TORONTO, ON - April 30, 2014 /CNW/ - Global vehicle sales remained strong in March, climbing 6% above the previous year, according to the Scotiabank Global Auto Report released today. The increase was driven by a double-digit increase in Asia, an ongoing recovery in Western Europe and some improvement in the U.S., following several months of severe winter weather.

"Most major vehicle producers are geographically diversified, or in the case of emerging markets such as China, assemble cars and trucks mainly for their domestic market," said Carlos Gomes, Scotiabank's Senior Economist and Auto Industry Specialist. "Canada has the most export-intensive auto industry in the world, with nearly 90% of overall production geared for export. However, Canada is the only country that relies almost exclusively on one market for its auto exports and has underperformed both its NAFTA partners and other major vehicle-producing nations in the current expansion."

Highlights in the report include:

• Canada remains the second-largest vehicle exporter to the U.S., after Japan, and a global 'top 10' vehicle manufacturer. Canadian car and truck output totalled 2.38 million units last year, in line with the average of the past decade.
• The auto sales recovery in Western Europe continues to build momentum, with eight countries posting double-digit increases in March, up from seven the previous month. The U.K. reported an 18% year-over-year (y/y) jump in vehicle purchases, lifting monthly volumes to the highest level since March 2004.
• China is the fastest growing market for German luxury brands, with auto exports to China surging sevenfold over the past decade and now account for nearly 40% of overall German vehicle shipments to Asia, double the share of a decade ago. U.S. automakers are also making solid gains in China and the wealthy markets of the Middle East.

Read the full Scotiabank Global Auto Report online at: http://www.scotiabank.com/ca/en/0,,3112,00.html.

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GEOGRAPHIC DIVERSIFICATION IS CRUCIAL FOR AUTO EXPORTERS 

Recent Global Sales Developments

Global vehicle sales remained strong in March, climbing 6% above a year earlier alongside a double-digit increase in Asia, an ongoing recovery in Western Europe and some improvement in the United States following several months of severe winter weather. China and Japan led the way in Asia, with volumes jumping 15% y/y. Sales in Japan posted the seventh consecutive double-digit gain, as households bought new vehicles ahead of the April 1st increase in the national sales tax.

The auto sales recovery in Western Europe continues to build momentum, with eight countries posting double-digit increases in March, up from seven the previous month. The United Kingdom reported an 18% y/y jump in vehicle purchases, lifting monthly volumes to the highest level since March 2004. The improvement was broad-based and was buoyed by economic growth of more than 3% y/y -- the strongest pace since late-2007.

CANADA -- LAGS THE EXPORT DIVERSIFICATION TREND

Canada has the most export-intensive auto industry in the world, with nearly 90% of overall production geared for export. However, Canada is the only country that relies almost exclusively on one market for its auto exports and has underperformed both its NAFTA partners and other major vehicle-producing nations in the current expansion. All other major vehicle producers are geographically diversified, or in the case of emerging markets such as China, assemble cars and trucks mainly for their domestic market.

Canada remains the second-largest vehicle exporter to the United States, after Japan, and a global 'top 10' vehicle manufacturer. Canadian car and truck output totalled 2.38 million units last year, in line with the average of the past decade. Exports to the United States exceeded 2 million vehicles, but shipments outside of North America were virtually non-existent. Ninety seven per cent of Canada's exports are destined to its NAFTA partners, mainly the United States. In contrast, both the United States and Mexico have significantly boosted their exports outside of North America over the past decade. U.S. vehicle exports outside of NAFTA now exceed one million units per annum and account for 10% of overall U.S. production, quadruple the level of a decade ago. Export growth outside of North America has been even stronger for Mexico and totals 20% of vehicle assemblies.

Other major vehicle producers have also significantly increased their intercontinental exports over the past decade. Shipments destined to other continents have increased by 6.2% per annum over the past decade, more than a percentage point faster than exports to the "home region". Recent Free Trade Agreements with the European Union and South Korea provide Canada with the potential for much-needed exports outside of North America, especially since sales in the region have been growing at a slower pace than the global total. North America now accounts for only 22% of global car and truck sales, down from 35% a decade ago.

Even with the exclusive focus on the United States, Canadian vehicle exports have lost significant share in the world's second-largest auto market. Canada's share of overall U.S. vehicle imports dropped to only 20% last year, down from a peak of 31% in 2000 and an average of 25% since the mid-1990s. Mexico has made significant gains at the expense of Canada, but all other major vehicle producers have also made inroads. Vehicle exports from Mexico to the United States have jumped 22% since the new millennium, but this pales with the nearly 50% surge for the combined exports from Germany and South Korea. In fact, vehicle exports from these two countries to the United States totalled nearly 2 million vehicles last year, nearly matching shipments from Canada. In addition, these countries also continue to make gains in other markets. As a result, Canada's share of global vehicle exports has fallen to only 6%, down from a double-digit share as recently as 2002. Furthermore, Canada is one of only two global 'top 10' vehicle producers where vehicle assemblies have failed to surpass the level prevailing prior to the latest global economic downturn.

Japan is the other major vehicle-producing country where assemblies remain below pre-crisis levels, as automakers have shifted assemblies from the island nation due to high operating costs, and until recently, a strengthening currency. However, even as Japanese automakers opened new plants in North America and other jurisdictions, car and truck exports from Japan to the United States have continued to edge higher, climbing to 3.1 million units last year, from 3 million at the turn of the millennium. Japan also remains the world's largest vehicle exporter, shipping 4.7 million vehicles overseas last year, compared with German exports of 4.4 million.

Export-intensities for the industrialized major auto-exporting nations (excluding Canada) average around 50% of domestic production, with half of all exports destined to other continents. While the export concentration is higher in Western Europe, the European Union (EU 15) now absorbs only 40% of Germany's auto exports, down from 55% a decade ago. Meanwhile, one-quarter of Germany's exports are now destined to Asia and nearly 20% are exported to North America. The trend is similar for the industrialized Asian vehicle-producing nations, with only one-quarter of exports from Japan and South Korea remaining in Asia (including the Middle East).

China is the fastest growing market for German luxury brands, with auto exports to China surging sevenfold over the past decade and now account for nearly 40% of overall German vehicle shipments to Asia, double the share of a decade ago. U.S. automakers are also making solid gains in China and the wealthy markets of the Middle East. For example, Saudi Arabia is the fifth-largest market for vehicles assembled in the United States and the United Arab Emirates is the sixth. Exports to both markets are concentrated in large luxury cars and SUVs, due to low gasoline prices and a large number of high-net-worth households in both countries.

In contrast to industrialised auto-producing nations, emerging vehicle manufacturers -- China, Brazil and India -- have a much greater focus on their domestic market. China exports less than 5% of the vehicles it produces. Export intensities are somewhat higher for Brazil and India, but represent less than 20% of domestic output. Furthermore, the emerging vehicle-producing nations also tend to be more geographically diversified than Canada. Only 35% of all vehicles exported from China and India remain in Asia. In the case of Brazil, 75% of its exports are destined to its MERCUSOR neighbours -- Argentina, Paraguay, Uruguay and Venezuela. 

For more information please contact:

Carlos Gomes
Scotiabank Economics
(416) 866-4735 
carlos.gomes@scotiabank.com

Devinder Lamsar 
Scotiabank Media Communications 
(416) 933-1171
devinder.lamsar@scotiabank.com