Aq2001 Spring

Canadian market softens, but 1Q results
better than expected for JAMA Canada

Sales

JAMA Canada members’ sales in the 1^stQ totaled 80,947
units for a gain of 9.7% overall, which represents a 25.1% market
share, up over 3 points from 2000. Passenger car sales increased
8.3% to 57,915 units, while light truck sales rose 13.5% to 23,032
units. Among members, Honda Canada is the leader in unit sales,
up 11.4% to 29,446 units, while Mazda and Nissan are the sales growth
leaders, up 29.1% and 20.6% respectively. Toyota Canada is almost
unchanged with sales of 22,975 units in the first quarter, while
Subaru and Suzuki sales have slipped 6.4% and 7.2% respectively.
Japanese automakers’ passenger car market share is up to 34% from
29.7% last year, while their light truck share is up over two points
to 15.1%.

For the 1^stQ of 2001, the total light vehicle market
in Canada has dropped 4.8% to 322,437 units. GM, Ford and DaimlerChrysler
combined were down 11.8% to 208,253 units. Passenger cars have fallen
16.6% to 83,369 units for the former Big3, while light truck sales
are down 8.3% to 124,844. Interestingly, in the 1^st Q,
60% of Big 3 sales are light trucks, and 40% are cars. Their market
share in passenger cars dipped below 50% for the first quarter of
2001.

European automakers as a group slipped 5.7% lower in combined
sales in the first quarter, while Korean automakers’ sales surged
53.7% in the first three months of 2001, in spite of a dramatic
decline for Daewoo.

Production & Exports

While Big 3 output in Canada fell 25.6% in the first quarter to
a combined total of just under 500,000 units, production at Japanese
affiliated plants (Honda, Toyota and CAMI) rose 4.0% to 171,350
units in the first three months of 2001. However, among the three
Canadian operations, only Honda made gains over last year as output
jumped 17.7% to 100,904 units, while Toyota and CAMI production
declined 10.3% and 11.7% respectively.

In a similar vein, finished vehicle exports from all three plants
increased 9.3% to 145,306 units in the first quarter, due entirely
to export production at Honda which rose 26.2%, while Toyota’s exports
dropped 8.0% and CAMI’s fell 6.0% compared to the same period in
2000. The ratio of exports to total production climbed to 84.8%
in the first quarter of 2001 from 80.7% last year. This suggests
that export markets, particularly in the US for some models remains
buoyant.

Auto21 -The Automobile of the 21^st
Century: a new R&D program for Canada

On March 12, the Federal Minister of Industry, Brian Tobin, announced
funding for a major Research & Development program, called Auto21
that links university professors and experts from the industry to
study issues ranging from safety to materials to vehicle design.
Auto21 was one of four Networks of Centres of Excellence announced
in March, and it will receive $23.1 million over the next four years,
of which $12 million comes from the Federal Government and the other
$9.1 million from other sources including industry, universities,
private research agencies and trade organizations. Auto21 will run
for seven years with up to $35 million in federal grants, and if
approved, could obtain funding for an additional 7 years.

As explained by Minister Tobin, “The automotive industry is Canada’s
largest single business sector, producing over 13% of the manufacturing
GNP and providing high quality employment to over half a million
Canadians (representing 1 in 7 jobs in Canada). This $200 billion
per year giant is Canada’s largest source of export earnings and
is considered by many to be the engine of our economy. Canada is
the sixth largest producer of cars and trucks in the world. Without
advanced R&D, Canada’s auto industry will not be able to compete
with the latest developments internationally, with the result that
the hundreds of thousands of jobs will be less secure.”

The AUT021 Network will undertake an extensive and integrated research
program examining the following issues:

• vehicle safety for children and the elderly
• the health and safety of autoworkers
• the formulation of stronger public policies in the automotive
  sector
• new manufacturing processes and materials for future automobiles
• new fuels and power-trains
• the integration of advanced electronic systems to improve safety,
  comfort and convenience

Over 200 of Canada’s best researchers from universities, companies,
government laboratories and other organizations are participating.
Their areas of expertise include engineering, nursing, economics,
labour studies, occupational therapy, science, business and other
disciplines. They will co-operate to tackle the challenges confronting
the automotive industry involving the people who work in it; the
communities where it is situated, as well as the interaction between
the industry and Canadian society at-large.

The forces of globalization are compelling industry to develop
adopt new modes of cooperation and competition. Governments can
play a supporting role in this process through programs like Auto21
which supports partnerships among all key stakeholders and which
recognizes the critical role that innovation plays in sustaining
international competitiveness.

New President at Nissan Canada

Carlos
Ghosn, president of Nissan Motor Co., Ltd., has announced the appointment
of Mr. Mamoru Yoshida as president of Nissan Canada Inc., effective
April 2, 2001.

Mr. Yoshida, age 43, succeeds Kiyoharu Owada who, after seven years
of service in Canada, has been reassigned to Nissan Motor Co., Ltd.
Since 1997, Mr. Yoshida has been based in Tokyo where he has workedmainly
in the overseas business planning and sales marketing areas.He has
been heavily involved in the Nissan Revival Plan (NRP) since itsinception
in 1999, a plan designed to increase profitability and reduce costsworldwide.
Over a year ago, he was assigned to lead a team responsible forautomotive
associated business development worldwide. Mr. Yoshida graduated
from Sophia University, Tokyo, in 1981 where hestudied in the Faculty
of Foreign Language – English Language department. Hebegan his career
with Nissan in April 1981 working in Manufacturing Trainingat the
Yoshiwara plant. Throughout his career, he has spent time in Hollandwhere
he worked in the Business Planning and Sales Operations divisions.
FromHolland, he travelled to Great Britain and assumed the role
of Senior Advisorto both the Sales & Marketing Directors.

Mitsubishi to Enter Canadian Market in
2003

Building on its growth in the US market since 1982, Mitsubishi
Motor Sales of America, Inc. (MMSA), today announced its plans to
enter the Canadian market through Mitsubishi Motor Sales of Canada.
“Canadians purchase approximately 1.5 million new vehicles a year,
making this one of the world’s top 10 automotive markets and a natural
choice for Mitsubishi Motors’ global expansion,” said Pierre Gagnon,
executive vice president and chief operating officer, Mitsubishi
Motor Sales of America, Inc.”We are excited to offer Canadians our
full line of vehicles and look forward to growing across this great
country.”

Mitsubishi Motors anticipates it will begin selling cars in Canada
early in 2003, with a goal of opening 51 dealerships in the first
year, growing to 150 dealerships within five years. At that level,
the dealer network would result in the creation of approximately
6,400 new jobs.

The company projects sales in Canada of 38,000 new vehicles annually
by the end of 2007, giving Mitsubishi an estimated two-percent share
of the Canadian new vehicle market. Canada is the only major global
automotive marketin which Mitsubishi Motors does not currently sell
vehicles.

“For any major auto company like Mitsubishi Motors, the Canadian
market is an important place to do business. Canada has a world-class
retail dealer environment and a growing population of savvy consumers,”
added Gagnon. Mitsubishi Motor Sales of Canada plans to sell and
distribute the same models sold in the United States (eight models
in 2003).

Randy Sears is being appointed senior vice president and general
manager of Canadian operations. Sears will be responsible for establishing
Mitsubishi Motors in the Canadian marketplace. Currently, Sears
is MMSA’s regional director for the North Central region. Sears’
career includes 20 years with General Motors of Canada Ltd. and
two years as general manager for Saturn, Saab, Isuzu of Victoria
Ltd., located in Victoria, British Columbia.

“We will offer Canadian consumers value through competitive pricing,
as well as quality, reliability and style. We’re confident the Mitsubishi
Motors brand will connect with Canadian consumers just as it has
with consumers in the United States,” said Sears.

Pierre Gagnon and MMSA Senior Vice President and General Manager
Greg O’Neill, will lead the company’s senior management team. Gagnon
and O’Neill are both native Canadians and veterans of the Canadian
automobile industry.

Mitsubishi Motor Sales of America, Inc. was established in 1982
by Mitsubishi Motors Corporation, Tokyo, and markets a full line
of vehicles, including coupes, convertibles, sedans and sport utility
vehicles through a network of more than 550 dealers in the U.S.




Mitsubishi Motor Manufacturing of America, Inc. (MMMA), in Normal,
Ill., currently assembles both Chrysler and Mitsubishi brand vehicles.
The Mitsubishi brand vehicles include the Eclipse sports coupe,
Eclipse Spyder convertible and Galant mid-size sedan, which together
account for approximately half of MMSA’s passenger car sales in
the U.S. Established in 1985, MMMA employs approximately 3,300 people.

2001 Vehicle Awards for JAMA Canada Members

JAMA
Canada members have been recipients of several recent awards for
the AJAC (Automotive Journalists of Canada) 2001 Canadian Car of
the Year, Editor’s Choice Winners from Canadian Auto World,
and 2001 CAA (Canadian Automobile Association) Pyramid Awards for
2001 Best Used Vehicle.

Canadian Auto World Editor’s Choice Awards for 2001

• Family Sedan over $25,000: Honda Accord
• Luxury Car: Acura 3.2TL
• Prestige Car: Lexus LS430
• Sport Coupe & Convertible: Acura 3.2CL Type S
• Station Wagon: Subaru Legacy / Outback
• Van / Minivan: Honda Odyssey
• Sport Utility Vehicle: Mazda Tribute

Editor’s Choice Awards are open to all vehicles sold in Canada
during the model year. Winners were determined by the editors of
Canadian Auto World and presented at the Montreal Auto Show in January.

AJAC
2001 Car of the Year

• Best New Economy Car: Honda Civic DX Sedan
• Best New Green Vehicle: Honda Insight
• Best New Compact Sport Utility: Mazda Tribute
• Best New Intermediate Sport Utility: Subaru Outback H6 – 3.0
  VDC
• Best New Luxury Sport Utility: Acura MDX
• Canadian Truck of the Year: Mazda Tribute

AJAC Awards are determined by AJAC automotive journalists as a
result of a four-day test comparing new or substantially new 2001
model year vehicles at Shannonville Motorsport Park in Belleville,
Ontario. Some companies choose not to participate in the AJAC Awards.
The Chrysler PT Cruiser was named Canadian Car of the Year.

CAA 2001 Pyramid Award for Used Vehicle Performance

• Overall Vehicle Ownership Satisfaction: Toyota Corolla (1993-1997
  models)

• Minivan Ownership Satisfaction: Toyota Sienna (1997-2000 models)
  
  
  
• Pyramid Award for Environmental Initiatives: Honda Canada

The Pyramid Awards are based on an owner survey of more than 22,000
CAA members. This is the fifth time that Corolla has won this award
since the CAA Pyramid awards began in 1983.

Canada’s Most Fuel-Efficient Vehicles

Japanese
brand vehicles walked away with awards in seven of eight categories
for the most fuel-efficient vehicles in Canada in the 2001 model
year. Suzuki Canada captured an unprecedented three EnerGuide Awards
for the Swift, Esteem Wagon and Vitara convertible. The awards were
handed out by the Federal Minister of Natural Resources, the Honourable
Ralph Goodale, at the opening of the Toronto International Auto
Show in mid-February. Winning vehicles were determined by testing
that simulates 20,000 kilometers driven per year with 55% in the
city and 45% on the highway.

The winners were:

Canadian Government 10 Year Action Plan
for Cleaner Vehicles, Engines & Fuels

On February 19, 2001, Environment Minister David Anderson made
public the details of a 10 year Plan of Action for cleaner vehicles,
engines and fuels, an integral part of the Government of Canada’s
Clean Air Strategy. The Plan of Action includes measures and actions
on clean air that are intended to produce health and environmental
benefits for Canadians. The measures, which will be supported by
regulations, guidelines and studies over the coming years, were
developed through consultations that began last spring with provincial
and territorial governments, environmental and health organizations
and automobile and fuel sector representatives.

Emissions Initiatives: Cars, Trucks, Off-Road Vehicles
and Engines

Emissions from vehicles and engines depend upon vehicle/engine
technology and the properties of the fuels. In some cases, vehicle
emission control systems cannot operate properly without the right
fuels. Therefore, fuel standards and vehicle/engine emission standards
must be considered as an integrated system.

The Plan of Action sets out a plan to develop new Canadian emission
standards for vehicles and engines, aligned with those of the United
States Environmental Protection Agency. Regulations under the Canadian
Environmental Protection Act (CEPA, 1999) and emissions control
programs will be developed to reduce emissions from:

• cars, vans, pick-up trucks and sports utility vehicles to be
  phased-in beginning with the 2004 model year;
• large trucks and buses to be phased-in beginning with the 2004
  model year;
• off-road diesel vehicles and engines such as those used in the
  agricultural sector and by the construction industry;
• gasoline utility engines such as those used in snowblowers,
  lawn mowers, chain saws; and
• outboard marine engines and personal watercraft.

The Plan of Action also provides details on the following measures:

• the development of a Memorandum of Understanding with automobile
  manufacturers to introduce low-emission vehicles in Canada for
  model years 2001-2003, similar to the Voluntary National Low-Emission
  Vehicle (NLEV) Program in the U.S. This will ensure that Canadians
  benefit from the latest vehicle emission control technologies;
  and
• the development of a Code of Practice for Heavy Duty Vehicle
  Inspection and Maintenance programs for use by provinces in monitoring
  emissions from large trucks and buses.

In developing future emission regulations for on-road vehicles
and engines under CEPA 1999, Environment Canada plans to ensure
that the environmental performance of new vehicle fleets in Canada
will be comparable to applicable US program objectives. The details
of future regulations, including possible corporate fleet-averaging
standards or alternate mechanisms that achieve comparable results,
will be developed in consultation with stakeholders during the regulatory
development process.

Clean Fuel Initiatives: Diesel, Gasoline and Fuel Oils

The Plan of Action contains several measures aimed at improving
the quality of diesel fuel by:

• reducing the level of sulphur by 2006 in on-road diesel fuel
  used by trucks and buses, by aligning Canadian requirements with
  those in the United States; establishing a new limit for sulphur
  in off-road diesel fuel used in construction and agricultural
  equipment; and establishing a comprehensive database on diesel
  fuel quality in order to monitor fuel quality.

The Plan also details several measures for cleaner gasoline:

• Environment Canada will conduct further analysis on the composition
  of gasoline to determine if additional controls on gasoline quality
  have the potential to reduce emissions of toxic substances from
  vehicles; and
• a Canada Gazette notice will be published requesting information
  on the use and release into the environment of the gasoline additive
  MTBE.
  

Environment Canada also proposes to develop measures to reduce
the level of sulphur in light fuel oils used for heating homes and
for heavy fuel oils used by industrial facilities.

Environment Canada will investigate complementary measures to
regulations, such as economic instruments, to promote the early
introduction of cleaner fuels into Canada.

Canadian Auto Parts Mission to the 35^th
Tokyo Motor Show

Once again the Canadian Government will be organizing a mission
of Canadian auto parts manufacturers at the time of the 35^th
Tokyo Motor Show, October 26 – November 7, 2001. Several
companies will also join the Canada Booth at the TMS including Ford
Canada, ABC group, Dofasco Steel, JIT Automation, Kautex Textron,
Narmco, Ventra Group, Woodbridge Group, and Wescast.

To kick off the mission, the Canadian and Ontario Governments will
jointly host a Reception at the Canadian Embassy in Tokyo
on Monday, October 22.

Further information on the 35^th Tokyo Motor Show is
available on the internet at ‘www.motorshow.or.jp/eng’.

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

DOUBLE
BUBBLE?

Japan’s bubble economy collapsed in 1990, causing a steep decline
in Japanese auto production and sales. After a decade of economic
turmoil and restructuring, we are now seeing a glimmer of cautious
optimism. Last year, Japan’s car and truck sales grew at about 2
percent. Industry forecasts predict another 2.2 percent growth this
year. January sales edged up a slight 1 percent.

However, no sooner do we see some optimism in Japan, than the Nasdaq
stock market bubble collapses in the U.S., and with it an unprecedented
10 years of economic prosperity. Pundits no longer celebrate a new
U.S. economy immune from historical cyclical patterns, but rather
speculate on whether the U.S. is teetering on the verge of recession.
The auto market in the U.S. is clearly vulnerable and so too are
Japanese brand sales in the U.S. Does this mean the Japanese companies
must now face the collapse of a double bubble?

There was a time when Japan’s economy would boom along despite
recession in the U.S., the most notable example being the deep U.S.
recession of the early 1980s. During that 3-year period the Japanese
auto market expanded by about 6 percent while the U.S. market contracted
by 25 percent. Economic growth in Japan, along with increasing demand
for small cars in the U.S., helped to insulate the Japanese companies
from the worst of the U.S. recession. And in a somewhat different
way, the reverse was also true in the 1990s. During the 1990s, Japan’s
auto market contracted by 25 percent while the U.S. market expanded
by 21 percent.

However, economies, markets and auto companies are much more interdependent
now than they were 20 years ago or even 10 years ago. In the early
1980s, Japanese brand auto sales in the U.S. were exclusively imported.
Today more than 60 percent of Japanese nameplate vehicles sold in
the U.S. are produced in the U.S. Japanese auto companies employ
nearly 50,000 Americans in manufacturing, research, design and marketing.
They purchase more than $30 billion of U.S. auto parts. These companies
have now become part of the fabric of America and intimately tied
to the fortunes of the U.S. economy.

Something else is different, too. Now many of the Japanese auto
companies have significant foreign ownership and management participation.
Imports have about 6 percent of Japan’s car market. However, calculating
on the basis of ownership, foreign interests have close to an 18
percent share of Japan’s car market. The fortunes of GM, Ford, DaimlerChrysler
and Renault are now tied to Japan’s market as Japanese companies
are tied to the U.S. No longer do these companies rise or fall in
separate markets independent of each other.

Future !?

Does a double bubble mean “toil and trouble” as promised by the
fiendish witches in Shakespeare’s Macbeth? Or will the waters settle
and prosperity soon return either to the Japanese market, the US
market or both? The answer to the question will unfold over the
next several months. However, what is clear to me is that in the
meantime the new global relationships in the auto industry will
be tested for a while by slower economic growth at best and recession
at worst. The Japanese auto and the U.S. auto industry this time
will be in the same sea and in many cases in the same boat pulling
the same oars. These companies are more likely to rise and fall
together!