North American automakers to reap rewards of higher output: Scotia Economics

North American automakers are expected to increase production in the third quarter as the industry gains traction around the world, helped by a recovering global economy and the fading impact of Japan’s earthquake and tsunami.

The latest Global Auto Report from Scotia Economics said that North American production is likely to spike as much as 18 percent in the three-month period that begins July 1.

“We estimate that third-quarter vehicle output in North America will climb to roughly an annualized 14 million units – the highest level since mid-2008, prior to the sharp fall-off in global economic activity later that year,” the report said.

Auto assemblies, which had plunged 12 percent in April to 7.8 million units, edged up in May to 7.9 million units, it said.

“The improvement reflects rising output by the Detroit Three, as well as the ramping up of assemblies at Volkswagen’s new assembly plant in Chattanooga, Tenn.”

“Canadian plants will be among the major beneficiaries from higher output in the July-September period,” Scotia said. “Vehicle production in Canada is expected to jump 21 percent year-over-year in the third quarter, compared to only a three percent gain in the first half of 2011.”

“This outperformance reflects the fact that Toyota and Honda typically account for 36 percent of overall Canadian vehicle output, a much higher share than Japanese assemblers garner in either the United States or Mexico.” 

Global production is also expected to increase, with Japan and Thailand likely to benefit the most, Scotia said.

“The impact of the Japanese earthquake on the auto industry and the global economy is subsiding. A shortage of vehicles kept sales in Asia – especially Japan – and North America below a year earlier in May.”

“However, volumes in other regions posted the strongest gain since late 2009, a development pointing to the ongoing momentum in the global economy.” 

In Thailand, where Japanese automakers have more than four-fifth of the market, the auto sector represents six percent of overall GDP.

“According to the Federation of Thai Industries, Toyota resumed production in late May, and has been operating at 90 percent of capacity throughout June. Other Japanese automakers also resumed production in Thailand earlier this month. As a result, vehicle assemblies in Thailand are expected to total 467,000 units from June through August – a 30 percent jump from the March-May period.”

In Japan, the auto sector is expected to add 1.5 percentage points to the country’s third-quarter economic growth, partly because the Japanese economy is so heavily weighted in vehicle production.