Brisk U.S. Auto Sales Keep Canada's Car Plants Hopping

Here's a puzzle: Domestic-make car and light-truck sales have rebounded nicely since April, and inventories have fallen sharply. Yet U.S. motor vehicle output has been lagging and actually fell by 3.6% in May. Why hasn't Detroit revved up its assembly lines?

According to economist Sam Nakagama of Nakagama & Wallace Inc., much of the answer is to be found north of the border. Detroit builds a lot of its cars in Canada, and so far this year, its Canadian subsidiaries have boosted car output by 32.6% over 1992, even though Canadian car sales are down 7.7%.

To be sure, Detroit's Canadian subsidiaries always assemble a lot of cars that are sold in the U.S. What's unusual this time around, says Nakagama, is that many of the best-selling models are being made only in Canada. Chrysler Corp.'s vehicle sales were up 44.6% in May over a year ago, mainly because of its hot-selling LH models, which are currently being assembled exclusively in Canada. Ditto for Ford Motor Co.'s popular Crown Victoria.

In short, at least for the moment, brisk auto sales are helping Canada more than the U.S. The trade deficit in motor vehicles with Canada hit $1 billion in April, notes Nakagama, and weak auto output in May subtracted 0.1% from U.S. industrial production.

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