A SHORT HISTORY OF THE JAPANESE AUTOMOTIVE INDUSTRY IN CANADA Japan Automobile Manufacturers Association of Canada A SHORT HISTORY OF THE JAPANESE AUTOMOTIVE INDUSTRY IN CANADA Commemorating the 20th anniversary of the Japan Automobile Manufacturers Association of Canada 1984 – 2004 Second Edition 2009 CONTENTS 1. Early History of the Canadian Auto Industry . 6 2. Historical Development of the Japanese Auto Industry in Canada . 10 i) In the beginning, circa 1965 ii) 1970’s - Oil ‘shocks’: new demand for small, fuel efficient cars iii) 1980’s - Investments in manufacturing iv) 1990’s - Expansions & growth: vehicles & auto parts v) Into the 21st century – An integral part of the Canadian auto industry vi) The Impact of Japanese Automotive Investment in Canada vii) Canadian auto-related developments in Japan viii) JAMA Canada Chairmen, 1983 – 2008 3. A Collection of Personal Observations on JAMA Canada, Pacific Automotive . 22 Co-operation (PAC) and the Japanese Auto Industry in Canada The Hon. Edward C. Lumley, former Minister of Industry, Trade & Commerce, Government of Canada Barry C. Steers, former Canadian Ambassador to Japan Patrick J. Lavelle, former President, Automotive Parts Manufacturers’ Association of Canada Morley Bursey, Honourary Executive Director, Automotive Parts Manufacturers’ Association of Canada Slawek Skorupinski, former Director General, Automotive, Industry Canada Neil de Koker, President, Original Equipment Suppliers Association (OESA), former President, Automotive Parts Manufacturers’ Association of Canada K. Kawana, former President, Nissan Canada & Chairman, JAMA Canada (1984 – 1986) S. Yoshioka, former Secretary General, JAMA Tokyo & Director, JAMA Canada S. Yanagisawa, former President, Toyota Canada & Chairman, JAMA Canada (1986 – 1989) Y. Nakatani, former President, Toyota Canada & Chairman, JAMA Canada (1996 – 2002) H. Takagi, former President, Pacific Automotive Co-operation (1992 – 1995) M. Obi, former President, Pacific Automotive Co-operation (1995 – 1997) T. Iwatake, Senior Director General, International Department, JAMA Tokyo & Director, JAMA Canada 4. Highlights & Timelines of JAMA Canada Members . 42 5. CAJAD – Canadian Association of Japanese Auto Dealers . 58 by Brian Caldwell, former Executive Director, CAJAD 6. Commentary – Four Decades of Automotive Progress . 62 by Dennis DesRosiers, President, DesRosiers Automotive Consultants Inc. Appendices: 1. Snapshot of the Japanese auto industry in 2008 2. Japanese auto parts related operations in Canada CHAPTER 1 EARLY HISTORY OF THE CANADIAN AUTO INDUSTRY JAMA Canada celebrated its twentieth anniversary in 2004. That year was also notable for the 75th anniversary of diplomatic relations between Canada and Japan, as well as the 100th anniversary of the Canadian auto industry. It is fitting therefore to take a brief look at the early development of the industry in Canada.1 While a number of steam and electric self-powered pleasure carriages preceded the event, it was in Windsor, Ontario that the Canadian automotive industry was truly born in1904 when a group of local businessmen arranged with Henry Ford to ferry chassis from Detroit to Windsor. Wheels and bodies were assembled and 117 Ford vehicles were produced in the first year of operation. Canada’s protective tariff induced the first US manufacturer to produce vehicles in this country for the Canadian and British Empire markets. Although Britain and the US had enjoyed free trade as the result of an 1854 agreement, the end of the US Civil War resulted in the abrogation of that accord and led to a US policy of tariff protection which was to last 30 years. It was ultimately echoed, in 1879, by the protectionist “National Policy” of the Conservative government of Sir John A. Macdonald, under which gasoline buggies fell heir to a 35 per cent tariff established to protect the Canadian carriage industry. Credit: Library and Archives Canada. In 1908 Canadian automotive pioneer Colonel “Sam” McLaughlin launched the McLaughlin Motor Car Company in Oshawa. Over the next few years, a rapidly-expanding North American automobile market attracted hundreds of new entrants, most of which disappeared after producing a prototype model. In Canada, the 35% tariff proved insufficient to protect an infant industry and all survivors were allied with American companies. An attempt to negotiate free trade with the US in 1910, although accepted by US Congress, cost the Liberals the 1911 election. Early McLaughlin Buick circa 1910. World War 1 drove motor vehicle production and made Canada the second largest producer in the world from 1918 until 1923. By 1922, Canadian vehicle production exceeded 100,000 units, with almost half destined for foreign markets. General Motors had been formed as the result of a merger between the McLaughlin and Chevrolet motor companies and, in 1924, Chrysler established production via Maxwell-Chalmers in Windsor, Ontario. The motor vehicle had truly become part of the Canadian way of life. 5 Highlights in the History of the Canadian Auto Industry 1904: 117 vehicles assembled at the Ford plant in Windsor, Ontario 1914-18: War production results in 80,000 motor vehicles being produced in Canada in 1918; from 1918 to 1923, Canada is the second largest producer of motor vehicles in the world Credit: Library and Archives Canada. 1926: The concept of Canadian content is introduced when import duties are cut and a drawback is introduced of 25% on materials used in the manufacture of vehicles provided that at least 50% of the cost of the finished vehicle is produced in Canada 1929: 262,000 motor vehicles produced in Canada, a milestone not to be achieved again for 20 years 1936: As the result of a Tariff Board study, a system of conditional free entry is implemented if parts were of a kind not made in Canada, and subject to content Body Plant Durant Motors 1930. requirements 1939-45: By 1943, the 500,000th unit of Canadian military motorized equipment rolls off the assembly line; from 1939 to 1943, capital employed increases by 142%, employment doubles to over 45,000 and industry salaries and wages increase by 222% to $100 million 1958: Old world producers are now exporters to the new world as even the US becomes a net importer of passenger vehicles. Canadian production of automobiles slides to a five year low of 297,373 while imports, mainly from the UK and Germany, total 100,000, about 35% of domestic production 1960: The Canadian Government established a Royal Commission on the Automotive Industry to look into the prospects of the motor vehicle industry in Canada. Dean Vincent Bladen, an economist and Dean at the University of Toronto was appointed to conduct the study 1961: The key recommendations of the Bladen report: • Elimination of the 7-1/2% excise tax on automobiles • A 10% duty on imported vehicles from the UK • Changing content requirements to ‘Canadian’ rather than ‘Commonwealth’ • Parts and finished vehicles could enter Canada duty free when imported by a manufacturer who achieved the required content • Content was to be established as a percentage of the total cost of manufacture of vehicles made in Canada, plus the value for duty of imported vehicles and replacement parts, linking content with sales rather than production • The revised content schedule for passenger cars was 30% up to 5,000 units, 50% for the next 30,000; 55% for the next 55,000; 70% for the next 100,000, and 75% for above 200,000 6 1962: After studying the Bladen Report, a Canadian Government Committee, chaired by Simon Reisman, recommended an export duty rebate program for key automotive components used in vehicle production 1963: Canada adopted a second duty rebate program, called the Drury Plan (after Minister of Industry Bud Drury), that included all automotive products, even though officials knew this would likely be challenged as an export subsidy under GATT. Almost immediately, petitions were filed with the US Treasury Department complaining about Canada’s duty rebate program 1964: A petition filed by Modine Manufacturing Co., Credit: Paul Martin Collection, Library and Archives Canada. a radiator maker in Wisconsin finally put pressure on officials in the US and Canada to negotiate a solution. In October, agreement in principle was reached on the Canada/US Automotive Products Trade Agreement 1965: The Auto Pact is signed by President Johnson and Prime Minister Pearson on Jan. 16, 1965 and passed into law in the US in October of that year and in Canada in May, 1966 1968: New milestones for the Canadian automotive industry: production, 1,179,983 vehicles; employment 50,000; payroll $35 million; Signing of the Auto Pact January 16, 1965. (l to r: Paul Martin Sr., exports, $2.6 billion, (eclipsing pulp and paper Secretary of State for External Affairs; Lester B. Pearson, Prime Minister by $1 billion to become the largest export of Canada; Lyndon B. Johnson, President of the U.S.; Dean Rusk, U.S. industry in Canada); capital expenditures in the Secretary of State). first four years of the agreement is $600 million with another $175 million is spent on repair 1973: Auto sales start slipping in the US due to the first energy crisis and a general downturn in the economy. The imbalance in auto trade, in favour of the US, goes over the half billion mark 1980: The Big Four register a combined loss of $4 billion. It’s no longer Canada versus the US… growing sales by offshore manufacturers, particularly the Japanese, lead to concern over the continued existence of the North American industry 1981: In May,