Canadian vehicle production to grow by 30 per cent in 2010: report

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Global auto sales will reach record highs by 2011, helping to boost Canadian vehicle assembly rates by as much as 30 per cent, according to a new report by Scotia Economics.
In its monthly Global Auto Report, released Tuesday, Scotiabank said a combination of fiscal and monetary stimulus, a recovering global economy and improving access to credit will continue to lift vehicle sales next year.
This "will enable 2010 car sales to recapture half of the ground lost over the past two years, setting the stage for record volumes in 2011," the report says.
If accurate, the prediction marks a dramatic turnaround in the fortunes of the global auto industry, which was hit particularly hard by the recession as consumers deferred purchases of big-ticket items like new cars.
Increasing demand for new vehicles in developing countries like China, India and Brazil will lead the recovery for the foreseeable future, said senior Scotiabank economist and auto industry expert Carlos Gomes.
"The developing nations used to sell only about four million vehicles (a year) a decade ago and as of next year we're expecting that to be above 15 million," Gomes said in an interview. "So you can clearly see that that is where the growth has been, and because the vehicle penetration rates are still very low in these countries, that's where the growth will continue to come from going forward."
That's not to say the North American auto markets won't see a marked improvement in vehicles sales as well.
Gomes predicted "a double-digit advance in the key U.S. market," which in turn will help to boost Canadian production and employment levels. Some 62 per cent of parts and 80 per cent of finished vehicles manufactured in Canada are exported to the U.S.
Gomes says most of the advance will primarily be the result of deferred demand. "Both in Canada and in (the) United States, close to half the vehicles on the road are at least nine years old, so we do have a significant number of vehicles out there that do need to be replaced," he said.
"The point is, as the economy recovers and consumer confidence continues to improve, you'll actually see people starting to do that and not taking this approach of, 'Well, I'm not sure how things are going to be so I'll continue to hold onto my old clunker for another year or so."'
In Canada, Gomes predicted a 30 per cent increase in vehicle production in 2010, with a concurrent improvement in employment levels. This has already started to take hold, with General Motors Canada recalling laid-off workers at its plants in Ingersoll, Ont., and Oshawa, Ont., and Toyota Canada hiring 800 new employees at its plant in Woodstock, Ont.
Employment in Canadian assembly plants plunged to approximately 35,500 in 2009, its lowest level since 1963. In the parts sector, employment fell by almost 25 per cent in the last year alone, and overall employment in the industry is down 37 per cent from its high in 2000.
The Scotia report says 1.53 million vehicles will be purchased in Canada next year, compared with 1.45 million in 2009.
Purchases will be bolstered by rising incomes, pent-up demand and record new vehicle affordability. Strengthening used car prices, currently 19 per cent higher than a year earlier, will also encourage some people to replace aging vehicles, the report says.
Auto loan rates have also dropped significantly, to four per cent in the U.S., which is less than half what they were when the credit crisis took hold in late 2008.

Organizations: Scotia Economics, Scotiabank, Global Auto North American General Motors Canada Toyota Canada

Geographic location: United States, Canada, China India Brazil Ingersoll Oshawa Woodstock

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