Fleets Drive Rebound in U.S. Sales, But Households Are the Chauffeurs in
Canada, According to Scotia Economics

TORONTO, July 9 /CNW/ - Global car sales growth moderated in May and June, but sales in North America are still in the relative fast lane, according to the latest Global Auto Report released today by Scotia Economics.

"Rising fleet volumes have lifted overall U.S. car and light truck sales by 17 per cent in the first half of 2010 - driving purchases above an annualized 11 million units so far this year, up from 9.5 million a year earlier and a full-year total of 10.4 million in 2009," said Carlos Gomes, Senior Economist, Scotia Economics.

In the report Mr. Gomes noted that sales to rental car agencies, companies and government have surged by more than 40 per cent in the first half of 2010, leading the auto industry recovery in the United States. These purchasers had stopped buying car and trucks during the recession, and are now finally restocking their fleets.

"Some commentators suggest that the strength in fleet purchases and continued sluggish retail volumes indicate that the U.S. auto industry is only experiencing a temporary bounce, and remains vulnerable because households have yet to return to dealerships," observed Mr. Gomes. "However, the early stage of every auto cycle recovery in the United States has been led by improving fleet purchases."

This reflects the fact that fleet volumes - accounting for more than 40 per cent of overall U.S. car and light truck sales - are driven by trends in corporate profitability, which leads the economic cycle by about six months. Furthermore, the pace of job creation, which drives retail vehicle purchases, trails the economic cycle by at least three months.

"Rental companies are leading the improvement in U.S. fleet volumes, with purchases surging more than 55 per cent so far this year alongside improving air travel and tourism activity," commented Mr. Gomes. "These companies reduced their fleets by about 25 per cent from mid-2008 through late 2009 as tourism slumped alongside the global economic downturn. Rental car and light truck purchases plunged to only 2.3 million units last year - 40 per cent less than the average of the past decade, and the lowest level since 1967."

"In contrast to the United States, Canadian household purchases are outpacing the improvement in the overall auto market," continued Mr. Gomes. "This reflects stronger job creation north of the border - averaging 43,000 per month so far this year, compared with less than 150,000 in the United States, an economy with a labour force more than eight times larger."

The report notes that data from the three largest automakers indicate that sales to Canadian households have jumped by 14 per cent so far this year, surpassing an 11 per cent increase in their fleet volumes. (Of note, these automakers account for roughly 90 per cent of the Canadian fleet market, and have reported a 13 per cent gain in overall vehicle sales.) The gap is much wider for the market leader, with the retail volumes outpacing fleet activity by eleven percentage points.

The report also states that lower gasoline prices and enhanced incentives are increasingly leading Canadians to shift towards light trucks.

"We estimate that light trucks now account for half of all retail purchases, up from only 43 per cent in 2008, when gasoline prices averaged almost $1.20 per litre US - nearly 20 per cent above current prices," commented Mr. Gomes. "Historically, light trucks have represented about 45 per cent of overall household purchases."

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]; Karen Heath, Scotiabank Public Affairs, [phone], [email protected]