Subcompacts Drive Canadian Volumes Higher In 2008, according to Scotia Economics



    TORONTO, Oct. 30 /CNW/ - The Canadian auto market appears to be an oasis
of calm among the turbulent seas of the global auto market, according to the
latest Global Auto Report released today by Scotia Economics. Purchases have
advanced by 1.4 per cent through September compared with a 13 per cent slump
in the United States and a five per cent fall-off in Western Europe.
    "The relative calm in Canada reflects significant price reductions by
automakers since last fall when the Canadian dollar reached parity with the
U.S. currency, as well as a sharp shift towards lower-priced subcompact cars,
especially models priced under CAD$10,000," said Carlos Gomes, Scotiabank
Senior Economist and Auto Industry Specialist. "However, developments arising
from the current global financial crisis point to a much tougher environment
for automakers and dealers in 2009."
    This year's increase in Canadian vehicle sales has been almost entirely
due to a 25 per cent surge in purchases of subcompact cars. Subcompacts now
account for a record nine per cent of the Canadian market, up from roughly
five per cent during the previous five years. The shift to smaller,
less-expensive vehicles, combined with price cuts introduced after the
Canadian dollar reached parity with the U.S. currency late last year has
reduced the cost of purchasing a new vehicle in Canada by 9.3 per cent
year-over-year as of September, the largest drop since February 1956.
    The decline in vehicle prices has been largest in Atlantic Canada and
Saskatchewan, dropping by more than 11 per cent so far this year. Households
in these provinces have responded, with purchases posting double-digit gains
through September, leading the advance across Canada.
    Aside from small cars, crossover utility vehicles are the only other
segment to post gains in Canada this year, with purchases advancing by nine
per cent.
    While data on vehicle profitability is not available for Canada, applying
estimates from the United States suggests that despite rising sales so far
this year, the shift to smaller, less-expensive vehicles has likely reduced
auto industry profitability in Canada by more than four per cent.
    "We estimate that the shift to subcompacts has reduced industry margins
to the lowest level in three years. Further significant margin deterioration
is expected in 2009, with vehicle sales likely to weaken by roughly six per
cent to about 1.57 million units," added Mr. Gomes. "The sharp drop in the
Canadian dollar since late July against both the U.S. dollar and Japanese yen,
will also intensify pressure on automakers and dealers, who will be unable to
push through price increases in 2009."

    Global Auto Sales fall further in September

    Global vehicle sales weakened in September, as the expanding financial
crisis internationally eroded the cushion provided by emerging markets.
    In the United States, the epicentre of the global economic and auto
market slowdown, passenger vehicle sales tumbled 27 per cent year-over-year
last month, reducing volumes to less than one million units for the first time
since the early 1990s. On an annualized basis, purchases totalled 12.5 million
units in September, down from an average of 14.3 million during the previous
eight months.
    "Sales weakened sequentially through the month, as the turmoil in the
financial markets restricted the availability of credit. In fact, tightening
credit and a slowing economy have displaced fuel costs as the driving force
behind slumping U.S. vehicle sales," said Mr. Gomes. "We expect purchases to
continue to weaken into 2009 and have reduced our full-year 2008 and 2009
sales forecasts to 13.7 million and 13.5 million respectively, compared with
an average of 16.7 million over the past decade."
    In contrast to the turmoil south of the border, Canadian vehicle sales
picked up last month, climbing two per cent above a year earlier, a
significant improvement from a seven per cent decline in August.

    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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