TORONTO, July 31 /CNW/ - Global car sales advanced by a
stronger-than-expected three per cent in the first half of 2007, led by a 27
per cent surge in China, according to the latest Global Auto Report released
today by Scotia Economics. However, despite China's robust performance, South
America has overtaken Asia as the world's fastest-growing regional vehicle
market.
    Brazil is the largest auto market in Latin America, but Peru is the
fastest-growing market. Sales in Peru surged by 41 per cent in 2006 and have
posted a further 38 per cent jump through May 2007, as economic activity
continues to expand in excess of 7 per cent year-over-year.
    "Peru is one of the fastest-growing economies in the Americas, but it has
one of the lowest vehicle ownership rates," said Carlos Gomes, Scotiabank's
auto industry specialist. "There are only 24 vehicles for every 1,000 people
in Peru, less than China and only one-fifth the average across all of Latin
America and the Caribbean."
    In Brazil, accelerating economic growth, expected to exceed four per cent
in 2007, the fastest pace in three years, and ongoing reductions in interest
rates have lifted car sales by 27 per cent in the first half, roughly double
the 13 per cent gain posted in 2006. Purchases are on target to exceed
1.9 million units in 2007. Moderating inflation has allowed the Central Bank
of Brazil to cut short-term interest rates by nearly 800 basis points since
mid-2005. Sharp increases in domestic lending activity are also buoying car
sales, with roughly 70 per cent of new car sales financed. Auto loans surged
by 33 per cent last year and have continued to soar in the first half of 2007
alongside the lowest inflation-adjusted interest rates since late 2003.
    "Strength in auto production is, and will continue to be, a key driver of
industrial activity in Brazil," said Mr. Gomes. "The auto industry invested
US$35 billion in Brazil between 1994 and 2006, and has earmarked an additional
US$6 billion through 2011, lifting assembly capacity to 3.5 million units
early next decade."
    A rapid sales gain in South America enabled Ford to return to
profitability in the second quarter of 2007, for the first time since early
2005. The company's volumes in the region surged by 22 per cent year-over-year
in the second quarter, lifting its pre-tax profits in Latin America to a
record US$255 million, more than US$2,000 per vehicle and the highest on
record (based on data going back to 1995.) South America has consistently been
Ford's most profitable overseas operation, surpassing both Asia and Europe,
regions where the company posts higher unit sales.
    General Motors (GM) is also benefitting from the sales acceleration in
South America. The company's volumes in the region surged by 18 per cent
year-over-year in the first half of 2007, outpacing a 14 per cent increase in
Asia and helping to lift its global volumes by two per cent. General Motors
now sells more than one million vehicles annually in Latin America, nearly
double its volumes as recently as 2003. During the second quarter, GM's sales
in South America soared by 20 per cent, enabling it to surpass Toyota and
recapture the lead in global sales.
    Car sales in Chile have also gained significant momentum in 2007, with
volumes advancing 21 per cent year-over-year in the first half, more than
double the nine per cent gain in 2006. This reflects acceleration in Chile's
GDP growth to roughly six per cent, up from 4.5 per cent last year. Chile has
the highest GDP per capita in Latin America at around US$8,300, and one of the
highest vehicle penetration rates at 13.1 per cent compared with a regional
average of 10 per cent. We expect car sales in Chile to exceed 150,000 units
in 2007 and to approach 200,000 units by decade-end, up from 117,000 units in
2006.
    In contrast to South America, vehicle sales and production have edged
down in Mexico this year alongside slowing economic activity in its main
trading partner, the United States. In particular, vehicle production in
Mexico has slumped by five per cent in the first half of 2007 alongside lower
exports to the United States.
    "Despite this year's sales slowdown, Mexico remains North America's only
automotive growth market, with a vehicle penetration rate of 0.22 compared
with an average penetration of 0.61 for the G7 industrialized nations," said
Mr. Gomes. "Mexico also continues to attract significant automotive investment
due to inexpensive labour and rising productivity. We estimate that
productivity levels in Mexico's vehicle assembly plants now lag U.S.
facilities by only three per cent, compared with roughly a 50 per cent
disadvantage at the turn of the millennium."
    In contrast with its NAFTA partners, Canada posted a six per cent gain in
passenger vehicle sales in the first half of 2007. In particular, purchases
have accelerated since late March, when the federal government introduced its
rebate for fuel-efficient models. We estimate that sales of vehicles
benefitting from Ottawa's rebate have surged by nearly 90 per cent so far this
year, single-handedly lifting industry volumes.
    Rapid sales gains in Alberta, where employment growth exceeds 4.5 per
cent, more than double the national average, and in Saskatchewan are also
buoying overall Canadian volumes. These two provinces now account for a record
19 per cent of Canadian vehicle purchases, up from an average of less than
15 per cent over the past decade.
    Turning to the United States, rising incentives, such as zero per cent
financing and employee discounts, are being overwhelmed by the impact of
falling house prices and high energy costs. Vehicle sales fell to an
annualized 15.6 million in June, the lowest level since October 2005, in the
aftermath of Hurricanes Katrina and Rita. Full-year volumes are expected to
fall below 16 million units for the first time in nearly a decade.

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