GM, Suzuki Plan Venture in Canada to Build Mini-Cars

General Motors and Suzuki Motor of Japan are expected to establish a Canadian joint venture that will produce 100,000 mini-cars annually for the U.S. and Canadian markets beginning in 1989, company and union officials said Friday.

The project, which is to be formally announced next month, would represent GM’s second North American joint venture with a Japanese auto maker (the company already produces slightly larger subcompacts at its Fremont, Calif., joint venture with Toyota.) The new joint venture will also expand the Japanese auto industry’s rapidly growing North American manufacturing base, which is already expected to give the Japanese the capacity to produce more than 1 million small cars a year in the United States and Canada by the end of the decade.

Suzuki is expected to manage the joint venture, just as Toyota runs the Fremont project for GM, company said. The Canadian complex is also likely to include both assembly and stamping facilities, and it will employ about 2,600 workers, officials added. Suzuki and GM have already opened talks with the Canadian United Auto Workers about representing the plant’s hourly work force, union leaders said.

But, despite the fact the plant will be supplying the U.S. market, GM and Suzuki did not consider any American sites for the project, partly because the weakness of the Canadian dollar has helped make labor costs in Canada much lower than in the United States. Hourly labor costs for assembly-line workers in the Canadian auto industry average about $15.50, compared to $24 to $26 in the United States.

Canada was also an attractive location because the market for mini-cars is more established there than it is in the United States, GM spokesman Mark Hogan added.

At the same time, the longstanding free-trade agreement in automobiles between Canada and the United States should allow the joint venture to ship cars duty-free to the U.S. dealerships of GM and Suzuki.

The Canadian venture, which will probably be located in Ontario, will produce the Chevrolet Sprint mini-car models that GM now imports from Suzuki’s operations in Japan, Suzuki officials said. The cars produced in Canada will be sold both by GM and by Suzuki of America, the Japanese auto maker’s new U.S. distribution arm, which has just introduced its first product in the American market--the Suzuki Samurai utility vehicle.

But Suzuki, which now has 80 U.S. dealerships, said Friday that the two companies have not agreed on how they will divide the plant’s output.

Spokesman Hogan said Friday that GM might stop importing Sprints from Japan if the joint venture produces enough to meet market demand.

But industry analysts said Friday that they think GM will need both supply sources, in part because quotas are likely to continue to hamper GM’s ability to import cars from Japan and also because they expect the fledgling mini-car market to boom over the next few years.

Domestic Production Key

The Sprint, the smallest car in GM’s lineup, became the first mini-car to enter the U.S. market in 1984. Since then, Yugoslavia’s Yugo and the South Korean Hyundai Excel have expanded the mini-car market. And the number of mini-car offerings will grow again next year, when Ford and GM introduce new minis from South Korea and Volkswagen starts importing a small car from Brazil.

For Suzuki, domestic production is the only way to break into the U.S. passenger car market. It was not selling cars here when export allocations under the Japanese quota system were first divided among the Japanese auto makers in 1981. As a result, it has been locked out of the market and remains unable to ship cars to the United States on its own.

Suzuki has been given a small allocation under the quotas, but only for those cars that it sells to GM, which owns 5.3% of Suzuki.

And even that allocation is still less than what GM wants. GM initially sought to import 87,000 Sprints a year, but it is only allowed to bring in 60,000 under this year’s allocations.

“We need a North American production source to enter the passenger car market,” stressed Doug Mazza, vice president of Suzuki of America.