passenger
car share reached 33.3%, while the light truck share was up to 14.4%.
Among individual companies, Honda Canada was the top seller in
2000 (the Honda Civic was the top selling model in Canada for the
third year in a row) with record sales of 134,919 units, up 2.7%
from last year. Mazda Canada took the top honours in terms of year
over year growth, as sales climbed 26.1% to 52,070 units. Nissan
Canada was not far behind with sales growth of 25.1% over last year
with total sales of 47,404 units. Subaru Canada also turned in a
solid performance, up 12.2% to a new record level of 14,609 units
in 2000. Toyota Canada and Suzuki Canada both had lower sales in
2000, down 4.8% and 5.7% respectively.
In the medium and heavy truck market, the slump in the heavy duty
Class 8 market and the alarming rise in fuel costs had some impact
on the mid-level truck market as well. Hino Diesel Trucks Canada
sells medium duty trucks aimed primarily at the service sector.
In 2000, Hino recorded their second best year for retail sales with
788 units sold, and their best ever wholesale year with a total
of 820 units. Hino’s market share of the mid-range diesel truck
market stands at 13% in Canada. The outlook for 2001 remains fairly
optimistic, in keeping with the Canadian auto industry in general,
where a slight downturn is expected after five years of strong growth.
2000 Production in
Canada
While total motor vehicle production in Canada slid to below 3
million units as a result of production adjustments at Big 3 plants
primarily during the last quarter of 2000, output for the three
Japanese affiliated plants was up over 1999, but individually mixed.
Honda in Alliston hit a new production record with over 326,800
units as a result of strong demand in North America for the Odyssey
minivan and the combined launch last fall of the new Acura MDX sport
utility vehicle and the new 2001 Civic. On the other hand, production
at both TMMC and CAMI were lower than the previous year, down 13.0%
and 5.1% respectively, largely due to the fact that certain models
were farther along in the product cycle.
2000 Canadian Vehicle Exports & Imports
Every year since 1993, Canada has been a net exporter of Japanese
related vehicles. In fact, over the past eight years, over 2.8 million
vehicles have been exported from Canada to the US and several other
countries, while 1.7 million vehicles were imported from Japan,
the US and Mexico by all JAMA Canada members.
In 2000, HCM shipped a record 255,714 units, up 20.9% over 1999;
TMMC exported 138,657 units, 17.7% fewer than the previous year;
and CAMI’s exports dipped 4.4% to 97,731 units as a result of lower
output. Overall export shipments rose 2.2% to 492,102 units for
the calendar year, up 10,000 units from 1999.
Imports from Japan, the US and Mexico rose 8.0% in 2000 to a total
of 275,653 units as a result of higher shipments of vehicles originating
in the two NAFTA partners. Exports from Japan were almost the same
as in 1999, up slightly 0.4% to 167,894 units, while shipments from
the US & Mexico jumped 22.4% to 107,759 units.
New Toyota ‘Matrix’ will be made in Canada
 Last
month in Detroit, Toyota announced at the world debut of their new
crossover vehicle, the ‘Matrix’, that exclusive production will
begin early in 2002 at Toyota Motor Manufacturing Canada (TMMC)
in Cambridge, Ontario. Riding on a platform similar to the Corolla,
the Matrix will be built alongside the new Corolla model that will
be launched at TMMC later this fall.
The Matrix line will have an estimated capacity of 70,000 units
annually. Investment for production of the Matrix is included in
the $650 million expansion announced by Toyota last year for the
Lexus RX 300 luxury sport utility vehicle that will start in 2003.
Altogether an additional 300 jobs will be created at TMMC.
Currently TMMC manufactures the 4 door Corolla in the North Plant
and the Camry Solara (both coupe and convertible versions) in the
South Plant. With the addition of the Matrix and RX 300, capacity
will increase to 220,000 units per year.
The Matrix is clearly aimed at young buyers in North America to
the extent that it combines the functional elements of a sport utility
vehicle, the performance of a sports car and the competitive price
of a small sedan. The Matrix was designed in Toyota’s CALTY Design
Studio in California for the North American market.
There will also be a sister vehicle, called the Pontiac Vibe, which
will be produced for General Motors at the NUMMI plant in Fremont,
California. NUMMI is jointly owned by Toyota Motor Corporation and
General Motors.
Canada Will Repeal the 35 Year Old ‘Auto
Pact’
Following the final report of the WTO Dispute Settlement Panel
last June and the WTO Arbitrator’s report last October, the Canadian
Government has indicated that the Auto Pact, established as a bilateral
sectoral free trade treaty between Canada and the US in 1965, will
officially end on February 18, 2001 in keeping with their commitments
to comply with the WTO ruling by February 19, 2001.
Essentially, Canada will repeal the Motor Vehicle Tariff Order
(1998) and all of the Special Remission Orders (SRO). In the absence
of any further Government initiative to reduce the Most Favoured
Nation (MFN) tariff, after February 18, all non-NAFTA qualifying
imported vehicles will be subject to the current 6.1% ad valorem
duty.
While the Auto Pact and SROs included provisions for duty free
importation of both finished vehicles and original equipment auto
parts, the elimination of the Auto Pact and SROs will affect only
finished vehicle imports that do not qualify for NAFTA treatment.
Original equipment auto parts will continue to enter Canada duty
free because the Canadian Government reduced the MFN applied tariff
to zero on all OE parts in 1996 when duty remission and duty drawback
programs were eliminated under NAFTA rules.
From an investment and jobs point of view, the Auto Pact has not
been a factor for many years. What’s more, after the FTA in 1989,
changes to the Auto Pact clearly made it discriminatory. And while
repealing the Auto Pact will remove the discriminatory treatment,
JAMA Canada would strongly urge the Canadian Government to take
the final step and remove the remaining 6.1% MFN tariff on finished
vehicle imports. Not only is the tariff a cost burden for both automakers
and consumers, it is also substantially higher than the 2.5% MFN
tariff applied to passenger vehicles in the US, or the 0% tariff
in Japan.
New
Federal Minister of Industry, Brian Tobin
Just before the Federal Election was called last fall, Brian Tobin,
the former Premier of Newfoundland, as well as a Federal Liberal
MP since 1980 and Minister of Fisheries & Oceans in the mid
1990’s, jumped back into the limelight in Ottawa when he was named
Minister of Industry to succeed John Manley, who was appointed Minister
of Foreign Affairs following the departure of Lloyd Axworthy. JAMA
Canada congratulates Mr. Tobin on his appointment as Minister of
Industry and his election victory in November.
Commentary – William C. Duncan, General Director, JAMA Washington
 Moving
Ahead and Beyond Old-Style Confrontation
As the year 2000 draws to a close so too does the U.S. Japan Auto
Framework, a 5-year-old agreement born out of one of the most intense
trade disputes of the last two decades. The agreement is set to
expire on December 31. As discussions regarding the future of the
agreement proceed, some in the U.S. parts industry are demanding
that the U.S. government resurrect mechanisms of market manipulation
that led to the confrontation in the first place.
In June 1995, the U.S. and Japan were poised on the brink of a
trade war. At issue was a U.S. demand that Japanese auto companies
agree to U.S. auto parts purchasing targets. The Japanese refused
and the U.S. threatened to shut out luxury vehicle imports from
Japan. The conflict was resolved through difficult negotiations
that rejected the concept of targets and instead established an
understanding designed to expand sales opportunities in Japan by
letting the market work.
The agreement was successful on two counts. First, it prevented
a trade war that would have had wrenching economic consequences
for both countries. Second, in combination with notable structural
change in the Japanese auto industry, it helped to identify and
develop new opportunities for U.S. companies in Japan’s market.
The trade council representing GM, Ford and Chrysler recently stated:
“It is clear that the Japanese automobile industry has entered a
period significant change, which is altering the type and degree
of participation of foreign auto and auto parts companies in that
market.
Japan Auto Trends has brought you news of these changes
as they have occurred. At the top of the list are the capital participation
of U.S. companies in the Japanese industry, the growing investment
by U.S. auto parts companies in the Japanese industry, the growing
investment by U.S. auto parts companies in Japan, the global parts
purchasing of Japanese auto firms and new vehicle distribution methods
in Japan. As reported in this issue of Japan Auto Trends,
the Japanese government has been assertively seeking international
harmonization of auto regulations as well as considering other nations’
standards in setting its own. These positive trends confirm the
wise decision to abandon targets and other market-distorting mechanisms
aimed at arbitrarily reducing trade deficits. As a result, the automobile
industry whether in America, Canada, Europe or Japan has moved far
beyond the national boundaries that defined it even five years ago.
The Future
The fundamental challenge for the industry will be to build vehicles
that meet the increasing demands of protecting the consumer and
the environment, while at the same time providing the performance,
convenience and quality that consumers expect. This will be accomplished
on a global basis, with companies relying on markets as the final
arbiter and with governments seeking the best balance between local
environmental needs and the efficiency found in common regulatory
practices. Negotiated targets and mandates, on the other hand, could
interfere with this dynamic to the detriment of both the consumer
and the environment.
‘Japan Auto Trends’ is available on the internet at ‘www.jama.org‘.
The auto industry in Japan turns the corner
in 2000
The signs of recovery in the auto industry in Japan, while not
dramatic, were nonetheless evident in the year end tally that showed
overall vehicle production had increased 2.5%, exports had edged
up 1.0% and new vehicle sales had grown by 1.7% in 2000. After 1999
production fell below 10 million units for the first time in 20
years, output reached just over 10.1 million units in 2000. Sales
of new vehicles in the domestic market recorded a small gain but
fell short of 6 million units for the third consecutive year. Import
vehicle sales did not fare as well, slipping 1.0% to 275,400 units.
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