North American auto industry needs NAFTA, says Scotiabank

TORONTO—Global car sales are experiencing impressive growth, but not all is peachy keen in the North American auto industry. U.S. President Trump’s push to renegotiate NAFTA has created significant uncertainty for an industry that has the most highly integrated supply chain of all manufacturing industries under NAFTA. This is according to Scotiabank’s latest Global Auto Report.

“The integration of the North American auto market has enabled the sector to outperform on a global stage,” said Carlos Gomes, senior economist and Auto Industry specialist, Scotiabank. “Any new restriction to the free flow of vehicles and parts among the three countries would have a negative impact on economic activity in Canada, Mexico and the Unites States, including potential job losses.”

More than 92 per cent of all auto industry shipments from the U.S. are now destined to the three NAFTA countries. According to Scotiabank, this integration has boosted productivity and enhanced the North American industry’s global competitiveness, enabling it to increase its share of global exports.

The U.S. is the major supplier of auto parts to its NAFTA partners, and Scotiabank says it has been a major beneficiary of the rapid expansion of assembly plants in Mexico. In particular, Mexico is now the destination for one-third of auto parts exported from the U.S.

The report says that the North American auto supply chain has enabled U.S. auto industry employment to increase by more than five times the growth in overall manufacturing jobs.

The benefits of NAFTA to the North American auto industry could be threatened by interference in the supply chain that closely integrates the three NAFTA economies, says Scotiabank. The report also cites that some of the 2 million positions at plants in the U.S., Canada and Mexico could be lost if NAFTA is changed.

Scotiabank’s Global Auto Report also takes a look at the health of the global auto industry.

Other report highlights:

• Global car sales accelerated sharply in February in line with global growth, with volumes jumping 6.9 per cent above a year earlier. This performance leaves global volumes on track to climb to record highs for the eighth consecutive year.
• More recent sales data for March confirms continued record volumes in both Canada and Mexico, but shows some disappointment in U.S. results.
• Sales in Canada jumped 7 per cent above a year earlier last month, with volumes buoyed by double-digit gains in both light trucks and luxury models.
• Volumes in Mexico jumped 17 per cent above a year ago in March, even as interest rates moved higher and economic activity slowed.
• Asia led the broad-based acceleration of global car sales with a 16 per cent year-over-year surge, as sales in China returned to double-digit year-over-year growth.
• Sales in South America have been stronger than expected, advancing above a year earlier in February for the fourth consecutive month.