Auto Production Shifting from Reverse Into Drive, According to Scotia Economics



    TORONTO, April 29 /CNW/ - The sharp downturn in vehicle sales and
production that intensified the depth of the global economic downturn seems to
be easing, according to the latest Global Auto Report released today by Scotia
Economics.
    "The sharp cutbacks in industry output and the recent sales improvement
will likely reduce U.S. dealer stocks to a more manageable 80 days' supply by
the end of April, down from a peak of 125 days' in January," said Carlos
Gomes, Scotiabank Senior Economist and Auto Industry Specialist. With
inventories for most manufacturers now better aligned with lower demand,
automakers have scheduled output of an annualized 8.5 million across North
America in the April-June period, including roughly 9 million in May, up from
a first-quarter average of 7.3 million units.
    The gain will be largest in the United States, with a 15 per cent
quarter-to-quarter jump in output. Both the Detroit Three and the new
Domestics will post double-digit gains in assemblies, despite the recent
announcement that an automaker will close most of its plants for nine weeks
this summer. This increase will add an annualized 0.8 percentage points to
U.S. economic activity, the first positive contribution to economic growth
from the auto sector since mid-2007, helping to reduce the extent of the
ongoing economic contraction.
    Car production in Canada is also scheduled to post a double-digit
sequential increase in the April-June period. However, the overall gain in
Canada will be held back by the permanent closure of an Oshawa truck plant in
mid-May. We estimate that the shuttering of this facility will limit the
contribution from the auto sector on economic activity in Canada to an
annualized 0.3 per cent in the second quarter, roughly one-third of the
contribution south of the border.
    "Aside from the scheduled increase in assemblies across North America,
other key indicators such as rising used car prices, increased credit
availability and slightly higher consumer confidence point to stronger car and
light truck sales in coming months," added Mr. Gomes. "A pick up in confidence
is a key requirement for a rebound in vehicle sales, as this index normally
begins to edge higher at least one quarter prior to the bottom in U.S. car and
light truck sales."
    Used car prices, another key leading indicator for the new vehicle
market, have also started to improve in both Canada and the United States,
after declining steadily since late 2007.
    "Despite these improvements, there is still tremendous uncertainty
regarding the outlook for the U.S. and Canadian economies," concludes Mr.
Gomes. "In this environment, public policy will remain highly supportive, with
both monetary and fiscal stimulus just starting to gain traction. Last week
the Bank of Canada committed to keep short-term borrowing costs low well into
2010."

    Global auto sales

    Global auto sales have begun to spring back to life, led by gains in key
developing markets. Purchases in China, India and Brazil climbed to a record
9.5 million units (annualized) in March, surpassing the pre-crisis peak of 9.4
million units set in May 2008.
    Volumes have also started to improve in mature markets, with passenger
vehicle sales in the United States advancing to an annualized 9.8 million
units in March, up from an average of 9.0 million during the previous two
months. The pickup in the United States was broad-based, with virtually every
automaker beating expectations last month.
    Car and light truck purchases also increased in Canada last month,
climbing to an annualized 1.42 million units, the best performance since
November and well above the 1.34 million unit pace of the previous three
months. The advance was also broad-based, with eight manufacturers posting
year-over-year sales gains, and most other automakers reporting smaller
declines than in previous months.

    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.





For further information:

For further information: Carlos Gomes, Scotia Economics, (416) 866-4735,
carlos_gomes@scotiacapital.com; Paula Cufre, Scotiabank Public Affairs, (416)
933-1093, paula_cufre@scotiacapital.com


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