- China and Brazil Will Lead the Way in 2008

    TORONTO, Jan. 18 /CNW/ - Global car sales advanced a
stronger-than-expected four per cent in 2007, led by a surge of more than 20
per cent in China and South America, according to the latest Global Auto
Report released today by Scotia Economics.
    "Emerging markets will remain in the forefront in 2008, more than
offsetting lower volumes in mature markets and lifting global volumes to a
fifth consecutive record," said Carlos Gomes, Scotiabank's auto industry
specialist. "However, gains will moderate to one per cent, as purchases in the
United States slump to the lowest level since the mid-1990s, undercut by the
housing-led slowdown and credit crunch."

    South America Leads Global Sales Gains

    While Asia, especially China, continues to grab the economic headlines,
South America became the fastest-growing regional auto market in 2007,
overtaking the rapid growth of the world's two most populous markets, China
and India.
    "The acceleration across South America reflects continued strong economic
growth in the region, as well as ongoing strength in agricultural and
industrial commodity prices, which loom large in the region's exports," said
Mr. Gomes. "Despite some slowing in global economic activity over the coming
year, led by the United States, South America will be the only region to post
a double-digit gain in car sales."
    Economic growth in South America will remain close to five per cent in
2008, the fifth consecutive year of robust expansion, as the continent has
been largely unaffected by the housing and financial sector disruptions
affecting many of the developed nations. While a deeper economic downturn in
the U.S. economy remains a risk, South America relies on the United States for
less than 20 per cent of its exports. In contrast, a U.S. slowdown will have a
much greater impact on economic activity in Mexico, as more than 80 per cent
of Mexico's exports are destined for the United States.
    However, even in Mexico, strengthening domestic demand is more than
compensating for the weakness in the U.S.-focused export-oriented
manufacturing industries. For example, the government's five-year
infrastructure plan has quickened the pace of public sector projects,
providing support for overall economic growth and helping to keep new vehicle
purchases at 1.1 million units - in line with the average of the past five
years.

    China Will Become the Largest Car Market

    China has been the fastest-growing auto market over the past decade, with
sales surging ten-fold to more than five million units in 2007. Growth has
been driven by rapid economic expansion and increasing wealth, double-digit
average wage gains over the past decade and more than a three-fold surge in
equity markets.
    "Despite this rapid growth, vehicle penetration remains very low at only
27 vehicles per thousand people, compared with a G7 average of 610. With a
population of 1.3 billion people and a vehicle fleet of only 35 million, China
will continue to experience rapid growth," added Mr. Gomes. "While car sales
gains moderated to 22 per cent in 2007 and will likely increase by 15 per cent
in 2008 to 5.9 million units, China is on target to overtake the United States
and become the largest automotive market by roughly 2020."

    Low-Cost Vehicles Will Triple India's Car Market

    India is also expected to continue to post double-digit sales gains
alongside rising incomes. Vehicle purchases are expected to reach 3.0 million
by 2015, up from 1.1 million last year, as the size of the middle class jumps
from the current 350 million people. Estimates suggest that by 2025, India's
middle class could exceed 500 million people, one-third of the overall
population. Tata Motors recently unveiled its new low-cost US$2,500 car, which
will go on sale in October 2008. The company is targeting India's 45 million
motorcycle owners with the new model and plans to eventually export the
vehicle to other emerging nations. Global automakers have also announced
investments of more than US$6 billion in India to meet rising demand.

    Weak vehicle sales in North America

    Weak first-half vehicle sales will pull full-year 2008 U.S. volumes down
to 15.0 million units, the lowest level since 1995, from an average of
16.6 million over the past five years. The fall-off reflects the changing
economic environment facing Americans, with purchasing power and confidence
undercut by the housing-led slowdown, declining home prices and equity values,
as well as moderating job and income gains. High gasoline and interest costs
are also cutting into disposable income and discretionary purchases.
    "Canadian vehicle sales are expected to soften to 1.61 million units in
2008 from 1.65 million last year, with the slowdown concentrated in Canada's
manufacturing heartland, Ontario and Quebec. Weaker U.S. growth, a strong
Canadian dollar and slowing exports will undercut employment growth in Central
Canada, dampening vehicle demand," said Mr. Gomes.

    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.