North American vehicle production to soften: Scotiabank

Summer lull in production is to blame for slowdown.

June 26, 2012   by The Canadian Press

TORONTO: Scotiabank Economics says robust vehicle production in Canada and the US is expected to soften in the coming months as dealer inventories reach normal levels.

“The auto industry has been a growth leader across North America in the first half of 2012, with stronger than expected car and light truck sales and the restocking of depleted inventories by Japanese automakers buoying production gains,” Scotiabank senior economist Carlos Gomes said in a report.

“However, with inventories back at normal levels—around 60 days’ supply—vehicle assemblies are set to soften between July and September,” said Gomes, the bank’s auto industry specialist.

In the five months through May, vehicle production in North America is up 23% year over year, led by a 27% surge in the US, Scotiabank said in its Global Auto Report.

“In fact, US vehicle production climbed to an annualized 10.3 million units in the opening months of 2012—the highest level since late 2007,” the report said.

However, despite recent announcements of reduced summer downtime by several automakers due to strong demand, assemblies across North America are scheduled to ease to 15.6 million in the third quarter “temporarily halting the industry’s robust contribution to economic growth.”

“We estimate that the summer lull in vehicle production will have the largest negative impact on US economic activity since early 2009, when the global economy was still in free fall,” Gomes said.

However, the decline in third-quarter vehicle production is expected to be more modest in Canada, cushioned by rising output of the Honda CR-V in Alliston, Ont.

And assemblies in Mexico are scheduled to advance further, as Japanese automakers continue to expand their facilities there.

In addition to North America, the market in China has also been strong, with sales advancing 20% year over year in May.

However, the report said activity shows no signs of hitting bottom in Western Europe and remains soft in Latin America.

Looking at last month’s vehicle sales across North America, US volumes jumped 26% above a year earlier, but the annualized pace eased below 14 million units for the first time since December, and was down from an average of 14.5 million between January and April.

In Canada, activity was stronger than expected in May, with purchases climbing back above an annualized 1.7 million units, a rebound from a sluggish performance in April.

The improvement was broad based, with both fleet and household purchases posting solid double-digit gains, as Canadians took advantage of enhanced incentives, the report said.

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