TORONTO, July 28, 2011 /CNW/ - Global car sales advanced five per cent in the first half of 2011, despite rising headwinds associated with sovereign debt problems in Western Europe, vehicle shortages from Japanese automakers, and increased consumer caution due to near triple-digit oil prices and higher financial market volatility since April, according to the latest Global Auto Report released today by Scotia Economics.

"We expect a further acceleration in the second half of 2011, as product shortages wane, and the pace of job creation in emerging markets remains solid," said Carlos Gomes, Senior Economist and Auto Industry Specialist for Scotia Economics.  "Job growth in developing nations exceeds three per cent year over year — nearly five times the tepid growth in Western Europe and North America. Consumer confidence is also likely to improve internationally, as economic and financial conditions normalize from recent strains. Rising global industrial orders — currently advancing at the fastest pace since February — also point to stronger activity in the second half of 2011."

After being held back in April and May by shortages at Japanese automakers, car sales in China posted a double-digit advance in June, the fastest increase since January. This reflects increased availability of Japanese models, as production began to be ramped up, as well as ongoing solid gains by other manufacturers. Of note, even as sales of Japanese brands slumped in the second quarter in China, purchases of other models continued to post double-digit gains. In particular, luxury volumes are leading the way, with sales of European models surging by nearly 25 per cent in the first half of 2011.

Car sales in China will also be supported by a replacement scheme for rural vehicle buyers introduced in early June. Under the plan, rural buyers will get up to US$2,800 to replace their older vehicle with a new model. The incentive applies on purchases through December 31, 2011 and was likely a factor in helping lift purchases in June. We expect car sales in China to climb to 10.4 million this year, up from 9.4 million in 2010, and to exceed 25 million units per annum by 2020.

"While China is the world's largest auto market, Russia is posting the strongest gains this year, with first-half sales surging a stronger-than-expected 56 per cent year over year," stated Mr. Gomes. "The improvement reflects a government scrappage program which was in effect through May, as well as robust economic growth bolstered by high energy prices. Russia is the world's largest oil producer, with annual output of 10 million barrels — 1.4 million barrels above production in Saudi Arabia."

According to the report, car sales in India jumped 15 per cent in the first half of 2011, a growth rate expected to be maintained in coming months, alongside robust economic growth of roughly eight per cent. Industrial activity remains strong in India, and a good monsoon season suggests an improving outlook for the agricultural sector, which will support rural discretionary spending.

"We expect car sales in India to total two million units this year, double the level prevailing as recently as 2006," noted Mr. Gomes. "Purchases are likely to double again by the end of the decade. India's demographic and income profile are very supportive of rapid gains in car sales. The nation is home to 20 per cent of the world's population of less than 25 years, and its per capita income is advancing by eight per cent per annum — a level only marginally below income growth in China and roughly three times faster than growth in North America."

Car sales in South America have accelerated to a double-digit gain this year — the strongest increase since 2007. Surging volumes in small markets, such as Chile, has more than offset some moderation in Brazil. Slower gains in Brazil reflect a jump in auto loan rates from 22.8 per cent late last year, to more than 30 per cent since April. However, even with high loans rates, Brazil continues to benefit from strengthening commodity prices, enabling it to become the fourth-largest auto market in 2011, surpassing Japan. Rising incomes and favourable demographic trends suggest that Brazil will become the world's third-largest car market by mid-decade, overtaking Germany.

Turning to North America, car sales in the United States have moderated to less than an annualized 12 million units in recent months, but will strengthen by September, as Japanese automakers are likely to launch major sales campaigns once their inventories climb to a more normal level of 60 days' supply, up from a depleted 47 days' at the end of June. Passenger vehicle sales in Canada advanced three per cent y/y in the first half of 2011 and are expected to climb to 1.59 million in 2011 - in line with the average of the past decade. In contrast, full-year 2011 U.S. volumes will still remain at least 20 per cent below the decade average of 16.4 million units.

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