Shrinking auto production will cut economic growth: Scotiabank

The North American auto industry virtually shut down in January, and the resulting cutbacks in vehicle production will reduce economic activity by roughly 2.5 percentage points in the U.S and one percentage point in Canada, according to a new report from by Scotia Economics.

"Vehicle output in Canada, the United States and Mexico will plunge nearly 50 per cent below a year earlier in the opening month of 2009, as many companies extended their holiday shutdowns through most of January," said Carlos Gomes, Scotiabank Senior Economist and Auto Industry Specialist in his latest Global Auto Report.

"We estimate that these cutbacks will reduce North American vehicle output to less than an annualized eight million units in January, a sharp fall-off from a full-year 2008 total of 12.9 million."

'In the absence of a hefty pick-up in vehicle production, job losses in the parts sector could accelerate.'—Carlos Gomes, Scotiabank senior economist

Besides loss of production, Gomes believes the shutdowns will have a further negative effect on the Detroit automakers.

Although the Asian and European car companies suffered a 30 per cent year-over-year decline in production this month, they will likely ramp up output faster than the North American automakers.

As a result, these "New Domestic" automakers will produce more vehicles in North America in the first quarter than the "Detroit Three."

Parts suppliers job losses

Lower vehicle production is also taking its toll on parts suppliers. Employment in the sector has been slashed by more than 22,000 in Canada since late 2003.

“We estimate the value of Canadian-made parts in each North American-built vehicle has dropped to less than $1,700 from more than $2,000 as recently as 2004," said Gomes. "In the absence of a hefty pick-up in vehicle production, job losses in the parts sector could accelerate."

The report found Canadian auto sales also dropped in December, with purchases slumping 21 per cent below a year earlier. U.S auto sales plunged 35 per cent during the same time.

Gomes expects sales to remain weak in the first half of 2009 and forecasts full-year 2009 purchases to slump to 1.475 million units, the lowest annual total since 1998.

Porsche results

The luxury car market wasn’t spared from the downturn. German sports and luxury carmaker Porsche said Friday that sales for the first six months of its fiscal year fell 14 per cent.

The Stuttgart-based automaker said sales fell to $4.8 billion Cdn, according to preliminary first-half results. The company said its sales volume dropped 27 per cent to 34,000 vehicles during the period.

The company's chief executive, Wendelin Wiedeking, said the company would introduce further production cuts, including reducing the number of days worked at its main plant in Stuttgart this summer.