Auto Industry Propelling North American Economic Recovery, says Report

The automotive industry is propelling the current economic recover, despite the fact that it was hard hit by the economic slowdown of 2000-2001.
According to the latest Canadian Auto Report released today by Scotia Economics, vehicle production on both sides of the border climbed to an annualized 15.7 million units in April and May–a 10% year-over-year increase –and is scheduled to surge to 16.5 million in June, up from 13.9 million in late 2001. Assemblies fell to a decade low of only 13.6 million in early 2001.
The sharp rebound in production reflects stronger-than-expected motor vehicle sales across North America so far this year and declining inventories at auto dealerships. At the end of April, U.S. auto dealers had only 59 days’ supply of new vehicles — down from an average of 67 days over the past 10 years and the lowest level for April on record since the mid-1980s.
“Rising vehicle production will further bolster economic conditions and
brighten job prospects in both Canada and the United States in the second
quarter,” says Carlos Gomes, Scotiabank’s auto industry specialist. “The pickup in assemblies will add more than two percentage points to U.S. GDP growth this summer — the largest contribution since 1998.”
In Canada, the auto sector alone has accounted for 26% of the overall increase in industrial activity since the September 2001 low — more than 3 times its normal share. Furthermore, rising vehicle assemblies and parts production will add nearly a percentage point to overall economic growth in the second quarter.
The auto sector is now hiring again after being at the forefront of layoff announcements over the past two years.
“In Canada, the auto industry (assemblies and parts) has added 4,700 new jobs so far this year — a significant turnaround from the nearly 15,000 jobs lost since late 2000,” adds Gomes.
According to the report, Canadian assembly plants continue to widen their productivity advantage over facilities in both the United States and Mexico. However, an area of concern for the Canadian auto industry is that most of the new North American assembly plants coming on stream over the next five years will be located in the U.S. South.
“The shift in capacity to the U.S. South reflects big incentives offered by these States as they attempt to diversify their economies by attracting new vehicle assembly plants,” comments Gomes.
Overall, Canadian sales jumped 10% above a year earlier last month–the seventh double-digit increase in the past eight months. Purchases totaled an annualized 1.69 million units in May, roughly in line with the average of the previous four months. U.S. volumes fell 6% below a year earlier to an annualized 15.7 million units in May — the lowest level since the Asian crisis in late 1998. Even so, year-to-date sales have averaged a solid 16.4 million units–the fourth highest level on record.
In addition, automakers continue to boost production schedules, anticipating that sales will strengthen alongside the economic recovery.