Canada's Auto Industry Widens Its Productivity Lead Over The United States, Says Scotiabank Economist



    TORONTO, June 29 /CNW/ - Canada's vehicle assembly facilities continue to
be the most productive in North America, according to the latest Global Auto
Report released today by Scotia Economics. Canada's advantage over the United
States widened to eight per cent in 2006, up from five per cent in 2005.
    Scotiabank estimates indicate that productivity in Canada, worker days
required to assemble a vehicle, improved by three per cent in 2006, in line
with the average gain over the past two decades, and roughly 50 per cent
higher than the increase in the overall Canadian economy.
    "The widening of Canada's productivity lead in auto assembly reflects a
record $10 billion in machinery and equipment investment, mostly robotics and
automation, over the past four years," said Carlos Gomes, Scotiabank's auto
industry specialist. "Given the more than 40 per cent appreciation of the
Canadian dollar, which has sharply eroded the competitive advantage of
Canada's manufacturing sector, rising investment in machinery and equipment
and ongoing productivity gains are crucial to ensure the competitiveness of
Canada's manufacturing base."
    Ongoing capital expenditures will continue to boost Canada's
productivity. For example, recent investments in Oakville and Oshawa have
lifted 2007 truck output by more than 60 per cent.
    Despite Canada's position as NAFTA's productivity leader in vehicle
assembly, competition from Mexico is heating up. Productivity at plants in
Mexico surged by 17 per cent in 2006, as production posted a double-digit
gain, surpassing two million units for the first time on record.
    "Mexico's productivity gain reflects capital expenditures of more than
US $4 billion in the country's auto industry over the past few years," said
Mr. Gomes. "Investments of US$1.2 billion at Ford's plant in Hermosillo, the
production site for the popular Ford Fusion and Mercury Milan, increased
assembly capacity to 300,000 units and reduced the time to build a vehicle by
40 per cent last year. The Hermosillo plant accounted for most of the gain in
Mexico's productivity last year. It is now as productive as a typical U.S.
facility and lags Canadian plants by only eight per cent."
    Vehicle output and productivity will continue to rise in Mexico, as
automakers pour investment into the country. General Motors is investing
US$600 million in a new plant in San Luis Potosi. Reports also suggest that
Ford is considering Mexico as the location for a new low-cost assembly
facility. Assembly capacity in Mexico is expected to rise to 2.5 million units
by decade-end, up from the current 2.1 million, significantly closing the gap
with North America's major vehicle producing regions in Ontario and Michigan.
    Productivity also improved at U.S. assembly plants last year, but the
gain was only 1.5 per cent, the smallest advance since 2001. The sub-par U.S.
performance reflects production adjustments and the closure of three assembly
plants due to ongoing industry rationalization.

    Motor Vehicle Sales

    Vehicle sales remained weak in the United States and Mexico last month,
but volumes in Canada are being buoyed by Ottawa's rebate of up to $2,000 for
fuel-efficient vehicles.
    "New vehicle sales have accelerated across Canada since late March, when
the federal government introduced its rebate for fuel-efficient models," said
Mr. Gomes. "We estimate that sales of vehicles benefitting from Ottawa's
rebate have surged by nearly 80 per cent so far this year, single-handedly
lifting industry volumes. Given the impact of these rebates, we have raised
our 2007 Canadian vehicle sales forecast to 1.65 million units, up from last
year's 1.61 million and an average of 1.59 million from 2000-2005."
    Canadian passenger vehicle sales posted a 10 per cent year-over-year gain
in May, remaining above an annualized 1.7 million units for the second
consecutive month, up from an average of 1.62 million in the first quarter.
Imported models led the way, surging 17 per cent year-over-year to a record
high, with several manufacturers, Toyota, Honda and BMW posting record sales.
    In contrast, purchases in the United States weakened further in May,
edging down to an annualized 16.1 million units, from 16.2 million in April
and an average of 16.5 million in the first quarter. The decline was
concentrated among the traditional Big Three, especially Ford, where sales
dropped eight per cent year-over-year alongside reduced fleet volumes and
sluggish retail activity. However, excluding Ford, industry sales actually
climbed above a year ago, buoyed by record volumes at Toyota.
    Crossover utility vehicles (CUVs) continue to be the hottest segment in
the United States and across North America, with U.S. volumes surging 28 per
cent year-over-year last month. This segment is now the second-largest in the
United States, surpassing pickup trucks. CUVs now garner 16.8 per cent of the
U.S. market, a 10-fold surge since the late 1990s. We expect CUVs to become
the largest segment across North America before the end of the decade.
    Automakers announced plans to assemble 3.8 million vehicles in North
America in the third quarter, eight per cent above a year ago and the first
gain since early 2006. Foreign-owned automakers will lead the way, boosting
third-quarter output 12 per cent above a year earlier. Production is also
scheduled to advance at each of the traditional Big Three automakers for the
first time since early 2006. Increased assemblies will provide a boost to
economic activity, which continues to be battered by the slumping U.S. housing
market, recently weakening to the lowest level in four years.

    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


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890