U.S. is Down, But Not Out as China, India and Russia Lead Global Auto Sales to Record Highs in 2011: Scotia Economics

TORONTO, Jan. 5 /CNW/ - The cyclical recovery in global auto sales that began in the spring of 2009 and accelerated last year will likely lift volumes to record highs in 2011, according to Scotia Economics' latest Global Auto Report. The emerging markets of China, India and Russia will continue to lead the way, but the U.S. market is also expected to post its second consecutive double-digit increase in the coming year, a development that has not occurred since the early 1980s.

"The recovery in global car sales has shifted gears and will increasingly be driven by improving labour markets," said Carlos Gomes, Senior Economist, Scotia Economics. "This represents a healthy transition from the massive and synchronized monetary and fiscal stimulus that was required to get the industry, and the global economy, back on a positive growth trajectory."

According to the report, the pace of job creation - and not the level of unemployment - is the key driver of global car sales, and the ongoing improvement should enable the United States and the euro zone to climb out of their deep hole. The auto industry is also getting a helping hand from increased auto lending across the globe, especially in emerging nations, where loan growth is approaching 40 per cent year-over-year. However, loan growth will moderate in 2011, as central banks in emerging nations tighten monetary policy more aggressively to dampen inflation pressures.

"In 2011, new car sales in China and the other BRIC nations (Brazil, Russia, India and China) will surpass the combined volumes of Western Europe and Japan, and account for roughly 30 per cent of global car sales," said Mr. Gomes.

Sales growth in China will moderate to about 15 per cent over the coming year, held back by the expiry of government scrapping incentives, and a sharp reduction in license plate issuance by the city of Beijing, as it attempts to tackle vehicle congestion. Per capita income in China is currently US$4,200 - in the sweet spot for auto industry growth. Historically, vehicle sales have experienced the fastest growth, when per capita income is in the US$4,000-US$6,000 range.

"Even with the rapid sales growth in recent years, vehicle penetration in China remains low, only 40 vehicles per 1,000 people, compared with an average of 673 vehicles for the G7 nations," added Mr. Gomes. "In addition, more than one-quarter of the world's key vehicle-buying age group, 40-to-49 year olds, reside in China, and are experiencing rapid income gains."

India has been the second-best performing major auto market over the past decade, with car sales climbing to a record 1.82 million units in 2010. Despite this robust performance, vehicle penetration remains among the lowest in the world at only 14 vehicles per 1,000 people - nearly half the level prevailing in all of Africa.

Mr. Gomes added, "India enjoys a special demographic advantage, one of the world's youngest populations, half of its 1.2 billion inhabitants are less than 25 years old. In fact, India is home to 20 per cent of world's population under 25 years of age. These 610 million potential future car buyers are twice the size of the entire U.S. population, and nearly two-thirds of the current global vehicle fleet, 965 million cars and trucks. Recognizing India's enormous growth potential, the major global automakers and the local producers will add nearly one million units of new vehicle assembly capacity in India over the coming year. "

Car sales in Russia soared by roughly 30 per cent in 2010, and will likely continue to post double-digit gains in 2011, as government incentives remain in place. Improving automotive credit and employment prospects - job creation is advancing at the fastest pace since mid-2008 - have lifted the willingness of Russian consumers to purchase big-ticket items to the highest level since the summer of 2008. 

Turning to North America, vehicle sales in the United States climbed 11 per cent in 2010 to 11.5 million units, and a further double-digit gain to 12.7 million is expected for the coming year. The improvement was led by business purchases in 2010, but will be driven by strengthening retail volumes in the coming year, as Americans increasingly replace their aging vehicles. The average of the U.S. fleet now exceeds 10 years for the first time on record, and consumer confidence has picked up alongside a stabilizing labour market and some improvement in household balance sheets.

Canadian consumers are also returning to dealerships, with enhanced incentives boosting sales by seven per cent in 2010. A further two per cent increase is projected for 2011, lifting purchases to 1.59 million units - in line with the average of the past decade. In contrast, even with the improvement over the coming year, U.S. volumes will still remain 20 per cent below the decade average.

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.

SOURCE Scotiabank - Economic Reports

For further information:

Carlos Gomes, Scotia Economics, (416) 866-4735, carlos_gomes@scotiacapital.com; Joe Konecny, Scotiabank Media Communications, (416) 933-1795, or joe_konecny@scotiacapital.com.


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