TORONTO, June 6, 2013 /CNW/ - Global vehicle sales bounced back from a sluggish performance at the end of the first quarter, advancing 8% year-over-year (y/y) in April, according to the Scotiabank Global Auto Report released today. The report noted the improvement was broad based, but was led by more than a 30% y/y surge in South America.

"The strength in global car sales combined with low inventories in many countries are prompting automakers to ramp up production across most of the world - a development that will support manufacturing and overall economic activity, at a time when some surveys point to moderation on the factory floor," said Carlos Gomes, Scotiabank's Senior Economist and Auto Industry Specialist. "Brazil is leading the way, but assemblies rebounded sharply in most regions in April and will continue to gain momentum in coming months."

For more details about the Scotiabank Global Auto Report, please read the full report below.

Scotiabank 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.

Scotiabank is a leading multinational financial services provider and Canada's most international bank. With more than 83,000 employees, Scotiabank and its affiliates serve some 19 million customers in more than 55 countries around the world. Scotiabank offers a broad range of products and services including personal, commercial, corporate and investment banking. In December 2012, Scotiabank became the first Canadian bank to be named Global Bank of the Year and Bank of the Year in the Americas by The Banker magazine, a Financial Times publication. With assets of $754 billion (as at April 30, 2013), Scotiabank trades on the Toronto (BNS) and New York Exchanges (BNS). For more information please visit www.scotiabank.com.

For high-resolution video clips visit http://media.scotiabank.com/cdaen/multimedia/mc-videos.html. For more Scotiabank economic publications visit http://www.scotiabank.com/ca/en/0,,3112,00.html

GLOBAL SALES AND PRODUCTION ACCELERATE

--- South America Leads Broad-Based Improvement

AS AUTO SALES ADVANCE …

Global vehicle sales bounced back from a sluggish performance at the end of the first quarter, advancing 8% year-over-year (y/y) in April. The improvement was broad based, but was led by more than a 30% y/y surge in South America. Purchases in Asia also posted a double-digit increase, while activity even edged up in Western Europe for the first time since September 2011.

More recent data for May point to further gains across North America. U.S. passenger vehicle sales climbed to an annualized 15.3 million units in May, up from an average of 15.1 million during the previous three months. The improvement reflects the highest consumer confidence since early 2008, easy credit and an improving housing market. Pickup truck volumes — a barometer of the health or weakness of the small business and construction sectors — were the main beneficiaries, with purchases of Detroit Three pickups surging 26% y/y, triple the overall industry increase.

Sales also continued to improve in Canada last month, climbing 5% above a year earlier to an annualized 1.78 million units — the best performance since early 2008, prior to the global economic downturn.  The gains were broad-based, with seven manufacturers posting double-digit y/y increases, partly due to enhanced incentives. As in the U.S., light trucks — especially pickups and crossover utilities — led the way with an 8% year-over-year increase.  So far this year, light truck purchases have advanced 6% year-over-year, with most of the strength concentrated in Western Canada.

…GLOBAL VEHICLE PRODUCTION REBOUNDS

The strength in global car sales combined with low inventories in many countries are prompting automakers to ramp up production across most of the world — a development that will support manufacturing and overall economic activity, at a time when some surveys point to some moderation on the factory floor. Brazil is leading the way, but assemblies rebounded sharply in most regions in April and will continue to gain momentum in coming months.

Vehicle production in Brazil surged 31% y/y in April, led by a staggering 56% y/y increase in truck output. The resurgence in vehicle sales and production in South America's largest economy largely reflects government stimulus policies, especially the reduction of the industrial tax for vehicles produced in Brazil. The tax break is designed to support the Brazilian auto industry and was originally introduced last year, but was recently extended. The tax reduction is currently scheduled to remain in effect through the end of 2013 and will provide a boost to overall economic activity, as the auto sector accounts for nearly 4% of Brazil's GDP. In fact, rising vehicle production in April lifted overall industrial activity in Brazil 8.4% y/y - the best performance since August 2010.

Vehicle output in Asia also rebounded in April, led by a 20% y/y increase in Thailand and a solid rebound in Japan. A stronger-than-expected improvement in industrial activity in Japan during April was driven by a 16% month-to-month jump in vehicle production on the island nation. In fact, aside from the outsized surge in vehicle assemblies, industrial activity in Japan was largely flat. In addition, with vehicle inventories in Japan 23% below a year earlier, further gains are scheduled for coming months.  Rising assemblies will provide a further boost to industrial activity, as the sector accounts for 10% of overall industrial production in Japan.

Japanese automakers are also boosting production outside of Japan. Data for April indicate that assemblies by Japanese automakers outside of Japan climbed 9% y/y — a significant improvement from a flat performance during the first quarter. Most of the increase occurred in China, as the impact of the territorial dispute with Japan over resource-rich islands appears to be moderating.

Auto output has also started to rebound in South Korea, after a double-digit decline in the first quarter. The improvement reflects continued gains in global market share by Hyundai and Kia. Global sales by Hyundai-Kia Group have advanced 7% y/y through May double the increase in global industry volumes. Continued gains in global share by Korean automakers point to accelerating industrial activity in South Korea. Two-thirds of all vehicles sold globally by the Hyundai-Kia Group are produced in South Korea.

Automakers also plan to boost North American production in coming months.   Given strengthening demand, North American vehicle output is scheduled to jump to an annualized 16.4 million units in the second quarter — the highest level since 2006 and a significant ramp up from an already elevated 16 million during the January to March period. In fact, several automakers are foregoing their two-week summer shutdown to continue cranking out new cars and light trucks to keep dealers flush with product. As a result, third-quarter assemblies (June-September) are scheduled to accelerate to 5% y/y, from a 2% increase through the end of June. Output will gain momentum throughout the quarter, with September assemblies scheduled to jump more than 8%.

Mexico and the U.S. will benefit most from the ramp up in vehicle assemblies, while activity in Canada will be held back as General Motors ceases production at its Oshawa Consolidated Line by the end of June.  Assemblies in Mexico are likely to reach an annualized 3.3 million units in the July-September period, up from 3.0 million in the first half of 2013.  Output will be boosted by the changeover to the 2014 model year for General Motors' new GMT900 pickup trucks.  Production of the new trucks began in Silao, Mexico last month and line speeds will gain momentum throughout the summer.

Assemblies in Mexico will also get a significant boost from the addition of new products. For example, Nissan will raise its third-quarter Mexican production 44% y/y, due to the recent production start-up of a small cargo van at Cuernavaca. The company will also add a small multipurpose vehicle at Aguascalientes.

The strong rebound in demand for pickup trucks and crossover utility vehicles this year has left several models in short supply and means that truck production will post the strongest gains during the summer months. In the case of pickups, Ford's Kansas City 2 plant which builds the Ford F-150 will change from a two-shift to a three-shift operation during the third quarter. This move will add roughly 50,000 units to the facility's annual capacity.

SOURCE: Scotiabank - Economic Reports