Auto industry back on track: experts

TORONTO — The Canadian auto industry is showing signs of improvement after sales of vehicles and parts rose in May, slowly but surely reversing months of decline, say industry players.

TORONTO — The Canadian auto industry is showing signs of improvement after sales of vehicles and parts rose in May, slowly but surely reversing months of decline, say industry players.

Auto sales jumped 8.3 per cent in May to $12.3 billion, compared to April, Statistics Canada said Wednesday.

The figures were part of a 10.6 per cent climb in overall retail sales for the month, unadjusted for inflation.

New car sales increased 4.6 per cent to $6.6 billion, while used and recreational motor vehicles sales, as well as auto parts dealers, saw their sales increase by 13.3 per cent to $2 billion.

Gas sales, which are included in automotive sales, came in at $3.7 billion.

Although auto industry sales were still down 16.2 per cent year-over-year — with new car sales down 12 per cent in the period — the recent figures are a ray light following several gloomy months, experts say.

“The evidence now suggests we’ve bottomed out, that we shouldn’t expect any more serious erosion in the light vehicle marketplace,” said Bill Pochiluk, president of industry adviser AutomotiveCompass.

Pochiluk said the “slow but deliberate” improvement in vehicle sales comes from a combination of incentives from the car companies, pent-up demand from consumers and a rebound in consumer confidence.

It’s also getting a little easier for consumers to get loans to buy new vehicles, although he said credit availability remains “a serious problem.”

Analysts believe the rally is sustainable as long as general economic conditions don’t worsen, gas prices don’t increase too quickly and manufacturers don’t immediately scrap their incentive programs as they start to see demand improve.

Scotiabank economist and auto industry expert Carlos Gomes said he sees Canadian vehicle sales totalling 1.42 million units this year.

Since sales “bottomed” in the first quarter at 1.35 million units, on an annualized basis, it implies sales will continue to improve in the second half of the year, Gomes said.

The trend in the U.S. is similar, with sales for the year forecast at 10.2 million units, compared to an annualized rate of 9.5 million units in the first quarter, according to Scotiabank’s analysis.

Gomes said auto sales are often a sign post for the economy as a whole, and the May data indicate a general economic recovery isn’t far off.

“The first sector to turn tends to be the housing market, then a couple of months later you start to see the turn in the auto side and then maybe about three months or so later you get the overall economy turning,” Gomes said.

“So those two sectors I think are key sectors to look at because they give you a good indication of being at an inflection point.”

The rebound in auto sales is also good news for Canadian suppliers.

On Tuesday, Lear Seating, a division of U.S.-based Lear Corp., which is currently restructuring under bankruptcy protection, said it will reopen its plant in Ajax, Ont., in 2010. The plant was closed in May due to slumping demand from Lear’s customers.

Gerry Fedchun, president of the Automotive Parts Manufacturers’ Association, said dealers are still working their way through inventory backlogs, but he expects suppliers’ production rates to turn around by the fourth quarter or the first quarter of next year.

“It is a value chain that starts at the consumer and feeds backwards, and as they take those cars off the lots they have to start to replace them at some point,” Fedchun said.

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