Auto Sector Is Driving Canada’s Industrial Revival

Global vehicle sales continued to strengthen in February, climbing 3% above a year earlier, alongside ongoing solid job creation across developed markets.

More recent data for March points to further solid advance across North America. Mexico led the way, with a double-digit year-over-year increase. Canada reported record volumes and the key U.S. market posted a 3% annual increase. Car sales in Mexico have surged 13% so far this year, one of the best performances among the world’s major auto markets, with gains supported by formal employment growth in excess of 5% year over year.

Record North American auto sales and production, combined with the end of extensive retooling at several assembly plants and a more competitive currency, are reviving the Canadian auto industry and laying the foundation for a much improved industrial outlook in 2016. Auto industry shipments surged 29% year over year in the opening month of 2016, accounting for nearly 80% of the year-over-year gain across all of Canada’s manufacturing activity.

“The auto industry is single-handedly lifting Canadian manufacturing activity and non-resource exports out of the doldrums experienced during much of 2015. The auto sector has also reclaimed its title as Canada’s largest exporter, overtaking the oil & gas industry,” said Carlos Gomes, senior economist and auto industry specialist at Scotiabank. “In fact, the auto sector’s share of overall manufacturing activity is now at the highest level since 2003, and exports have been so strong that the sector has swung to trade surplus in early 2016.”

Employment growth is strongest among Canada’s automotive parts suppliers. Payrolls rose 5% year over year through early 2016, buoyed by double-digit gains in industry output. Canadian auto parts shipments have posted back-to-back double-digit increases in the past two years — a development that had not occurred since the late 1990s. Shipments climbed last year to the highest level since 2006, and if the current pace of gains is maintained, volumes could climb to all-time highs, surpassing the 2004 peak.

Record North American vehicle demand, combined with the hefty 28% decline in the Canadian dollar since 2011, has enabled Canadian suppliers to recapture market share across North America. Each vehicle built in Canada, the United States and Mexico now contains nearly US$1600 of Canadian-made parts — a significant improvement from the recent low of only US$1437 in 2013.

Other highlights from the report include:

• The gain in global vehicle sales was broad-based, with only Brazil and Russia continuing to exhibit sharply lower volumes.
• Western Europe led the advance, as an improving job performance reduced unemployment in the euro zone to the lowest level in nearly seven years.
• Auto parts employment in Canada is advancing at the fastest pace since 2000, when the industry was “motoring” throughout North America, and double the advance in the United States.
• The solid performance of the sector has enabled Canada to retain its position as a global ‘top 10’ auto parts exporter.

Read the full report online at: http://www.scotiabank.com/ca/en/0,,3112,00.html.