China Bounces Back, While Canada's Resource-Rich Provinces Continue to Outperform

TORONTO, May 30, 2012 /CNW/ - Global vehicle sales continue to move higher, but the gain moderated to three per cent year over year (y/y) in April from nearly a five per cent advance in the first quarter, according to a Global Auto Report released today by Scotiabank Economics.

Car and light truck sales remained buoyant in the United States, averaging an annualized 14.4 million units in April - roughly in line with the 14.5 million units pace of the first quarter. Fleet volumes led the way last month, advancing nearly 10 per cent above a year earlier.

"The rebound continues to be driven by rising replacement demand, improved credit availability, the drive for increased fuel efficiency, as well as improving business confidence, which has fully recovered from the sharp fall-off experienced following last year's earthquake in Japan," said Carlos Gomes, Senior Economist and Auto Industry Specialist, Scotiabank Economics. "This rebound highlights that more companies believe the economic recovery is sustainable, prompting them to replace their aging vehicles."

In Canada, passenger vehicle sales softened to an annualized 1.65 million units last month, from a first-quarter average of 1.71 million.

As in previous months, the resource-rich provinces of Western Canada continued to outperform, with purchases advancing three per cent above a year earlier in April, compared with a two per cent decline in the rest of Canada.

While the pace of economic growth has slowed in China this year, car sales have started to bounce back and should strengthen further in coming months alongside continuing employment gains, rising incomes, improved liquidity, as well as the recent introduction of new government subsidies for fuel-efficient models.

Car sales in China should also be supported by a recent government announcement of a RMB 26.5 billion subsidy program for purchases of energy-efficient products. A total of about RMB 6 billion (US$952 million) will be set aside for fuel-efficient cars with engines of less than 1.6 litres.

"More importantly, the industry will benefit from ongoing expansion, as global auto makers recognize that the auto industry in China is only in the early stages of its life cycle," said Mr. Gomes. "Vehicle penetration is only 58 per 1,000 people - less than one-tenth the level in the G7 nations, and per capita incomes are continuing to grow rapidly."

Assembly capacity in China will expand by nearly 25 per cent this year and a further double-digit increase is projected for 2013. European automakers are leading the expansion parade and will increase their capacity in China to 4.2 million units by 2013 - a level matching Germany's total vehicle output in the mid-1990s and more than a 30 per cent jump from their production capabilities in China last year.

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.