SOURCE: Scotiabank

Scotiabank

March 20, 2014 07:30 ET

Record Global Auto Sales and Production in Early 2014: Scotiabank

TORONTO, ON--(Marketwired - March 20, 2014) - Global vehicle sales climbed to record highs in February, with gains accelerating to 7% year-over-year alongside a double-digit increase in Asia and an ongoing recovery in Western Europe, according to the latest Scotiabank Global Auto Report. In North America, passenger vehicle sales are being bolstered by the rising popularity of Crossover Utility Vehicles (CUVs). In Canada, CUVs are becoming the most popular vehicle as purchases of these models have outpaced sales of small cars so far this year.

"Global vehicle production has climbed to record highs in early 2014, even as severe winter weather dampened output in North America," said Carlos Gomes, Scotiabank's Senior Economist and Auto Industry Specialist. "However vehicle assemblies began to improve in the U.S. last month and output is expected to strengthen throughout North America as automakers increase production in the second quarter. In fact, assemblies are expected to continue ramping up across the globe, providing a welcome boost to global economic activity."

Highlights in the report include:

  • Rising vehicle production is expected to add 0.7 percentage points to economic growth in the U.S. in the second quarter -- the largest increase in two years.
  • The auto industry will add a full percentage point to economic growth in Mexico in the April-June period -- the largest contribution in more than four years.
  • In Canada, higher auto production is estimated to add only 0.2 percentage points to economic growth during the second quarter.

Read the full Scotiabank Global Auto Report below or at http://www.scotiabank.com/ca/en/0,,3112,00.html.

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Record Global Sales And Production In Early 2014
-- North American Output Schedules Point to Further Gains 

Recent Global Sales Developments

Global vehicle sales climbed to record highs in February, with gains accelerating to 7% y/y alongside a double-digit increase in Asia and an ongoing recovery in Western Europe. China led the way with volumes increasing 22% y/y, largely due to a 58% surge in purchases of crossover utility vehicles (CUVs). Japan also posted the sixth consecutive double-digit gain, as households are buying new vehicles ahead of a three percentage point increase in the national sales tax in April.

Car sales in Western Europe climbed above a year earlier for the sixth consecutive month, with gains in every major market, except France. Spain led the way, with sales jumping 18% above a year earlier due to the recent renewal of the vehicle scraping program. Purchases in Germany -- the region's largest market -- also advanced for the third consecutive month, as the economic recovery has begun to unleash replacement demand. Used car prices in Germany -- a leading indicator of new vehicle sales -- have been gaining momentum since mid-2013 and are currently up 12% y/y -- one of the fastest gains on record and a clear indication that households are feeling more comfortable about replacing their aging vehicles.

In North America, passenger vehicle sales are being bolstered by the rising popularity of CUVs. These models garnered a record 28% of the U.S. market last month, up from a full-year total of 25.5% in 2013 and less than 24% in 2012. CUVs are even more popular in Canada capturing a record one-third of overall sales in February, up from 27.8% a year ago. In fact, CUV purchases have outpaced sales of small cars so far this year, becoming the largest segment in Canada.

Auto Production Buoys Economic Activity

Global vehicle production has climbed to record highs in early 2014, even as severe winter weather dampened output in North America. However, vehicle assemblies began to improve in the United States last month, and output is expected to strengthen throughout North America as automakers increase production in the second quarter. In fact, assemblies are expected to continue ramping up across the globe, providing a welcome boost to global economic activity. Output gains will continue to be strongest in Asia, partly due to capacity expansion, and will help calm financial market fears of an economic slowdown in China.

After falling to an annualized 15.8 million units in January, partly due to inclement weather and parts shortages at some facilities, vehicle production in North America improved in February and, despite the highest U.S. dealer inventories in nearly a decade, is scheduled to climb to an annualized 16.9 million units in the April-June period. The current second-quarter plans are well above the 2013 full-year production of 16.5 million units and are at the highest level since mid-2002. The ramp up is entirely driven by light trucks and highlights the shift in consumer preference towards crossover utility vehicles. Through February, purchases of CUVs have surged 13% in Canada and the United States, while car sales have declined 7% y/y over the same period.

After subtracting from growth in early 2014, rising vehicle production is expected to add 0.7 percentage points to economic growth in the United States in the second quarter -- the largest increase in two years and a sharp reversal from an estimated 0.4 percentage point decline in the opening months of 2014. The impact will be even greater in Mexico, with second-quarter assemblies scheduled to jump 5% above a year earlier to an annualized 3.2 million units. Sharper output gains in Mexico reflect the ramp up of production by Nissan, Mazda and Honda at recently opened assembly plants. We estimate that the auto industry will add a full percentage point to economic growth in Mexico in the April-June period -- the largest contribution in more than four years.

Assemblies will also increase in Canada, but the gain will lag its NAFTA partners over the next several months. We estimate that higher auto production sector in Canada to add only 0.2 percentage points to economic growth during the second quarter, as output gains are held back by re-tooling at a facility in the Greater Toronto Area.

Increases in vehicle production are even greater outside of North America, and is being driven by capacity expansion and rising demand. For example, despite concerns that economic activity is slowing in China, assemblies in the world's largest auto market have surged 11% so far this year and the gains will accelerate in coming months. This reflects the fact that automakers continue to invest in new assembly plants, despite some fears of overcapacity in China and other emerging markets. Vehicle assembly capacity in China is already more than double the North American total of nearly 18 million units, and will jump to more than 40 million units by 2015. Most of the new capacity in China is being put in place by the major global automakers, which continue to gain share in the world's largest auto market.

Volkswagen plans to invest more than US$25 billion in new production facilities in China through 2018. This includes the addition of three new assembly plants by next year. These three facilities will have the capacity to build more than 600,000 vehicles per annum and are on top of the 3.1 million units that VW built in China in 2013. In fact, VW's production in China will likely top the automaker's output in its home region of Western Europe this year.

General Motors plans to open four additional plants in China through 2015, increasing its capacity in China by 30% to 5 million units per year. This includes a US$1.3 billion investment in a Cadillac plant. GM aims to double its Cadillac sales in China to 100,000 by 2016. Ford is also building two new assembly plants in China, lifting its annual assembly capacity to 1.2 million units.

Output is also rebounding in Western Europe, led by Germany and Spain. The increase reflects strengthening sales across the region. In fact, strong sales in the opening months have added to optimism, lifting new orders from assembly plants in Spain -- a leading indicator of European auto production -- to the highest level since late 2011.

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