Canada’s trade surplus on vehicles and parts plummeted to an annualized $6.2 billion between April and July – the lowest level since the early 1990s – and has averaged only $7.8 billion so far this year, roughly half the average of the past decade, according to the latest Canadian Auto Report, released today by Scotia Economics. The deterioration has been centred in assembled vehicles, with the surplus on cars and trucks falling to an annualized $18.5 billion through July – less than half the peak of $40 billion in 1999 and an annual average of $29 billion over the past decade. “Though lower 2005 vehicle production in Canada has been a factor, the appreciation of the Canadian dollar is the key reason behind the sharp deterioration in Canada’s auto trade surplus,” says Carlos Gomes, Scotiabank’s auto industry specialist. “Data from the U.S. Department of Commerce indicate only a one per cent decline in the value of vehicles imported from Canada. However, when translated into Canadian dollars, the fall-off becomes more than 8 percent.” (The Canadian dollar has averaged nearly 82 cents(US) so far this year, up from 75 cents(US) during the first nine months of 2004.) According to the report, a scheduled pick-up in vehicle assemblies in the final months of 2005 will help to reverse the sharp drop in Canada’s auto trade surplus. In fact, a turnaround began in August, as a 7 percent year-over-year gain in vehicle production lifted Canada’s auto trade surplus to an annualized $8.7 billion. Canadian vehicle output is expected to climb to a five-year high of 2.9 million units (annualized) in the fourth quarter, up from 2.6 million in the first half, as automakers build inventories for the upcoming 2006 model year. “Going forward, Canada’s surplus on assembled vehicles will remain under pressure, as North American vehicle output edges lower in 2006. However, the decline in Canada will be cushioned by rising output of popular new crossover utility vehicles (CUVs),” comments Gomes. “We estimate that CUVs now account for 20 percent of overall Canadian vehicle output, up from only 15 percent a year ago.” Despite a lower overall auto trade surplus, Canada’s long-standing deficit in auto parts continues to improve, with several suppliers gaining market share in North America. Canada’s auto parts trade deficit has shrunk to an annualized $11 billion so far this year, down from $15 billion annually over the past decade and a peak of $19 billion in 1999. While Canadian auto parts shipments have edged down this year, in-line with lower vehicle production across North America, exports of auto parts to the United States have advanced by 8 percent. In particular, Canadian suppliers of ‘interior products’ have garnered significant U.S. market share, and now account for 29.3 percent of U.S. imports of auto seating & interior trim, up from less than 22 percent in 2002.