TORONTO, June 6, 2011 /CNW/ - The Japanese earthquake and tsunami continue to impact the automobile industry and the global economy, according to the latest Global Auto Report released today by Scotia Economics.  Global vehicle sales softened in May, with purchases roughly unchanged from a year ago - a significant slowdown from a six per cent increase during the previous four months. In addition, the downturn in global vehicle output also accelerated in May, further dampening global economic activity. However assemblies have hit bottom and will post a sequential double-digit increase in the third quarter, boosting economic growth.

"Vehicle sales in the United States slumped below an annualized 12 million units in May, undercut by a shortage of Japanese models on dealer lots," said Carlos Gomes, Senior Economist and Auto Industry Specialist, Scotia Economics. "During the previous four months, purchases had consistently remained above 13 million units. Excluding Japanese brands, sales continued to advance, climbing seven per cent above a year earlier, led by double-digit increases for South Korean brands."

The report notes that the industry expects the sales slowdown to be temporary, and has raised its third-quarter production schedule 18 per cent above a year earlier. Canadian plants will benefit most from higher output in the July-September period, with production expected to jump 21 per cent year over year, compared to only a three per cent gain in the first half of 2011.

"Vehicle sales also weakened in Canada last month, with volumes slumping to only an annualized 1.40 million units from an average of 1.67 million in March and April," continued Mr. Gomes. "In fact, looking only at the month of May, last month's volumes were the lowest since 1997. As in the United States, Japanese automakers accounted for most of the decline. A shortage of vehicles will continue to hold back sales through the summer, but a rebound is expected once dealer lots are restocked later this year."

Rising Freight and Profitability Drive Heavy Truck Recovery

Heavy truck demand has been on a steep ascent across North America since bottoming in early 2010, with production recently climbing to a four-year high. Further gains lie ahead, as the trucking industry is in the early stages of a replacement cycle. In addition, despite slower economic growth in the United States in recent months, leading indicators of the North American trucking market are flashing green, pointing to further double-digit gains next year.

The three largest global heavy truck manufacturers now expect to produce roughly 300,000 heavy trucks in North America this year - a level roughly in line with annual output prevailing during much of the past decade, and up from only 202,000 in 2010. However, even with accelerating output, demand growth is outstripping supply, lifting the industry's order backlog to the highest level since late 2006.

"The sharp increase in heavy truck assemblies reflects a rush of new orders placed by fleet owners attempting to respond to rising freight demand by upgrading and increasing the size of their vehicle fleet," stated Mr. Gomes. "This represents a sharp reversal from recent years, when the trucking industry underwent a sharp downturn with more than 6,000 trucking companies - mainly smaller carriers - going bankrupt during the 2007-2009 global economic downturn. The industry's rationalization is estimated to have reduced North American trucking capacity by roughly 13 per cent."

With North American truck production slumping in recent years, the industry is now facing capacity constraints. As a result, heavy truck manufacturers have been adding capacity. 700 workers are being recalled at a major plant in New River Valley, Virginia to boost production. The world's largest truck maker is expanding factories in Mexico. In Canada, a truck maker has ramped up assemblies at its Sainte-Thérèse, Quebec plant to more than 600 units per month, up from an average of 470 trucks last year.

Faced with a declining market share, a U.S.-based truck maker will decide by the summer whether it will re-open its heavy-duty truck plant in Chatham, Ontario. Production at the facility ceased in June 2009 in the midst of slumping demand for commercial trucks. Even if the Chatham plant re-opens, Canada's share of North American heavy truck assemblies has been dealt a severe blow in recent years.  Canadian heavy truck output has dropped from 74,000 units in 2006, to only 5,600 vehicles in 2010. As a result, Canada now accounts for only two per cent of North American heavy truck assemblies, down from 10 per cent as recently as 2008.

"A key beneficiary of the revival in heavy truck demand is tire production," concluded Mr. Gomes. "In particular, a major tire manufacturer operates three plants in Nova Scotia, including producing commercial truck tires in Waterville. The company recently added 75 new technical and manufacturing employees, as well as a new building and new equipment to support production of a popular tire at the facility."

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