North American Auto Sales Will Pick Up In 2004, Says Scotiabank Economist

North American vehicle sales will see their first rise in four years in 2004, according to a report released today.
Sales gained momentum in the second half of 2003 and will likely advance 2% next year, according to the latest Canadian Auto Report released today by Scotia Economics.
“We expect Canadian/U.S. passenger vehicle sales to climb to 18.6 million units in 2004, the second-highest annual level on record, up from 18.3 million in 2003,” says Carlos Gomes, Scotiabank’s auto industry specialist. “Purchases in both countries will be buoyed by stronger economic growth, improving household balance sheets and some pick-up in fleet volumes.”
In Canada, vehicle sales are expected to rebound from this year’s 3% slide and will likely climb to a record high of 1.71 million units in 2004. Despite the strongest five-year sales on record, vehicles remain much older in Canada than in the United States. Roughly 45% of all vehicles on Canadian roads are still at least 9 years old, up from one-third a decade ago.
“The Canadian economy is recovering from the SARS and BSE-induced slowdown and consumer confidence is on the mend,” adds Gomes. “In particular, nearly 60% of Canadian households believe that this is a good time to buy a large-ticket item, such as a new vehicle, a level nearly matching the early 2002 peak.”
In the United States, purchases are expected to climb to 16.9 million units in 2004, up from 16.6 million this year and 16.8 million in 2002. Recent economic statistics indicate that the U.S. economy expanded at an annual rate of 8.2% in the third quarter – the fastest pace since 1984. While growth is expected to ease from this torrid pace, U.S. GDP will likely advance by 4% next year, up from 3% in 2003 and the strongest annual pace since 1999.
“Labour market conditions have recently started to improve in the United States, with nearly 300,000 new jobs created over the past three months, a significant turnaround from job losses since early 2001,” comments Gomes. “An improving labour market is crucial for auto sales, as job creation is the main economic variable driving vehicle sales.”
Used car prices have been firming in the United States since April and are now above a year earlier for the first time since early 2001. Used vehicle prices are a leading indicator of new car and light truck sales, because rising prices boost the value of trade-in vehicles.
Fleet prices are also expected to strengthen in 2004, after a moderate gain in 2003. In particular, sales to rental agencies should advance alongside a pick up in leisure and business travel. The U.S. rental car fleet peaked at 1.8 million units in 2000, and has been cut by more than 10% over the past three years.
Turning to overall market conditions, North American vehicle sales eased in October, but will snap back strongly in November/December as automakers move to boost year-end totals. U.S. volumes were weaker than expected in October, easing to an eight-month low of 15.6 million units annualized, from an average of 16.5 million during the previous nine months. In Canada, car and light truck sales fell 10% year-over-year in October to an annualized
1.59 million units, compared with a 1.63 million average over the past nine months.