The Canadian Press | Apr 11, 2006
Beware Korea free trade deal; Windsor crossing upgrade critical: Chrysler CEO
TORONTO (CP) - Trade negotiators are riding roughshod over the interests of Canada’s auto industry as they hurry to seal a free trade deal with South Korea, the president of DaimlerChrysler Canada Inc. (NYSE:DCX) said Tuesday.
Steven Landry also said it’s "absolutely critical" that the border crossing be enhanced between Windsor, Ont., and Detroit, where shipments are choked at a tunnel and bridge built in 1929 and 1931.
Landry told an industry conference that Korean "non-tariff barriers," including cultural and political resistance to foreign products, mean South Korea is shipping 100,000 vehicles annually to Canada’s 1.6-million-vehicle market, while only 2.7 per cent of the one million vehicles a year sold in South Korea are imported.
This imbalance, he said, adds to the woes of a North American industry whose customers have "hardly any loyalty left" to established brands, while the number of nameplates has risen to over 300 from 120 since 2000 and there is excess manufacturing capacity of 3.4 million vehicles a year in a climate of "negative net pricing" while all variable costs have been rising.
Also at the Deloitte auto forum, industry analyst Dennis DesRosiers - describing himself as "cautiously negative" about the industry in the near term - outlined a "nightmare scenario" in which a U.S. economic downturn prompts debt-ridden Americans to unload many of the 50 million or more cars he estimates they have in their driveways but don’t really need.
DesRosiers said this would unleash "just a flood of used vehicles," depressing the new-car market.
Chrysler’s Landry, echoing a complaint about Korea previously declaimed by Canadian Auto Workers president Buzz Hargrove, said he favours "fair trade" but is "uneasy" about negotiations toward a trade agreement.
"Competition is good; let’s just make it fair."
He told reporters later that "what’s fair is that we can ship, without any barriers, the same dollar value of vehicles into South Korea that they ship here to Canada."
Landry added that, for reasons that aren’t clear, Ottawa seems intent on settling a treaty quickly.
"My fear is that this emphasis, and this want and need to create a trade agreement with South Korea, is moving way too fast, and it feels like the federal government’s just looking to wave a ’win’ flag instead of slowing down and doing it right."
Landry’s speech followed a presentation by TD Bank (TSX:TD) economist Don Drummond characterizing auto exports from North America as "pretty trivial," but noting that North America is itself "a fairly closed market" with imports accounting for less than one-quarter of the vehicles sold.
This is largely because Toyota, Honda and other Japanese makers have built assembly plants in Canada and the United States, Drummond said, adding that these factories have become "very local in their parts sourcing."
Landry said in his speech that Chrysler’s two Canadian assembly plants, making big sedans in Brampton, Ont., and minivans in Windsor, are operating at 115 per cent of capacity, with three shifts and overtime. This compares with about 80 per cent capacity utilization for Chrysler’s total North American operations, and over 110 per cent at Toyota’s Canadian and U.S. plants.
Landry conceded that Chrysler still struggles against a "perception of the quality of our vehicles," but said warranty costs per vehicle have been cut by 40 per cent in the past decade.
Chrysler is introducing nine new models this year, including the just-released Caliber chunky small hatchback and the compact Jeep Compass, coming this summer at a base price of $18,000, which Landry called "the first urban Jeep."
At the more exalted end of the new model lineup will be the Chrysler Aspen big sport utility vehicle, although Landry acknowledged that "I’m not sure if the timing’s right for a luxury SUV at the moment."