Autos: Open Border

Of the $2.5 billion in automotive imports—both cars and parts—that entered the U.S. last year, one country accounted for 60%. The country is Canada, and the curious thing about it is that few Americans who bought Canadian-made cars had any idea that they were doing so.

The reason for this is that most of the cars, manufactured by Canadian subsidiaries of U.S. automakers, are indistinguishable from American models. Chrysler makes Plymouths and Dodges in its plant in Windsor, Ont., and ships them all over the U.S. Midwest. General Motors assembles Chevrolets at a new plant at Íle Sainte Thérèse, near Montreal, for sale in New England. Mercurys manufactured in Ford's Oakville plant near Toronto are sold in New York. Even smaller American Motors gets into the act, builds cars at Brampton, Ont., for the U.S. market.

The import boom is the result of a three-year-old U.S. Canadian trade agreement that, by eliminating all tariffs on cars shipped across the border, has created a vast if little-noticed common market now accounting for fully one-fifth of the two countries' $14 billion in annual trade. Traffic within that market runs both ways—the U.S. last year imported 318,000 cars from Canada, exported 239,000 to its neighbor in return.

Fully Meshed. Until the trade pact was signed, Canada's U.S.-owned auto plants had to gear themselves to a relatively small market. Although demand was sufficient to justify manufacturing a number of basic models, it hardly warranted turning out a full line. If a Canadian buyer wanted a Thunderbird, it had to be imported—with a 17½% duty added onto the price tag.

As tariff barriers came down, so did the price that Canadians had to pay for imported autos. At the same time, because of the proximity of their Canadian plants to key American markets, automakers have been encouraged by the free-trade arrangement to expand their production north of the border. For Canada, the payoff is an expanding auto industry, new assembly jobs for its workers and, as a result of growing auto exports, a decrease in the size of its trade deficit with the U.S.

There are also advantages for the U.S. automakers, particularly when it comes to imposing economies of mass production on their Canadian operations. Where Chrysler previously had to turn out relatively small quantities of six different models at its Windsor plant, for example, it currently uses that facility to manufacture just two models, the Dodge Polara and Plymouth Fury—both of them in volume. As a result, the plant is fully meshed with the rest of Chrysler's North American operations. The lines discontinued in Windsor are now made entirely in the U.S., but are sold both on the Canadian and American markets. A Canadian-make Polara or Fury, meanwhile, is just as apt to wind up with an owner in Cleveland as in Winnipeg.