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  November 3rd, 2016 | Written by

Auto Industry Recovery Begins in Brazil

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  • Global car sales accelerated in September.
  • Global car sales climbed 10 percent year over year.
  • Growth in global car sales the largest gain in three years.

Global car sales accelerated in September, climbing 10 percent y/y and marking the largest gain in three years.

Activity has even improved in Brazil, one of the weakest major auto markets in recent years with sales slumping nearly 50 percent since 2013. Vehicle production in Brazil is ramping up at a much faster pace than domestic sales as exports to neighboring countries move higher alongside stronger economic conditions.

“Brazil’s vehicle exports have surged nearly 20 percent so far this year, with export growth accelerating in recent months,” said Carlos Gomes, senior economist and auto industry specialist at Scotiabank. “The improvement in Brazil’s economic activity is already benefiting its South American neighbors with imports from Latin America currently advancing at a double-digit pace, a significant reversal from the sharp slump in 2015.”

The automotive export acceleration is leading to firmer industrial activity in Brazil and to a significant increase in investment. A recent survey by the Brazilian Central Bank revealed that during the first seven months of 2016, foreign direct investment in the Brazilian auto industry soared 77 percent above a year earlier, providing much-needed support for industrial activity going forward.

Asia led the way in September with purchases surging 21 percent above a year earlier alongside a 32 percent spike in volumes in China. Volumes were also strong in Western Europe and even turned positive year-over-year in Eastern Europe, as double-digit advances in 11 nations more than offset ongoing declines in Russia.

Purchases in the U.S. rebounded to an annualized 17.7 million units in September, up from less than 17 million in August and an average of 17.2 million during the previous eight months. A continued moderate increase is likely in 2017, supported by ongoing strength in key economic fundamentals such as a solid labor market, rising incomes, low interest rates and fuel prices. Last month’s better-than-expected performance prompted the industry to increase its full-year North American production plan to record highs.

Sales in Canada bounced back in September with several automakers reporting records for the month. Scotiabank estimates that overall purchases totaled 1.96 million units, well above the 1.89 million average of the past two months, but marginally below the year-ago record for September. While activity was mixed across the provinces last month, Ontario and British Columbia continued to outperform.