Motor vehicle output in North America is set to be scaled back to 17 million units in 2001, following an estimated record of 17.9 million units this year, according to Canada News Wire, citing the latest Canadian Auto Report released by Scotia Economics.

"The recent idling of assembly plants across North America is just the beginning of what we expect will be additional outages in coming months," says Carlos Gomes, Scotiabank's auto industry specialist.

"Nevertheless, the impact of the cyclical downturn in US sales will be moderated by record sales volumes in Canada and ongoing structural changes in the industry, including increased production in North America by foreign automakers and the widespread application of `just-in-time' manufacturing, which reduces the industry's cyclicality."

According to the report, despite temporary shutdowns at several plants, capacity utilisation in the North American auto sector will average 96% this year – the third highest on record. Even with next year's expected slowdown, operating rates will remain fairly high at about 90%.

"Japanese and German automakers continue to boost assembly capacity in North America and now produce more than three million vehicles annually in Canada and the United States, up from less than 500,000 in the mid-1980s," says Gomes. "These facilities now account for one-third of Canadian and US car production and 20% of overall passenger vehicle output."

Transplant assemblies will continue to climb as Japanese producers expand their Canadian facilities and build at least three new plants in the US. Rising transplant production means that 85% of all vehicles sold in Canada and the United States are now assembled in North America – more than 80% of all cars and 90% of all light trucks. During the late 1980s, domestic-made models only accounted for 75% of overall sales.

Turning to overall market conditions, vehicle sales in North America began the 2001 model year on a softer footing, contributing to the recent downshift in economic activity. In October, US auto purchases fell to a 12-month low of 16.8 million units annualised from an incentive-induced average of 17.6 million units during the previous two months.

After surging to a record high in August/September, Canadian auto sales also fell in October, declining to a 19-month low of 1.39 million units.

"In contrast to the United States, we expect auto sales in Canada to edge higher in 2001, as Canadians continue to replace their aging vehicles," commented Gomes. "Consumer surveys indicate that the number of Canadians planning to buy a new vehicle in the next six months has recently climbed to a 2-1/2 year high."

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