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Demand for cars, trucks will boost North American industry into 2014: Scotiabank

Linda Nguyen, The Canadian Press

TORONTO - Worldwide vehicle sales continued to climb in September, including North America, where vehicle production is forecast to hit levels not seen in years, says a report by Scotiabank.

The bank's monthly Global Auto Report says car and truck sales rose by three per cent in September year-over-year, although moderating from a 6.5 per cent rate of increase in July and August.

The increase in sales was due to strong demand in China, western Europe and South America, as those economies saw signs of stabilization in their job markets and a surge in consumer confidence.

Car and truck sales in Canada also jumped, as October produced a fourth consecutive month of record sales, with a stronger than expected annual sales rate of 1.84 million units, up from 1.73 million in September.

As a result, the bank (TSX:BNS) has revised its full-year forecast for Canada to 1.735 million from 1.72 million. It also bumped up its forecast for 2014 to 1.745 million units.

Carlos Gomes, Scotiabank's senior economist and automotive industry specialist, said this is good news for North American auto manufacturers.

"Rising vehicle demand across North America has boosted production on the continent, including Canada, to the highest level in nearly a decade, lifting operating rates and leaving some plants bursting at the seams," he wrote.

The report forecasts vehicle production in North America will hit more than 16 million units this year — the first time it will have done so since 2005. Gomes said production is on pace to hit 17 million in 2014 , and a record 17.6 million by mid-decade.

"We estimate that ongoing output gains will lift North American capacity utilization to an unsustainable 95 per cent by mid-decade, putting pressure on automakers to add new capacity," he wrote.

Gomes noted that although in recent years some car manufacturers have moved production to lower-cost regions in the southern U.S. and Mexico, "cost competitiveness" in North America will still make Canada an economically viable location to produce vehicles.

For instance, recent contract negotiations have allowed companies to hire new workers at a reduced wage starting at 60 per cent of the existing wage of current workers.

The "all-in cost" for Ford, General Motors and Chrysler to hire an autoworker in the U.S. works out to be about US$37 an hour versus C$32 an hour for a Canadian worker, he said.

"In this environment, the recent improvement in Canada's competitive position leaves the industry on a much better footing than during most of the past decade when Canada was viewed as one of the most expensive vehicle-producing jurisdictions," he wrote.