North American auto industry needs NAFTA: Scotiabank

Global car sales accelerated sharply in February in line with global growth, with volumes jumping 6.9 per cent above a year earlier and well above the 4 per cent year-over-year gain during the previous two months.

This solid performance leaves global volumes on track to climb to record highs for the eighth consecutive year. However, the Trump Administration’s push to renegotiate NAFTA has created significant uncertainty for the industry in North America. The auto sector has the most highly integrated supply chain of all manufacturing industries under NAFTA.

“The integration of the North American auto market has enabled the sector to outperform on a global stage,” said Carlos Gomes, senior economist and auto industry specialist, Scotiabank.

“Any new restriction to the free flow of vehicles and parts among the three countries would have a negative impact on economic activity in Canada, Mexico and the Unites States including potential job losses.”

More than 92 per cent of all auto industry shipments from the U.S. are now destined to the three NAFTA countries. This integration has boosted productivity and enhanced the industry’s global competitiveness, enabling it to increase its share of global exports.

The U.S. is the major supplier of auto parts to its NAFTA partners and has been a major beneficiary of the rapid expansion of assembly plants in Mexico. In particular, Mexico is now the destination for one-third of auto parts exported from the United States, up from less than five per cent prior to NAFTA’s inception.

The highly integrated North American auto supply chain has enabled U.S. auto industry employment to increase by more than five times the growth in overall manufacturing jobs. The supply chain under NAFTA has closely tied the three economies and any interference could challenge the performance of the North American auto industry including potential job losses for some of the nearly 2 million positions at plants in the United States, Canada and Mexico.

Other highlights from the Scotiabank report include:
– More recent sales data for March confirm continued record volumes in both Canada and Mexico, but show some disappointment in U.S. results.
– Sales in Canada jumped seven per cent above a year earlier last month, with volumes buoyed by double-digit gains in both light trucks and luxury models.
– Volumes in Mexico jumped 17 per cent above a year ago in March, even as interest rates moved higher and economic activity slowed.
– Asia led the broad-based acceleration of global car sales with a 16 per cent year-over-year surge as sales in China returned to double-digit year-over-year growth.
– Sales in South America have been stronger than expected, advancing above a year earlier in February for the fourth consecutive month.