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Asia and Latin America Drive Global Car Sales to Record Highs in 2005, says Scotiabank Economist


TORONTO, July 27 /CNW/ - Global auto sales have perked up since April and

will advance to a record high this year, according to the latest Canadian Auto

Report released today by Scotia Economics. After a slow start in the opening

months, volumes are set to increase by 2% in 2005, as an ongoing global

economic expansion more than offsets the impact of record oil prices and

rising short-term interest rates. Solid gains in developing nations -

including a return to double-digit growth in China - will overwhelm weaker

volumes in Western Europe and a largely flat performance in the United States

and Japan. Gains will likely moderate to about 1% in 2006, dampened by reduced

monetary stimulus and a further slowing in global economic activity.


"Global vehicle sales have rebounded strongly since April, and in June

advanced 8% above a year earlier, led by a 50% year-over-year surge in China,"

says Carlos Gomes, Scotiabank's auto industry specialist. "After a slow start

in early 2005, sales in Asia have re-gained momentum, advancing 13% year-over-

year in June. Asia is now running neck-on-neck with South America, competing

to recapture the title of the fastest-growing auto market."


According to the report, after falling below a year earlier during the

first two months of 2005, car purchases in China have revved up, with volumes

surging in June to a record annual rate of 3.0 million units - 50% above a

year ago. The acceleration reflects some stabilization in new car prices,

after nearly a year of discounting, that prompted consumers to delay

purchases. The introduction of new models and continuing rapid economic growth

- GDP expanded at a stronger-than-expected 9.5% in the second quarter - are

also buoying sales. Car sales in China will likely double by the end of the

decade, overtaking Japan as the world's second-largest car market.


India became the fastest-growing car market in 2004, with annual volumes

surging by 37% - to close in on one million units for the first time on

record. However, gains moderated to only a 3% advance in the opening months of

2005, alongside a 100 basis point increase in short-term interest rates and a

below-average rainfall in the 2004 monsoon season (hurting farm income).

Nevertheless, purchases have recently started to spurt ahead, with inflation

moderating and interest rates stabilizing. Volumes have advanced at a

double-digit pace since March and full-year 2005 sales are expected to total

1.1 million units.


"Vehicle ownership remains very low in India, with less than 1% of the

population owning a car compared with an average of nearly 10% in the rest of

Asia (including Japan)," comments Gomes. "Even excluding Japan, vehicle

penetration in the rest of Asia is more than 3 times higher than in India.

Rising incomes, a greater willingness to borrow money for major purchases and

rapid growth in the 20-64 year-old adult age group suggest that car sales in

India could double by the end of the decade."


Latin America offers the auto industry significant growth potential.

Purchases in Brazil - the largest auto market in Latin America - are advancing

at a double-digit pace, while volumes continue to climb in Mexico, advancing

4% so far this year.


"Economic growth in Brazil remains robust, lifting car sales by 11% to an

annualized 1.52 million units - a level finally surpassing the 1997 peak of

1.36 million," says Gomes. "The Brazilian monetary authorities recently

increased benchmark short-term interest rates to 19.74% - roughly a four-

percentage point increase over the past year - to battle inflation. While

rising interest rates have not dented auto demand, we expect purchases to

moderate to a single-digit advance in 2006, as momentum slows. Brazil's

merchandise exports surged by 31% last year and have advanced by an additional

24% in the first half of 2005."


Vehicle sales in Mexico surpassed one million units for the first time in

2004 and are on track to total 1.15 million in 2005. Mexico's 100 million

consumers represent the auto industry's growth market in North America,

especially since more than half of the population is less than 25-years old.

Despite this large pool of potential buyers, vehicle ownership remains low in

Mexico at only 0.19 cars and trucks per capita. Mexico continues to benefit

from its NAFTA partnership with the United States as well as rising government

revenues linked to high oil prices.


Domestic credit conditions are also

favourable, with household credit expanding at a double-digit pace since early



In Western Europe, despite rebounding 4.5% year-over-year in June, car

sales have declined by 0.3% in the first half of 2005, pulled down by sluggish

economic conditions and rising unemployment.


Turning to Canadian and U.S. sales, Canadian car and light truck

purchases advanced by 2% year-over-year in the first half of 2005 and are

expected to total 1.565 million units for the year as a whole, up slightly

from 1.535 million in 2004. In the United States, vehicle sales have also

climbed by 2% so far this year, buoyed by GM's 'Employee Discount for

Everyone' incentives introduced in June.


Scotia Economics, part of the Scotiabank Group, provides clients with

in-depth research into the factors shaping the outlook for Canada and the

global economy, including macroeconomic developments, currency and capital

market trends, commodity and industry performance, as well as monetary, fiscal

and public policy issues.

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