North American vehicle output slumps to multi-decade low, according to Scotia Economics



    - Moderate improvement is expected by the spring

    TORONTO, Jan. 30 /CNW/ - Faced with a sharp sales decline and excessive
inventories, North American auto production turned sharply lower in December,
and has been virtually shut down in January, according to the latest Global
Auto Report released today by Scotia Economics.
    "Vehicle output in Canada, the United States and Mexico will plunge
nearly 50 per cent below a year earlier in the opening month of 2009, as many
companies have extended their holiday shutdowns through most of January," said
Carlos Gomes, Scotiabank Senior Economist and Auto Industry Specialist. "We
estimate that these cutbacks will reduce North American vehicle output to less
than an annualized eight million units in January, a sharp fall-off from a
full-year 2008 total of 12.9 million."
    Output at the 'Detroit Three' will fall roughly 65 per cent below a year
earlier in January, as most of their plants in Canada and the United States
will remain closed through month-end. However, the shutdowns are not limited
to the Detroit automakers. After a 30 per cent year-over-year decline in
production this month, Asian and European manufacturers will ramp up output
faster than the North American automakers. As a result, the 'New Domestic'
automakers are scheduled to produce more vehicles in North America in the
first quarter than the 'Detroit Three'.
    "We estimate that the cutbacks in vehicle production will reduce U.S.
economic activity by roughly two-and-a-half percentage points in the first
quarter, an impact similar to what occurred in the final months of 2008," said
Mr. Gomes. "In Canada, we estimate that lower vehicle and parts output will
subtract more than one percentage point from economic growth in the opening
months of 2009."
    Lower vehicle production is taking a big toll on parts suppliers.
Employment in the sector has been slashed by more than 22,000 in Canada since
late 2003.
    "Aside from the sharp decline in industry volumes, Canadian suppliers
have lost significant market share in recent years. We estimate the value of
Canadian-made parts in each North American-built vehicle has dropped to less
than $1,700 from more than $2,000 as recently as 2004," added Mr. Gomes. "With
the order backlog for Canadian suppliers at its lowest level on record, in the
absence of a hefty pick-up in vehicle production, job losses in the parts
sector could accelerate."

    Production to increase in the second quarter

    The sharp cutback in first-quarter vehicle assemblies points to the
current inventory adjustment running its course by April. Inventories will
likely drop to less than two million units by the end of March, 24 per cent
below a year earlier and roughly 35 per cent below the average first quarter
of the past decade.
    Some automakers continue to announce production cutbacks for the second
quarter. However, with inventories expected to come roughly in line with
demand by April, production will likely start to improve sequentially by the
Spring. Nevertheless, assemblies are unlikely to begin to advance
year-over-year until the final months of 2009.

    Vehicle sales

    U.S auto sales plunged 35 per cent below a year earlier in December, and
remain just above an annualized 10 million units, the lowest level since the
early 1980s. The sharp decline in recent months reduced full-year 2008 sales
to 13.2 million units, an 18 per cent plunge from 2007, and the lowest annual
total since 1993.
    The downturn in Canadian auto sales also accelerated in December, with
purchases slumping 21 per cent below a year earlier. We estimate that
purchases fell below an annualized 1.30 million units in December, the lowest
level since the height of the Asian currency crisis in the late 1990s, and
significantly weaker than the 1.67 million unit average through November. We
expect sales to remain weak in the first half of 2009 and are forecasting
full-year 2009 purchases to slump to 1.475 million units, the lowest annual
total since 1998.

    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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