North American Auto Production Downshifts for the Summer: Scotiabank Economics
Slowdown Reflects Inventory Normalization, but Rebound Expected Before Year-End
TORONTO, June 26, 2012 /CNW/ - Global vehicle sales rebounded in May, with the
advance accelerating to 11 per cent year over year (y/y), the strongest gain
in more than two years and nearly double the increase reported from January to
May, according to a Global Auto Report released today by Scotiabank Economics.
North America and Asia led the way last month, with sales in China advancing
20 per cent y/y, as recent government policies have started to buoy gains.
In contrast, activity shows no signs of hitting bottom in Western Europe and
remains soft in Latin America.
"The auto industry has been a growth leader across North America in the first
half of 2012, with stronger-than-expected car and light truck sales and the
restocking of depleted inventories by Japanese automakers buoying production
gains," said Carlos Gomes, Senior Economist and Auto Industry Specialist,
Scotiabank Economics. "However, with inventories back at normal levels -
around 60 days' supply - vehicle assemblies are set to soften between July and
Vehicle production in North America jumped 23 per cent y/y in the five months
through May, led by a 27 per cent surge in the United States. In fact, U.S.
vehicle production climbed to an annualized 10.3 million units in the opening
months of 2012 -- the highest level since late 2007.
However, despite recent announcements of reduced summer downtime by several
automakers due to strong demand, assemblies across North America are scheduled
to ease to 15.6 million in the third quarter, temporarily halting the
industry's robust contribution to economic growth.
"We estimate that the summer lull in vehicle production will have the largest
negative impact on U.S. economic activity since early 2009, when the global
economy was still in freefall," added Mr. Gomes. "The third-quarter decline in
vehicle production will be more modest in Canada, cushioned by rising output
of the Honda CR-V in Alliston, Ontario. In contrast, assemblies in Mexico are
scheduled to advance further, as Japanese automakers continue to expand their
facilities in the most southern NAFTA member."
Despite the industry's temporary setback, fundamentals remain supportive of
further advances in both vehicle sales and production. In particular,
leading indicators of the U.S. auto sector point to ongoing gains for an
extended period. While the Scotiabank Leading Indicator of U.S. Vehicle Sales
has recently edged down from its peak in mid-2011, the index remains at one
the highest levels on record, pointing to further improvement ahead.
Looking at last month's vehicle sales across North America, U.S. volumes
jumped 26 per cent above a year earlier, but the annualized pace eased below
14.0 million units for the first time since December, and was down from an
average of 14.5 million between January and April.
In Canada, activity was stronger than expected in May, with purchases climbing
back above an annualized 1.70 million units, a rebound from a sluggish
performance in April. The improvement was broad based, with both fleet and
household purchases posting solid double-digit gains, as Canadians took
advantage of enhanced incentives.
Scotiabank economists and market strategists are located in Canada, the U.S.,
Mexico, Peru, Chile, Thailand,Hong Kong, the United Kingdom and France. The
team provides in-depth commentary regarding the factors shaping the outlook
for the global economy, currencies, capital markets and commodities as well as
coverage of monetary and public policy issues.
Carlos Gomes, Scotia Economics, (416) 866-4735,email@example.com;
or Joe Konecny, Scotiabank Media Communications, (416)
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-0- Jun/26/2012 11:00 GMT
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