Global Vehicle Sales and Production Surge in Early 2013: Scotiabank

TORONTO, March 6, 2013 /CNW/ - Stronger-than-expected passenger vehicle sales across the globe in early 2013, combined with sharp gains in global vehicle production, will provide a welcome boost to global economic activity, according to the Scotiabank Global Auto Report released today.

"Global vehicle sales shifted into high gear in the opening months of 2013, with purchases in January soaring 13% above a year earlier - the strongest gain since early 2010 when the global economy was building momentum in the early stages of the current global economic expansion," said Carlos Gomes, Scotiabank's Senior Economist and Auto Industry Specialist. "China led the way with volumes soaring 49% year over year (y/y), but the improvement was broad-based with every region, excluding Western Europe, posting solid advances."

For more details about the Scotiabank Global Auto Report, please read the full report below.

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Record Sales and Production in Early 2013

North American Output Schedules Point to Further Gains in the Spring

Global vehicle sales shifted into high gear in the opening months of 2013, with purchases in January soaring 13% above a year earlier - the strongest gain since early 2010 when the global economy was building momentum in the early stages of the current global economic expansion.  China led the way with volumes soaring 49% year over year (y/y), but the improvement was broad-based with every region, excluding Western Europe, posting solid advances. Car sales across Asia jumped 30% y/y, including a 6% increase outside of China. Activity also picked up in South America, posting the second consecutive double-digit gain, as the government of Brazil announced that it will gradually phase in the re-introduction of its industrial products tax (IPI) during the first half of 2013.  The IPI tax was temporarily reduced last year to revive floundering car sales.

More recent data for North America point to ongoing strength in February, with purchases in the   U.S. climbing to an annualized 15.4 million units, up from an average of 15.3 million during the previous three months. The improvement reflects the unleashing of robust replacement demand amid low interest rates, increased credit availability, as well as moderate gains in both the labour market and household wealth. These factors combined with the significant deleveraging undertaken by U.S. consumers during the current economic upswing are more than offsetting the negative impact of this year's increase in payroll taxes for U.S. households.

An improving U.S. housing market also lifted U.S. pickup truck purchases 21% above a year earlier in February. This solid performance highlights that business confidence is on the mend and is consistent with other data pointing to a strengthening capital goods cycle south of the border.

In Canada, car and light truck sales fell 3% below a year earlier in February, undercut by inclement weather and weaker consumer confidence. We estimate that purchases totaled an annualized 1.63 million last month, down from more than 1.70 million units in January, but roughly in line with the average of the past three months. However, volumes are likely to gain momentum in March and during the spring selling season, leaving full-year 2013 sales on target to reach our forecast of 1.69 million units.

Auto Production Buoys Economic Activity

Stronger-than-expected passenger vehicle sales across the globe in early 2013 have also coincided with sharp gains in global vehicle production, a development that will provide a welcome boost to global economic activity. In January, global vehicle assemblies surged 15% above a year earlier - the strongest gain since mid-2010.

Thailand Becomes a Top 10 Global Auto Manufacturer   

Asia also led the gains in vehicle production. However, it was Thailand, not China that posted the strongest advance.  Vehicle output in Thailand soared 68% above a year earlier in January, climbing to record highs alongside robust export shipments and strong domestic car sales.  Nearly 60% of all vehicles produced in Thailand are geared to the domestic market, with the remaining 40% shipped overseas.  Domestic car sales will continue to be supported by a government new car buyer rebate which has been extended to June 2013.

Automakers with operations in Thailand have invested in excess of US$1 billion in recent years to either expand capacity or re-tool for new models. The Thailand Federation of Industries expects vehicle production to jump 43% y/y in the first quarter, while a government official recently stated that full-year 2013 vehicle assemblies could reach 2.8 million units, up from 2.4 million last year. This would enable car and truck production in Thailand to leapfrog past assemblies in Canada and secure a Top 10 global ranking in vehicle output this year, up from 13^th place in 2012. Record vehicle production in Thailand will provide a significant boost to economic growth, as the auto industry accounts for roughly 10% of overall economic activity, compared with an average of less than 3% for the G7 nations. Further gains lie ahead, with the Thailand Automotive Institute expecting vehicle production to surpass 3 million units by 2015.

Mexico Leads North American Auto Assembly Revival

In North America, automakers are also planning to lift production in coming months, leading us to lift our full-year 2013 vehicle assemblies forecast to 16.5 million units, up from 15.8 million in 2012. During the second quarter, North American production is scheduled to jump above an annualized 16 million units for the first time since early 2007.  This represents a significant ramp-up from the output level of recent months, and will add nearly half a percentage point to economic growth in the U.S. in the second quarter.

The impact will be even greater in Mexico, with second-quarter assemblies scheduled to jump 9% above a year earlier to an annualized 3.1 million units. We estimate that this will add nearly a full percentage point to economic growth in Mexico in the April-June period - the largest contribution from the auto sector since the final months of 2009, when the global economic expansion was in its infancy.

The improvement will be driven by a 44% y/y jump in truck production at General Motors, as assemblies of the new GMT900 pickups begin in Silao, Mexico this spring. In fact, a strengthening U.S. housing market suggests that production of large pickups is going to be a source of strength for both the auto industry and Mexico over the next several years.  Pickup trucks account for roughly one-quarter of overall vehicle production in the southernmost NAFTA member. This compares with roughly 15% of overall production in the U.S.. Aside from General Motors, Nissan will also provide a significant boost to assemblies in Mexico, as it raises its second-quarter truck production 36% y/y.

For its part, the Canadian auto industry currently specializes in meeting demand for the rapidly-growing CUV segment. These models account for 40% of overall Canadian vehicle production and their share will increase as Toyota hires 400 new employees to boost RAV4 output in Woodstock. Vehicle production gains in Canada will also be supported in coming months by the start-up of assemblies for the redesigned Chevrolet Impala, which begins in March at GM's Oshawa No.1 plant. Rising output of the Honda CR-V in Alliston, Ontario will also boost overall assemblies.  However, even with this added production, the auto sector will add only an annualized 0.1% to Canadian economic growth in the second quarter, in line with the contribution in the current period, due to a flat-to-weaker performance in other segments.

SOURCE: Scotiabank - Economic Reports