North American Auto Production Begins to Rebound: Scotiabank Economics

TORONTO, Dec. 6, 2017 /CNW/ - Stronger-than-expected US motor vehicle sales in recent months have reduced inventories on dealer lots, setting the stage for a rebound in US auto production from the lag experienced over the summer. Output gains will become more widespread across North America in 2018, driven by the introduction of new models and a rebound in heavy-truck assemblies due to the recent surge in new orders. The auto industry's latest production schedule calls for US motor vehicle assemblies to climb to an annualized 11.2 mn units in the final months of 2017, up from only 10.5 mn between July and September.  

"The advance in US sales since September to the highest level since 2005 has set the stage for a rebound in production," said Carlos Gomes, Senior Economist and Auto Industry Specialist, Scotiabank. "This boost in industrial activity will likely be the largest contribution from the auto sector since late 2013."  

Auto production should advance further next year, supported by the introduction of new vehicles as several automakers offer new 2018 models built in North America. These new models are estimated to add more than 220,000 units to North American vehicle output next year, accounting for more than half of the expected increase in auto production across the continent in 2018.

Heavy-truck output is also rebounding and will be the source of the largest percentage increase in North American vehicle output.  Stronger economic activity, rising traffic, and elevated business and consumer confidence have recently led to a sharp increase in orders. So far this year, heavy-trucks orders have spiked 72% y/y across North America, roughly four times the increase in heavy-truck output. A further 15­­-20% output gain is likely in 2018, lifting the annual 2018 heavy-truck production to the highest level in three years.

The growth in global car sales temporarily softened in October from the quickening pace of the summer with global volumes increasing by only 2% y/y ? the smallest gain in four months. Much of the slowdown reflects a temporary 0.2% y/y decline in Asia, which is likely to be reversed in coming months as most macroeconomic indicators continue to strengthen across the region. 

In Canada, purchases declined below a year earlier in November, putting an end to the six consecutive monthly records. However, the latest sales remained above an annualized 2 mn units for the ninth consecutive month. Light trucks continue to be the source of strength, with nearly all manufacturers reporting year-over-year sales gains.

Other highlights:

• Sales continue to rise in Western Europe, advancing  4.6% y/y with five countries reporting double-digit sales gains in October, up from an average of four per month since April
• Purchases continue to gain momentum in both Eastern Europe and South America, climbing  year-over-year in October by 17% and 32% respectively
• South America's gain in sales is the largest year-over-year increase since April 2013
• Vehicle production in South America has jumped more than 20% this year and a further double-digit increase is likely in 2018
• New orders for vehicles built in Germany and Spain have increased more than 6% y/y in the 12-months through September

Read the full Scotiabank Global Auto Report online at: http://www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/GAR_2017-12-06.pdf

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SOURCE Scotiabank