August 3, 2006

Asia, Latin America and Mexico auto sectors offer explosive growth potential

Toronto, Ontario – Car purchases are soaring in China and Latin America, boosting 2006 global volumes to a new record high, according to the latest Global Auto Report released by Scotia Economics. Double-digit gains in the emerging nations of Asia and America are in sharp contrast to declining volumes in mature markets, especially in the U.S. and Japan, where record oil prices are undercutting consumer purchases.

Car purchases in China rose by nearly 50 per cent in the first half of 2006, a 22 per cent jump over the same period in 2005. “With household income in China continuing to advance at a double-digit pace and automakers aggressively launching new models, we expect full-year sales to total 3.8 million units in 2006, up from 3.1 million last year,” says Carlos Gomes, Scotiabank’s auto industry specialist. “By the end of the decade, car sales in China will likely surpass five million units, overtaking Japan as the second-largest car market.”

Compact cars, especially those with 1.0- to 1.5-litre engines, are posting the strongest gains in China, partly due to a recent reduction in excise taxes aimed at promoting fuel-efficient models. General Motors, which offers several compact models, had a volume rise of 47 per cent this year, outpacing the gain by Volkswagen, which GM surpassed last year. China currently accounts for more than 70 per cent of GM’s volume in Asia, and more than 10 per cent of its global sales.

Growth in India has also accelerated in recent months, with purchases climbing by 18 per cent in the first half of 2006, a marked improvement over the six per cent increase in 2005.

Demographics and economic growth are also boosting sales in South and Central America, and Mexico. “We estimate that Latin America’s labour force is growing by nearly two per cent per annum, second only to India,” Gomes says. “Only 11 per cent of the population owns a vehicle, a level well below the ownership rate for developing nations, and less than one-sixth the 73 per cent penetration rate in the Group of Seven countries. Rising incomes are propelling Latin America into a key growth market.”

Brazil is the largest auto market in South America and is one of the ten largest in the world, with 1.62 million units in 2005. New vehicle sales have advanced by an additional eight per cent year-over-year in 2006. In Mexico, passenger vehicle sales have doubled since 1990 and totaled 1.13 million units in 2005. By the end of the decade, Mexican sales are likely to approach 1.5 million units per annum, potentially surpassing purchases in Canada.

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