Jul. 30, 2006. 01:00 AM
The big question in the auto industry is how soon will it be before car dealers in Canada begin offering low-priced Chinese vehicles. There is little doubt that China will ship cars here. The only question is when.
South Korea's Hyundai shows what can be accomplished. When it began exporting cars to Canada in the early 1980s and, with a big subsidy from the Mulroney government, built an assembly plant in Quebec, its cars won favour because of their low prices. But they ultimately failed because of poor performance. The Quebec plant was shut and Hyundai faded as a competitor.
But it didn't quit. Today, Hyundai and its affiliated Kia cars are strong competitors in Canada and the United States.
Hyundai is operating a new $1.1 billion (U.S.) assembly plant in Alabama, an engineering and technology centre in Michigan, and both a testing centre and a design and research centre in California. Just recently, Hyundai was ranked among the top three brands in the J.D. Power & Associates Initial Quality Study, the industry benchmark for new-vehicle quality in North America.
Japanese automakers also faced quality problems when they first tried to sell in North America. Companies worked hard to win acceptance for quality and performance, though when they succeeded, they succeeded big.
Toyota is poised to overtake General Motors Corp. as the world's largest automaker. And while GM is shutting plants and slashing its North American workforce, Toyota is highly profitable, expanding capacity and continuing to gain market share.
Last year Toyota invested almost $12 billion in plant and equipment. This year it plans investment of $14 billion. Included is the $1.1 billion (Canadian) assembly plant in Woodstock, the first new assembly plant in Canada in nearly 20 years. Likewise, Honda is also on a profitable growth and investment path. Honda's plans include a new engine plant in Ontario.
Japanese auto parts companies are also making serious inroads into North America at the same time as U.S. auto parts companies are declaring bankruptcy and closing plants in Canada and the United States.
Japanese auto parts producers are reported to have sold $26 billion (U.S.) worth of parts in the United States last year, equivalent to about one quarter of the U.S. market.
The first effort to market Japanese cars in Canada came in the 1960s, when Canadian Motor Industries Ltd. was formed to assemble cars imported from Japan. The venture failed miserably because Japanese cars were of poor quality.
But today, Japanese auto companies account for nearly one-third of sales in Canada, and last year, seven of the top 10 cars sold in Canada were from Japanese companies, including the four most popular cars.
China's automotive strategy is to become a global player as well. Like the Japanese and Korean automakers in their early days, it too faces the challenge of building vehicles of a quality acceptable to North American consumers. But its industry is working hard to do just that.
A number of Chinese auto companies, including Chery Automobile Co., Shanghai Automotive Industry Corp. and Geely Automobile Co. have set their sights on the North American market. This year Geely became the first Chinese company to exhibit at the Detroit Auto Show.
In 2005, China was a net exporter of vehicles, mainly to developing country markets. But by 2010, we could be seeing the first Chinese cars in Canada. These would not just come from Chinese companies. GM, Ford and others could look to China (and Mexico) for low-priced products to sell in North America.
Last year, Canadian automotive imports from China totaled $1.1 billion (Canadian), most of which were automotive parts. This compares with just $200 million in 2001 and $56.5 million five years earlier. Canadian automotive exports to China last year were just $62.8 million, mainly parts. This compares with $35.6 million in 2001 and $10.7 million 10 years ago.
It will be some years, though, before China could become a significant player here. In the meantime, Ontario has done a good job in attracting new assembly investment, totalling about $5.8 billion, which will be state of the art. So production capacity by the end of this decade will be only slightly below what it is today.
The key challenge now is for the auto parts industry, where there's an urgent need to develop proprietary technologies and advanced manufacturing systems.
The decision by Linamar Corp. to invest $1.1 billion over the next five years in Ontario is one hopeful sign this is understood. But more needs to be done.