TORONTO, ON - March 07, 2014 /CNW/ -  Global car sales edged higher in January, as rising volumes in Asia and Western Europe more than offset declines in the U.S. and South America, according to the latest Scotiabank Global Auto Report. More recent data for February indicates that Canadian car and light truck purchases rose 2.4% above a year earlier, lifting sales above a healthy 1.75 million units -- the best performance since November.

"With the North American Free Trade Agreement (NAFTA) turning 20 years old this year, we looked at what impact the agreement has had on the North American auto industry," said Carlos Gomes, Scotiabank's Senior Economist and Auto Industry Specialist. "Vehicle sales and vehicle production have increased across the region, but the benefits have not accrued equally. Mexico's auto industry has been the clear winner. Vehicle production in Mexico has more than tripled, while assemblies have only edged up in Canada and have actually posted a double-digit decline in the U.S."

Highlights in the report include:

• Output in Mexico's auto industry has advanced at an annual rate of nearly 6% per annum since the introduction of NAFTA.
• Purchases in China climbed to record highs, alongside a 51% year-over surge in purchases of crossover utility vehicles (CUVs).
• Car sales in Western Europe rose 5% above a year earlier -- the fourth consecutive monthly gain -- and are set to advance this year for the first time since 2009.

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

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 financial services provider in over 55 countries and Canada's most international bank. Through our team of more than 83,000 employees, Scotiabank and its affiliates offer a broad range of products and services, including personal and commercial banking, wealth management, corporate and investment banking to over 21 million customers. With assets of $783 billion (as at January 31, 2014), Scotiabank trades on the Toronto (TSX: BNS) and New York Exchanges (NYSE: BNS). Scotiabank distributes the Bank's media releases using CNW. 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.

Realigning The North American Auto Industry

Recent Global Sales Developments
Global car sales edged higher in January, as rising volumes in Asia and Western Europe more than offset declines in the United States and South America. Purchases in China climbed to record highs, alongside a 51% year-over-year surge in purchases of crossover utility vehicles (CUVs). Car sales in Western Europe rose 5% above a year earlier -- the fourth consecutive monthly gain -- and are set to advance this year for the first time since 2009.

More recent data for February indicate that sales in Canada and the United States strengthened despite ongoing severe winter weather. Purchases were buoyed in both countries by record crossover utility vehicles (CUVs). In the United States, CUV sales advanced 13% above a year earlier, lifting overall purchases to an annualized 15.4 million units from 15.2 million in January. Automakers are optimistic that the sales pace will strengthen further in coming months, as the impact of harsh winter weather begins to fade. In particular, several manufacturers indicated that the sales pace gained momentum in the second half of February and that some fleet purchases were delayed and will be shifted into March, pulling up this month's volumes.

In Canada, car and light truck purchases rose 2.4% above a year earlier, lifting sales above a healthy 1.75 million units -- the best performance since November. Light trucks led the way, highlighting the ongoing shift from cars to popular CUVs. In particular, sales of two most popular CUV models surged 24% above a year earlier.

Auto Industry Drives Growth in Mexico
With NAFTA turning 20 years old this year, we look at what impact the agreement has had on the North American auto industry. Vehicle sales and vehicle production have increased across the region, but the benefits have not accrued equally among the '3 Amigos'. Mexico's auto industry has been the clear winner. Vehicle production in Mexico has more than tripled, while assemblies have only edged up in Canada and have actually posted a double-digit decline in the United States.

Output in Mexico's auto industry (assemblies and parts) has advanced at an annual rate of nearly 6% per annum since the introduction of NAFTA, triple the growth in the remaining manufacturing sectors. As a result, autos have doubled their share of manufacturing activity over the past two decades to more than 15%, and have accounted for nearly one-third of the increase in overall industrial activity since 1994. By way of comparison, autos have declined in Canada to 10% of overall manufacturing, and are even lower in the United States. Despite the recent expansion in the U.S. South, the sector's importance in the United States has dropped to only 9% of manufacturing output.

Highlighting the growing importance of Mexico's auto sector, exports of motor vehicles and parts have increased an average of 12% annually since 1994, two percentage points faster than Mexico's overall export growth. As a result, the auto industry now accounts for more than 20% of Mexico's foreign receipts, up from less than 14% in the mid-1990s. Auto parts were the original industry driver, reflecting their integration into the North American supply chain. Exports of auto parts from Mexico soared at an annualized 18% through 2000, as the Detroit Three and their suppliers set up plants in Mexico to export low-cost auto parts from Mexico to the United States and Canada. Mexico became the largest auto parts exporter to the United States in 1998, surpassing Canada. Even with some moderation in the pace of growth over the past decade, auto parts exports from Mexico have continued to gain share in the U.S. market, and now account for 34% of overall U.S. auto parts imports, up from 23% two decades ago. Each vehicle built in the United States now contains more than US$4,000 of Mexican-made parts -- quadruple the level of the mid-1990s. In contrast, the value of Canadian auto parts exported to the largest NAFTA member peaked in 2005 and has been declining by nearly 3% annually over the past eight years. As a result, each U.S-built car and truck now only has an average of US$1,500 of Canadian-made parts, 50% above the level of the mid-1990s, but down sharply from a peak of US$1,980 in 2010.

Over the past decade, investment in Mexico's auto industry has shifted towards assemblies as the Detroit Three and other global automakers began searching for lower-cost jurisdictions from which to export vehicles globally. In particular, facing labour costs of more than US$40 per hour both in Japan and Germany and rising transportation costs to export vehicles to North America, foreign automakers found Mexico the ideal location for new assembly plants. As a result, Japanese and European automakers are now the main drivers of the rapid expansion of vehicle assembly capacity in Mexico. These automakers have consistently produced more vehicles in Mexico than the Detroit Three since 2007, and now account for more than 60% of overall vehicle output.

The importance of foreign automakers will continue to grow as investment in Mexico's auto industry climbed to US$2.9 bn last year -- nearly double the average of the past decade. Nissan opened a new assembly plant in Mexico late last year, while Mazda and Honda will begin production at new facilities in the first quarter. Audi is also building its first plant in Mexico -- a US$1.3 bn assembly facility that by mid-2016 will be the sole global source for the luxury Q5 SUV. BMW is also in advanced talks with Mexican officials to build a US$1.5 bn factory to assemble Series 1 and Series 3 models.

Aside from labour costs that are less than 20% of the level in the rest of North America, Mexico also has free trade agreements with more than 40 nations, providing automakers with duty free access to more than one billion people across the globe. As a result, while the United States remains the largest destination for Mexican-built cars, trucks and auto parts, Mexico has become a low-cost production base from which to export globally. More than half of Mexico's vehicle output is shipped to its northern neighbour, but exports outside of North America are growing at a faster pace than shipments to its NAFTA partners, and now account for more than 20% of Mexico's overall auto industry exports. This is in sharp contrast to the Canadian auto industry which still remains almost exclusively focused on the United States. Ninety-seven per cent of Canada's auto exports are destined to its NAFTA partners, primarily the United States.

For more information please contact:
Carlos Gomes, Scotiabank Economics, (416) 866-4735, carlos.gomes@scotiabank.com; or 
Joe Konecny, Scotiabank Media Communications, (416) 933-1795, joe.konecny@scotiabank.com