Popularity of More Fuel-Efficient Models Finally Beginning to Unfold

TORONTO, March 29, 2012 /CNW/ - Global vehicle sales continue to improve, with gains accelerating to a double-digit, year-over-year (yr/yr) increase last month, according to a Scotia Economics' Global Auto Report released today.

"This is the strongest growth since the spring of 2010," said Carlos Gomes, Senior Economist and Auto Industry Specialist, Scotia Economics. "The rebound continues to be driven by rising replacement demand from both households and businesses, the drive for incremental fuel efficiency, as well as the strongest pace of year-over-year job creation since late 2006."

Purchases in the U.S. jumped to an annualized 15 million units in February, up from an already-robust 14.1 million in January. Last month's solid performance was the highest since early 2008, exceeding even the annualized 14.2 million-unit pace attained during the 'cash-for-clunkers' program in mid-2009.

Passenger vehicle sales in Canada also remained strong in February, with volumes advancing 11 per cent yr/yr - the second consecutive double-digit yr/yr increase, and a sharp acceleration from a full-year improvement of two per cent in 2011.

"Business purchases are leading the North American auto market recovery in 2012," added Mr. Gomes, "but households are also increasingly in a buying mood, leading Scotia Economics to increase our annual sales forecast for both Canada and the U.S."

Vehicle purchases by business, government and rental companies have soared by more than 30 per cent in the U.S. and by nearly 25 per cent in Canada in the opening months of 2012, helping to lift volumes in both nations to the highest level since early 2008 prior to the global economic meltdown.

The sharp increase in fleet purchases across North America indicates that businesses are feeling increasingly more confident about the economic outlook, especially with the European debt crisis fading from the headlines. Over the past two years, U.S. vehicle sales tended to weaken considerably whenever eurozone financial strains intensified. We estimate the decline tended to average an annualized 300,000 units from the prevailing trend. The impact was even greater in Canada, prompting the industry to scale up incentives in the spring of both 2010 and 2011 in response to faltering purchases.

"With corporations flush with cash, companies on both sides of the border are upgrading their fleet with more fuel-efficient models - a development that had been slow to unfold," said Mr. Gomes. "In fact, fleet volumes - which account for more than 40 per cent of overall U.S. car and light truck sales - had significantly lagged the overall auto cycle improvement."

The Canadian auto market is currently expanding at the fastest pace since early 2010, when the global economy was in the early stages of climbing from the depths of the recession. We estimate purchases remained near an annualized 1.70 million units in February, up from a three-month average of 1.63 million units and well above the full-year 2011 total of 1.59 million cars and light trucks."

Car sales are leading the way in Canada, as rising oil and gasoline prices are prompting Canadians to shift to smaller fuel-efficient cars. This represents a sharp reversal from recent years, as car sales continued to weaken through 2011, even as a rebound in light truck volumes lifted overall vehicle sales in both 2010 and 2011.

Fleet activity is not as important in the Canada, normally accounting for roughly 20 per cent of overall vehicle purchases. However, fleet volumes had also underperformed, with cautious businesses slashing purchases of new cars and light trucks to only 12 per cent of the overall new vehicle market in 2010, before edging up to 13 per cent last year. The current revival in business purchases this year has lifted this segment's share an additional two percentage points to 15 per cent of the overall Canadian market - the best performance since 2007.  Purchases of new fuel-efficient cars - particularly imported brands - are leading the way, soaring by nearly 30 per cent in the opening months of 2012.

"In Canada, the resource-rich provinces of Alberta and Saskatchewan are leading the gain in fleet volumes in 2012," said Mr. Gomes. "Fleet activity in Saskatchewan has soared by 63 per cent so far this year, while Alberta has posted a 35 per cent jump. Business confidence is much higher in these provinces than in the rest of Canada."

Scotiabank economists and market strategists are located in Canada, the U.S., Mexico, Peru, Chile, Thailand, Hong Kong, the United Kingdom and France. The team provides in-depth commentary regarding the factors shaping the outlook for the global economy, currencies, capital markets and commodities as well as coverage of monetary and public policy issues.