Waiting in the Wings

In the drama that continues to unfold in the North American auto industry, Canada brings ardor to its role as understudy.

With patience and restraint, it knows it has the potential to outperform.

Sales in Canada are expected to hold up better than the U.S., partly because of less aggressive incentives, says Canadian auto analyst Dennis DesRosiers of Toronto.

While the Big Three followed the Sept. 11 terrorist attacks in the U.S. with 0% financing offers to artificially prime the economic pump, such aggressive financing was not introduced in Canada until the second week of November.

It will work in Canada's favor, says Mr. DesRosiers.

It is generally agreed torrid U.S. sales in the fourth quarter of 2001 will result in a downturn in 2002, with at least a million units pulled forward.

It will hit the U.S. particularly hard as 70% of the vehicles on the road have been replaced since the last up cycle began eight years ago. With a fairly new vehicle in virtually every driveway, the need for American consumers to buy has never been lower, says Mr. DesRosiers.

While “U.S. confidence is in a freefall, Canada is not as bad,” explains Mr. DesRosiers. Working to keep a faltering Canadian economy from following the U.S. into recession is last spring's round of massive tax cuts, one of the biggest in Canadian history.

Also, the need to buy is stronger in Canada because its most recent recovery did not begin until after 1996, which means only 40% of vehicles have been replaced.

In short, Canada is expected to outperform the U.S. in the short term. Canadian sales are forecast to fall about 56,000 units in 2001 to 1.53 million, lose a further 40,000 units to 1.49 million in 2002, and dip another 20,500 units to 1.47 million in 2003 before returning to current levels in 2005. The decline rates are about half those forecast for the U.S. in the same time frame, says Mr. DesRosiers.

In terms of production, Canada is expected to fall about 15%, similar to its southern cousin. Canada produced a high of more than 3 million vehicles in 1999 (17.4% of North American output). That figure drops to about 2.5 million this year and continues to ratchet down slightly until it bottoms out at just under 2.2 million in 2003 (15.8% of N.A. output) before inching back up.

And Canadian operations expect to share the pain of frozen capital investment and product delays as a result of negative cash flow generated by 0% financing by the Big Three. This time, the Canada-U.S. Autopact, a trade agreement that encouraged automakers to assemble vehicles in Canada to avoid duty on imports, is no longer in effect as a safety net.

The Canadian industry began the year with four vulnerable plants, single shifters rife with rumors of their impending demise.

The first: General Motors of Canada Ltd.'s plant in Ste. Therese, Que., ends the year with confirmation it will cease production of the Chevy Camaro/Pontiac Firebird next year, and the plant that employs 1,700 will be permanently shuttered.

Next on the endangered list is DaimlerChrysler Corp.'s Pillette Road Truck Assembly Plant in Windsor, Ont., which has no new product to keep it open after production of the Dodge Ram van/wagon ceases in July 2003.

Chrysler Group President Dieter Zetsche confirms no success in finding product for the plant. “As the union knows, we continue to look into opportunities. So far, none have materialized,” he tells WAW.

Also deemed vulnerable is the Ford of Canada Ontario Truck plant in Oakville, Ont., that builds the F-150 pickup, including the Lightning and Harley-Davidson variants. Meanwhile, Ford of Canada is building a new Canadian headquarters in Oakville and expanding its Windsor engine operations.

Also grossly underutilized at present is the CAMI Automotive Inc. plant in Ingersoll, Ont., a joint venture of General Motors Corp. and Suzuki Motor Corp. Its 1,500 workers will be idle for about a third of the next two years with elimination of its car line in April 2001 and slow sales of the Chevy Tracker/Suzuki Vitara compact sport/utility vehicles (SUVs) it assembles. But Suzuki officials tell WAW they look to add an SUV off the Saturn Vue platform in 2003-'04.

Meanwhile, the rest of the Canadian plants are “rock solid, and when the market comes back in four to five years, they'll be running flat out, above capacity,” says Mr. DesRosiers.

Other pockets of promise include the Chrysler luxury cross/utility vehicle (CUV) being added to the minivan assembly plant in Windsor, Ont., in January 2003.

Canadian Auto Workers President Ken Lewenza says the union would love to see 120,000 units of the CUV, codenamed CS and based on the Chrysler Citadel concept, produced in Windsor. And he looks forward to 2004 when the next generation of large cars is expected to restore the third shift at the Bramalea plant in Brampton, Ont.

Canada also has garnered about 17% of North American transplant production. When Toyota Motor Corp. adds assembly of the '03 Matrix and Lexus RX 300 in its expanded Cambridge, Ont., facilities in 2002, that figure will be close to 19%.

On the commercial truck side, Freight-liner will close two plants as part of its restructuring effort. Parent DaimlerChrysler AG closes the Thomas Built Bus factory in Woodstock, Ont., and the Western Star truck assembly operation in Kelowna, B.C., is to close in the third quarter of 2002.