TORONTO, March 27 /CNW/ - This year will provide further evidence that
the auto industry's focus is shifting to emerging markets from the mature
markets of North America and Western Europe, according to the latest Global
Auto Report released by Scotia Economics.
    "It is widely recognized that emerging markets are the key to the auto
industry's continued growth," said Carlos Gomes, Scotiabank Senior Economist
and Auto Industry Specialist. "However, it is not common knowledge that
combined vehicle assembly capacity in the BRIC nations, Brazil, Russia, India
and China, will climb to 20 million units this year surpassing the
17.4 million units of assembly capacity currently in place in North America."
    North American capacity peaked at 19.6 million units in 2002, and has
fallen by roughly two million units over the past five years, despite the
addition of new plants and ongoing expansion at existing facilities by
Japanese, Korean and European automakers. The fall-off reflects plant closures
by the traditional North American automakers.
    In contrast, assembly capacity in emerging nations has been advancing by
15 per cent per year over the past five years, as automakers, including the
traditional North American producers, have been building new plants in markets
that offer greater growth potential, as well as a lower-cost structure. In
fact, close to 90 per cent of all new capacity put in place over the past five
years has been outside of the mature auto markets of North America, Japan and
Western Europe.
    "We estimate that vehicle assembly capacity in emerging nations now
totals more than 30 million units, roughly 36 per cent of the global total and
more than double the installed capacity in Canada and the United States," said
Mr. Gomes. "Rising vehicle production in emerging nations is particularly
troubling for the Canadian auto parts sector, because the industry remains
almost exclusively focused on the domestic and U.S. markets. These two markets
absorb more than 95 per cent of all Canadian auto parts shipments, but are
increasingly becoming a smaller piece of the global auto industry."

    China Leads Growth in Assembly Capacity

    China will continue to attract the largest share of new global auto
investment, capturing roughly 20 per cent of all new global assembly capacity
over the next five years. However, both India and Russia are also garnering an
increased share, with assembly capacity in each country expected to surge by
nearly 70 per cent over the next five years. Mexico and Brazil are also
experiencing significant growth in new investment.
    While motor vehicle production peaked in Canada and the United States in
1999, Mexico has been able to maintain nearly a decade of largely
uninterrupted growth in production. Vehicle assemblies in Mexico climbed to
2.1 million units last year, up from 1.5 million in 1999, and are set to climb
above 2.5 million early in the next decade - challenging Canada's traditional
position as the second-largest vehicle producing nation in North America.
Canada assembled 2.58 million vehicles in 2007, down from a peak of
3.1 million in 1999.

    Buoyant Global Vehicle Purchases

    Global vehicle purchases continue to climb to record highs, as strength
in emerging markets more than offsets weak sales in the United States. Global
car sales advanced three per cent year-over-year in February, led by surges of
more than 30 per cent in Brazil and 20 per cent in China. These two countries
have sold more than 1.2 million cars in the opening months of 2008, a level
approaching 60 per cent of volumes in the United States, the largest vehicle
market.
    Purchases also remain red hot in Canada, climbing 15 per cent
year-over-year and setting a record for the month of February. We estimate
that this translates to an annualized 1.82 million units, matching the
all-time high set in December 2002. This strong performance reflects enhanced
incentives, as well as a lowering of new vehicle prices by automakers in
response to the strength of the Canadian dollar.
    In contrast, vehicle purchases in the United States posted a double-digit
year-over-year decline in February, falling to a weaker-than-expected annual
rate of 15.4 million units, down from a full-year 2007 total of 16.1 million
units. Light trucks led the slump, as consumers continue to cut back on
durable goods purchases in light of falling home prices, slowing employment
growth and high gasoline prices.
    "Faced with U.S. slumping sales, automakers have slashed their
second-quarter production plans for Canada and the United States to an
annualized 12.7 million units, one of the lowest levels since the economic
downturn of the early 1990s," said Mr. Gomes. "These cutbacks will further
pressure the pace of economic activity, which is in the midst of a significant
loss of momentum, especially in the United States, where payrolls have
declined for two consecutive months for the first time since 2003."

    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.