Demographic Boom Turning to Bust For North American Auto Sales, According to
Scotia Economics

- Growth in potential new vehicle buyers to slump to fifty-year low

TORONTO, Feb. 26 /CNW/ - Global car sales continue to gain momentum, with purchases in January posting a double-digit increase for the fourth consecutive month, led by more than a doubling in volumes in China - the world's largest auto market, according to the latest Global Auto Report released today by Scotia Economics.

"The global economy and auto sector are in the early stages of a cyclical recovery which will lift car and light truck sales in Canada and the United States above 13.0 million units in 2010, up from 11.9 million last year," said Carlos Gomes, Senior Economist, Scotia Economics. "However, unfavourable demographics, including the retirement of the baby boom generation, will dampen vehicle demand over the coming decades, leaving the industry increasingly dependent on replacement demand.

"While generation Y will also become increasingly more important for the auto industry, growth in the vehicle buying population is set to slow to the slowest pace in more than fifty years," continued Mr. Gomes.

The report states that baby boomers, born between 1945 and 1963, have had an enormous impact on the auto market in North America - Canada and the United States - expanding the size of annual new passenger vehicle purchases from an average 10.0 million units in the 1960s to a peak of 17.4 million over the past decade.

Surveys indicate that this generation still accounts for more than half of all new vehicle purchases and roughly 60 per cent of all drivers. However, this age group is starting to retire, with the 65-70 year old population in North America advancing by nearly five per cent per annum over the next five years. In contrast, the number of young drivers, 16-to-29 year olds, is increasing at the slowest pace since the mid-1990s. These developments will reduce growth in the North American vehicle buying population to 0.6 per cent per annum in Canada over the coming decade, and only marginally higher in the United States.

"This represents a sharp slowdown from an average annual growth in the driving age population of 1.4 per cent over the past fifty years," said Mr. Gomes. "Growth in vehicle buying population has already been slowing since 2007, but the downturn will intensify, and remain in place through 2030."

The auto industry is relying on generation Y to partly offset the retirement of the baby boomers, but the sharp fall-off in driving by retirees will have an enormous negative impact to new vehicle demand.

"This will become more evident by 2013, once the number of North Americans that are 60 years or older surpasses the potential young vehicle buying population," stated Mr. Gomes. "In addition, in contrast to their parents and older siblings, many in the generation Y age group are postponing getting their license."

Replacement to the rescue

"On the positive side, many baby boomers and their children in both Canada and the United States are still driving older vehicles, and many of these models will have to be replaced over the next several years," added Mr. Gomes.

The median age of the U.S. vehicle fleet is a record 9.4 years, with nearly half of the 250 million cars & trucks on the road at least 10 years old. Historically, nearly six per cent of the U.S. fleet is replaced each year, with an additional three million units coming from new buyers. Vehicle scrappage is even more important in Canada, with an average of seven per cent of the fleet replaced each year. Scrappage slumped to less than six per cent across Canada in 2009, but is set to rise over the coming year, helping counter the emerging negative demographic trends.

Scotia Economics 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.

For further information: Carlos Gomes, Scotia Economics, [phone], [email protected]; Robyn Harper, Scotiabank Public Affairs, [phone], [email protected]