Canadian Manufacturing

North American auto production expected to slow over summer

by Canadian Manufacturing Daily Staff   

Operations Automotive auto manufacturing auto sales auto sector north american auto assembly recovery in auto sector

Inventory normalization expected to contribute to slowdown from July through September

Toronto—North American auto assembly will slow down over the coming months but production is expected to rebound before year-end, according to a Scotiabank Economics report.

While global vehicle sales rebounded in May by 11 per cent year-over-year—the strongest gain in more than two years and nearly double the increase reported from January to May—the report findings suggest inventory normalization will play a key role in an anticipated slowdown through the summer months.

“The auto industry has been a growth leader across North America in the first half of 2012, with stronger-than-expected car and light truck sales and the restocking of depleted inventories by Japanese automakers buoying production gains,” said Carlos Gomes, senior economist and auto industry specialist with Scotiabank Economics. “However, with inventories back at normal levels—around 60 days’ supply—vehicle assemblies are set to soften between July and September.”

Vehicle production in North America jumped 23 per cent year-over-year in the five months through May, according to the report, led by a 27 per cent surge in the United States.


U.S. vehicle production climbed to an annualized 10.3-million units in the opening months of 2012—the highest level since late 2007.

The report credits this sharp increase with enabling the auto sector to account for more than two-thirds of the 1.9 per cent increase in U.S. economic growth in the first quarter of 2012.

The sector has also made an outsized contribution in Canada.

Further production gains have occurred in the second quarter, lifting assemblies across North America to an annualized 15.9-million units, up from a full-year 2011 total of 13.3 million.

“Despite recent announcements of reduced summer downtime by several automakers due to strong demand, assemblies across North America are scheduled to ease to 15.6-million in the third quarter, temporarily halting the industry’s robust contribution to economic growth,” Gomes said. “In fact, we estimate that the summer lull in vehicle production will have the largest negative impact on U.S. economic activity since early 2009 when the global economy was still in freefall.”

Scotiabank Economics anticipates the third-quarter decline to be more modest in Canada, cushioned by rising output of the Honda CR-V in Alliston, Ont.

Despite the industry’s temporary setback, fundamentals remain supportive of further advances in both vehicle sales and production.

Looking at May’s vehicle sales across North America, U.S. volumes jumped 26 per cent above a year earlier, but the annualized pace eased below 14.0-million units for the first time since December, and was down from an average of 14.5-million between January and April.

In Canada, activity was stronger than expected in May, with purchases climbing back above an annualized 1.70-million units, a rebound from a sluggish performance in April.

The improvement was broad-based, with both fleet and household purchases posting solid double-digit gains as Canadians took advantage of enhanced incentives.


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