Global Auto Report (March 13, 2017)

GLOBAL ECONOMICS | GLOBAL AUTO REPORT

March 13, 2017

Global Auto Sales Continue To Strengthen

Purchases accelerate in developing markets (ex-China), buoyed by strengthening global economic growth.

Hot luxury auto market in BC and Ontario.

CONTACTS

Carlos Gomes 416.866.4735 Scotiabank Economics carlos.gomes@

North American auto production to climb to record high in the second quarter.

RECENT GLOBAL NEW VEHICLE SALES DEVELOPMENTS

Global car sales continued to move higher in the opening month of 2017, even as most automakers reported lower sales in China owing to an increase in the sales tax applicable on small vehicles with 1.6 litre or smaller engines. Global purchases advanced 3% above a year earlier in January, led by a 9.5% y/y surge in Western Europe and gains in all regions. In fact, volumes in developing markets (exChina) began 2017 with the strongest gain in nearly four years.

More recent data for February point to ongoing strength across North America. Purchases in Canada remained above an annualized 2 million units for the second consecutive month, climbing to a record high for February. The improvement was led by a 16% y/y surge in luxury volumes, as purchases of both luxury cars and trucks posted double-digit advances. The Canadian luxury auto market has been heating up in recent months and has accounted for nearly 60% of the year-to-date increase in overall volumes in Canada this year, five times its normal share. The strength of the luxury market is concentrated in British Columbia and Ontario, the fastest-growing provincial economies. Luxury volumes have surged nearly 25% in British Columbia this year, and have advanced 15% in Ontario. We expect these growth rates to moderate, as BC and ON provincial activity softens (see Scotiabank's Forecast Tables), but the luxury market will continue to be buoyed by robust gains in household wealth.

In the United States, car and light truck sales totalled an annualized 17.5 million units in February, in line with the previous month's performance and the full-year 2016 total. Activity has remained solid even as fleet volumes have weakened. Data from the Detroit automakers indicate that their fleet volumes slumped 11% below a year earlier in February and have dropped a cumulative 14% y/y in the opening months of 2017. In contrast, retail activity continues to move higher. In fact, while many analysts have become overly cautious on the outlook, favourable industry fundamentals are prompting automakers to ramp up North American output. The latest industry production schedule points to a record output of an annualized 18.7 million vehicles in the second quarter, up from 17.3 million in January when the industry was reducing bloated sedan inventories. We estimate rising vehicle assemblies will add an annualized 0.6 percentage points to economic growth in the April-June period, helping to lift overall US growth to 2.3% in 2017, up from 1.6% in 2016.

CAR SALES ACCELERATE IN DEVELOPING MARKETS

Continued gains in global car sales in early 2017 highlight the improving economic backdrop around the world, and solidify the positive sales outlook, even as purchases in China moderate from last year's record-setting gain. During January, sales in developing markets of Asia, Eastern Europe, and South America accelerated to 6% y/y, the best performance since May

Chart 1

Leading Indicators & Emerging

Market Auto Sales Strengthen

4.5 y /y % change

y /y % change, 3MMA 5

Auto sales

4.0

developing markets

(ex-China), RHS

0

3.5

-5

3.0 OECD &

Non-

Members,

2.5

LHS

-10

14

15

16

17

Sources: Scotiabank Economics, OECD,

Bloomberg.

Chart 2

Commodity Price Recovery Drives

South American Auto Sales Higher

50 y /y % change

y /y % change, 3MMA 30

Scotiabank

20

25

Commodity

Price Index, LHS

10

0

0

-10

-25

South

American

-20

auto sales,

RHS

-50

-30

14

15

16

17

Sources: Scotiabank Commodity Price Index,

Bloomberg.

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GLOBAL ECONOMICS | GLOBAL AUTO REPORT

March 13, 2017

2013. This improvement is consistent with the upturn in many indicators, including the OECD's Leading Indicator for Member and NonMember Economies (see chart 1). If these trends persist, full-year 2017 global sales may come in even stronger than we expect.

Eastern Europe led the emerging market rebound in January alongside double-digit sales gains among many new EU members and an end to the downturn in Russia. The solid performance among the new EU members reflects strengthening labour and export markets due to the high level of economic integration with Western Europe, especially Germany. For example, exports account for roughly 70% of overall economic activity in the Czech Republic, with a third of their cross-border shipments destined for Germany. The Czech Republic has the lowest unemployment rate in the EU at only 3.4%, payrolls are advancing at the fastest pace in nine years and will continue to boost vehicle purchases.

Russia's auto and labour markets have also started to recover from the deep recession of recent years. While car sales in Russia were still 5% below a year earlier in January, this represents a significant improvement from three consecutive years of double-digit declines, when purchases were undercut by weakening economic activity. In contrast, activity is now improving faster than expected, which prompted the Central Bank of Russia to recently upgrade its 2017 economic forecast. The Russian labour market has also turned the corner and is now pointing to brighter prospects for vehicle sales, especially with oil prices forecast to average US$58/bbl in 2017.

ASIA DRIVES GLOBAL AUTO MARKET

Asia has become the key driver of the global auto market in recent years, and the sales acceleration outside of China in early 2017 bodes well for the outlook, especially since labour markets are strengthening alongside an improving economic backdrop. Excluding China, car sales in developing Asia rose 4% y/y in January, more than double the advance in all of 2016. These countries account for about half of overall car sales across all developing markets, and purchases will continue to move higher as global exports and industrial activity gain momentum. For example, global exports are now advancing at the fastest pace since late 2014, with Asia the major beneficiary, as the region represents 40% of overall exports.

COMMODITIES BEGIN TO REVIVE SALES IN SOUTH AMERICA

The South American auto market is also on more solid footing, with sales climbing 4% y/y in January, led by a doubledigit advance in Peru. Higher commodity prices--The Scotiabank Commodity Price Index has jumped 40% over the past year-- currency stabilization and some improvement in labour markets across the region are supporting the first annual sales increase since 2013 (see chart 2). South America is the continent most impacted by commodity cycles, with commodities and resource-based manufacturing accounting for nearly 70% of its exports, double the global average.

INTERNATIONAL CAR SALES OUTLOOK

(m illions of units )

1990?99

2000?13

2014

2015

2016

2017f

TOTAL SALES North America* Canada United States Mexico

Western Europe Germ any

Eastern Europe Rus s ia

Asia China** India

South America Brazil

39.20 16.36

1.27 14.55

0.54

13.11 3.57

1.18 0.78

6.91 0.43 0.31

1.64 0.94

53.74 17.74

1.61 15.15

0.98

13.79 3.25

3.03 1.83

16.08 6.52 1.18

3.10 1.90

71.18 19.42

1.85 16.44

1.13

12.11 3.04

3.81 2.49

31.69 18.37

1.87

4.15 2.50

72.61 20.64

1.90 17.39

1.35

13.20 3.21

3.15 1.60

32.29 20.01

2.06

3.33 1.82

77.29 21.05

1.95 17.50

1.60

13.97 3.35

3.14 1.43

36.06 23.57

2.09

3.07 1.39

*Includes light trucks. **Includes crossover utility vehicles f rom 2005. Sources: Ward's Automotive Reports, Bloomberg.

78.18 21.31

1.94 17.80

1.57

14.25 3.42

3.30 1.50

36.19 23.34

2.14

3.13 1.32

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GLOBAL ECONOMICS | GLOBAL AUTO REPORT

March 13, 2017

CANADA Cars Dom es tic Im ports Light Trucks

UNITED STATES Cars Light Trucks

CANADA/US MOTOR VEHICLE SALES OUTLOOK

1991?05 Average

2006?13

2014

2015

1,398 797 583 214 601

15.5 8.3 7.2

(thousands of units, annualized)

1,618

1,851

786

759

488

512

298

247

832

1,092

(millions of units, annualized)

13.8

16.4

6.7

7.7

7.1

8.7

1,898 714 476 238

1,184

17.4 7.5 9.9

2016

1,949 662 438 224

1,287

17.5 6.9

10.6

NORTH AMERICAN PRODUCTION*

CANADA UNITED STATES MEXICO

15.58 2.50

11.67 1.41

(millions of units, annualized)

13.86

17.43

2.22

2.39

9.27

11.67

2.37

3.37

17.95 2.28

12.10 3.57

18.17 2.37

12.20 3.60

*Inc ludes light, medium and heavy truc ks. **Canadian sales are Sc otiabank estimates. Sourc es:Ward's Automotive Reports, Statistic s Canada.

2017f

1,940 650 435 215

1,290

17.8 6.4

11.4

18.50 2.35

12.40 3.75

CANADA

ATLANTIC

CENTRAL Quebec Ontario

WEST Manitoba Sas katchewan Alberta British Columbia

VEHICLE SALES OUTLOOK BY PROVINCE*

(thousands of units, annual rates)

1994?05 Average

2006?13

2014

1,446

102

936 366 570

1,618

121

1,002 410 592

1,851

137

1,139 420 719

408

495

575

42

47

56

36

48

56

166

227

269

164

173

194

2015

1,898

140

1,205 444 761

553 56 54

236 207

2016

1,949

140

1,265 458 807

544 55 51

220 218

2017f

1,940

135

1,256 456 800

549 56 52

223 218

*Includes cars and light trucks. **Scotiabank estimates. Sources: Statistics Canada, Canadian Vehicle Manufacturers' Association.

900 thousands of units

800

700

Ontario

600

500

400

Quebec

VEHICLE SALES BY PROVINCE

300 thousands of units

275

Alberta

250

225

200

175

British

150

Columbia

125

300 200

80 84 88 92 96 00 04 08 12 16

100

75

Atlantic

50 80 84 88 92 96 00 04 08 12 16

Includes cars and trucks (light, medium and heavy). Shaded bars indicate U.S. recession periods. Source: Statistics Canada.

70 thousands of units

60

50

Manitoba

40

30 Saskatchewan

20 80 84 88 92 96 00 04 08 12 16

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GLOBAL ECONOMICS | GLOBAL AUTO REPORT

March 13, 2017

AUTO MARKET SHARE BY MANUFACTURER -- CANADA*

(thous ands of units , not s eas onally adjus ted)

2016 Jan to Feb Units % of Total

2017 Jan to Feb Units % of Total

2016 Feb Units % of Total

TOTAL Big Three General Motors Ford Chrys ler

Japanes e Honda Toyota Nissan Mazda Mits ubis hi Subaru

Hyundai Volks wagen Kia BMW Mercedes -Benz Other

72.9

100.0

14.2

19.5

7.6

10.4

4.6

6.3

2.0

2.8

32.8

45.0

10.0

13.8

9.8

13.4

6.7

9.2

3.3

4.5

1.3

1.8

1.7

2.3

8.7

11.9

5.2

7.2

4.6

6.3

2.8

3.9

2.9

3.9

1.7

2.3

70.2

100.0

13.8

19.8

6.7

9.6

4.0

5.8

3.1

4.4

31.9

45.4

9.6

13.7

9.3

13.3

6.0

8.5

3.9

5.6

1.0

1.4

2.1

2.9

7.2

10.3

4.8

6.8

3.9

5.6

2.7

3.8

3.5

4.9

2.4

3.4

39.0

100.0

7.8

19.7

4.2

10.7

2.5

6.3

1.1

2.7

17.0

43.7

4.5

11.6

5.5

14.0

3.8

9.7

1.8

4.6

0.7

1.8

0.8

2.0

5.0

12.9

2.6

6.8

2.5

6.3

1.5

3.8

1.7

4.5

0.9

2.3

*Source: Dealer sales from the Global Automakers of Canada.

2017 Feb Units % of Total

38.1

100.0

7.2

18.8

3.6

9.5

2.2

5.7

1.4

3.6

17.4

45.8

5.2

13.7

5.2

13.6

3.3

8.6

2.1

5.6

0.5

1.3

1.1

2.9

4.1

10.9

2.4

6.4

2.2

5.7

1.6

4.2

1.9

5.0

1.3

3.2

TOTAL Big Three General Motors Ford Chrys ler

Other Domestic

Japanes e Honda Toyota Nissan Mazda Mits ubis hi Subaru

Hyundai Kia

Other Imports

LIGHT TRUCKS

TRUCK MARKET SHARE BY MANUFACTURER -- CANADA*

(thous ands of units , not s eas onally adjus ted)

2016 Jan to Feb Units % of Total

2017 Jan to Feb Units % of Total

2016 Feb Units % ot Total

158.8 87.8 22.5 30.4 34.9

100.0 55.3 14.2 19.2 21.9

167.4 91.1 24.4 32.2 34.5

100.0 54.4 14.6 19.2 20.6

82.7

100.0

45.3

54.8

11.6

14.0

16.0

19.3

17.7

21.5

5.3

3.3

5.4

3.2

3.1

3.8

44.5

28.0

48.6

29.0

23.0

27.9

9.6

6.0

12.2

7.3

5.0

6.1

16.6

10.4

16.3

9.7

8.8

10.7

10.7

6.7

11.8

7.1

5.2

6.3

4.0

2.5

4.6

2.8

2.2

2.6

1.5

1.0

1.6

0.9

0.8

1.0

3.6

2.2

3.7

2.2

1.8

2.1

6.1

3.9

5.8

3.5

3.2

3.8

3.4

2.1

3.5

2.1

1.9

2.3

11.7

7.4

13.0

7.8

6.2

7.4

155.0

97.5

163.5

97.7

80.2

97.0

*Source: Dealer sales from the Global Automakers of Canada.

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Units

2017 Feb

% of Total

87.0

100.0

47.5

54.5

12.9

14.8

16.8

19.3

17.8

20.4

3.0

3.4

25.1

28.9

6.4

7.4

8.2

9.4

6.2

7.2

2.4

2.7

0.8

0.9

1.8

2.1

3.0

3.5

1.8

2.1

6.6

7.6

84.9

97.5

4

CANADA

ATLANTIC Newfoundland Nova Scotia New Brunswick Prince Edward Island

CENTRAL Quebec Ontario

WEST Manitoba Sas katchewan Alberta British Columbia

Source: Statistics Canada.

AUTO SALES BY PROVINCE (thous ands of units , not s eas onally adjus ted)

2015 Jan to Dec

2016 Jan to Dec

712.2

661.1

54.7 11.5 23.3 16.5

3.4

47.2 9.5

20.3 14.3

3.1

502.3 218.5 283.8

467.6 198.5 269.1

155.2 16.0 10.6 51.8 76.8

146.3 14.4 9.3 47.7 74.9

GLOBAL ECONOMICS | GLOBAL AUTO REPORT

March 13, 2017

2015 Dec

40.7

2.4 0.5 1.1 0.6 0.2

28.4 10.9 17.5

9.9 0.9 0.5 3.1 5.4

2016 Dec

37.2

2.1 0.4 1.0 0.6 0.1

25.3 9.1

16.2

9.8 0.8 0.6 3.1 5.3

CANADA

ATLANTIC Newfoundland Nova Scotia New Brunswick Prince Edward Island

CENTRAL Quebec Ontario

WEST Manitoba Sas katchewan Alberta British Columbia

TRUCK SALES BY PROVINCE* (thousands of units, not seasonally adjusted)

2015 Jan to Dec

2016 Jan to Dec

1,226.1

1,316.9

87.9

94.5

23.4

24.2

31.8

34.2

28.2

30.4

4.5

5.7

727.4 232.9 494.5

814.1 261.4 552.7

410.8 42.0 44.5

190.1 134.2

408.3 43.0 42.8

175.9 146.6

*Light, medium and heavy trucks. Source: Statistics Canada.

2015 Dec

91.4

6.1 1.4 2.3 2.1 0.3

54.9 15.5 39.4

30.4 3.3 3.3

12.8 11.0

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2016 Dec 90.0 5.8 1.4 2.3 1.7 0.4 53.2 16.3 36.9 31.0 3.3 3.0 13.4 11.3

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