- China leads the way, but an upturn has begun in most regions

    TORONTO, July 31 /CNW/ - A cyclical recovery is underway in the global
auto industry, according to the latest Global Auto Report released today by
Scotia Economics. Auto sales in June posted their best performance since last
July, after bottoming earlier this year. Purchases have started to improve in
most regions, led by China in the developing markets and Germany in mature
markets. Vehicle production has also started to rebound, enabling the auto
sector to help drive the global economy towards recovery.
    "Global car sales climbed to an estimated 48.0 million units in the
second quarter, up from an eight-year low of 43.0 million in the opening
months of 2009," said Carlos Gomes, Senior Economist and Auto Industry
Specialist, Scotia Economics. "Global economic conditions have begun to
stabilize, with consumers becoming more confident and taking advantage of low
borrowing costs and competitive pricing. Over the past three economic cycles,
car sales bottomed at least one quarter prior to an improvement in the global
economy."
    According to the report, China is spearheading the recovery in both the
auto market and the global economy. Car sales in China accelerated to a 48 per
cent year-over-year (y/y) surge in June, lifting purchases above an annualized
7.0 million units for the first time on record, and well above the 5.9
million-unit peak reached in March 2008 prior to the sharp global economic
downturn.
    Government stimulus and tax incentives are spurring the revival in China.
Economic activity in China advanced by 7.9 per cent y/y in the second quarter,
up sharply from a low of 6.1 per cent in the opening months of 2009.
Automakers boosted vehicle assemblies by 38 per cent y/y in June after a
stronger-than-expected surge in sales in response to cuts in retail taxes and
increased vehicle subsidies in rural areas.
    "Auto sales in China have been increasing rapidly since 2001, and this
pace is expected to continue well into the next decade," commented Mr. Gomes.
    General Motors, China's top-selling brand, padded its lead this year,
with first-half sales soaring 38% to 814,000 units - a level fast-approaching
the 948,000 vehicles it sold in the United States.

    Other Emerging Markets are also Rebounding

    With the exception of Russia, where purchases remain in hibernation, car
sales have recently climbed to record highs in the other key emerging markets
of Brazil and India. In Brazil, a combination of tax breaks, lower prices and
improved confidence lifted sales to a record annual rate of 3.1 million units
in June, 21 per cent above a year earlier, and the third increase in the past
four months. Year-to-date sales have advanced four per cent in Brazil, led by
a 28 per cent surge at Ford - the fourth-largest automaker in Brazil.
    Conditions are also stabilizing in India, with the decline in business
sentiment starting to be reversed alongside significant monetary stimulus. Car
sales have climbed by nine per cent so far this year and will be bolstered in
coming months by the recent launch of the low-cost Tata Nano.
    In Western Europe, government scrappage programs have led to
stronger-than-expected car sales in the first half of 2009. However, the
improvement in other indicators has lagged.
    "Unemployment in Western Europe continues to move higher and further
labour market adjustment lies ahead," said Mr. Gomes. "As a result, we expect
car sales in Western Europe to soften next year, as the boost from the
scrappage programs fades."

    North America Passes the Inflection Point

    Sales in North America bottomed in the opening months of 2009, and will
be buoyed in coming months by the recently implemented "cash-for-clunkers"
program in the United States. The legislation provides consumers with trade-in
vouchers up to $4,500 US to buy a new vehicle, provided that their new car
gets 10 miles-per-gallon (mpg) better gas mileage than the trade-in model. For
light trucks, the improvement must be five mpg better than the replacement
model.
    Other leading indicators of auto sales, such as used car prices and
consumer sentiment are also on the mend in both the United States and Canada,
pointing to stronger sales ahead. In the United States, used car prices have
increased year-over-year for two consecutive months for the first time since
October 2007 and just before the advent of the latest U.S. recession. In
Canada, used car prices are now roughly unchanged from a year earlier, the
best performance since mid-2006, and a significant improvement from nearly a
double-digit decline last summer.
    "Economic activity is poised to get a much needed shot in the arm from
the auto industry revival," concluded Mr. Gomes. "With sales on the upswing
and industry-wide inventories back down to normal levels, the re-start of
idled auto assembly plants will boost third-quarter economic activity across
North America by roughly two percentage points. This represents a sharp
reversal from the past nine months, when the economic downturn was intensified
by significant auto industry cutbacks."

    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.