February 20, 2008 / 7:29 PM / 10 years ago

Canada set to weather auto market downturn: analyst

TORONTO (Reuters) - Sales in the auto market are set to fall slightly over the next couple of years, but the slowdown will be less pronounced than in the U.S. market, a top Canadian auto analyst said on Wednesday.

Auto sales in Canada are expected to fall to 1.629 million units in 2009 from 1.69 million units in 2007, Dennis DesRosiers, head of DesRosiers Automotive Consultants Inc, said in a research note.

Sales are seen recovering to 1.658 million units by 2012, he said.

While the North American auto market appears to be going through a cyclical downturn, Canada’s market has so far remained quite robust, he said.

Auto sales in the North American market as a whole slipped 3 percent in 2007 from the previous year, and are expected to fall further through 2009 before starting to recover, DesRosiers said.

But all of the declines came in the United States and Mexico, which were both down 3.5 percent for the year.

Auto sales in Canada actually rose 1.5 percent in 2007, recording their second strongest year on record, due to a solid domestic economy and the rise in value of the Canadian dollar.

During the year, U.S. auto production fell by 4.5 percent, while auto production in Canada rose 0.3 percent.

“This increase in vehicle production belies all the pundits who insist that Canada is in crisis mode,” DesRosiers said.

“To have higher production in a year when North American sales are down is a huge achievement for Canada.”

Canada is not doing so well on the employment side of the equation.

Assembly sector jobs are hovering near a decade low, but the deeper pain is being felt in the parts manufacturing sector, where employment dropped 5.3 percent in 2007, DesRosiers said.

More than 11,000 jobs have been lost in parts manufacturing since the beginning of the decade after around 35,000 jobs were added over the previous two decades.

DesRosiers said that this “correction” will force companies to become more productive, especially as they no longer have the competitive advantage of a weak Canadian currency.

The Canadian dollar has risen around 60 percent since 2002, making Canadian exports more expensive, but boosting Canadians’ purchasing power.

Looking at capital investment in the industry, Canada’s percentage of new investments has been on the rise.

Canada’s share of total Canada/U.S. assembly sector investment climbed to 35.8 percent in 2007 from 20.8 percent in 2000.

In the parts sector, Canada managed to increase its share of Canada/U.S. auto parts investments to 13.6 percent in 2007 from 6.4 percent in 2000.

“When taken as a whole, the latest facts and figures paint a picture of an industry that is indeed entering a cyclical downturn (as it has countless times before), but is well-positioned to ride out the storm and emerge stronger on the other side,” DesRosiers said.

($1=$1.02 Canadian)

Reporting by John McCrank; Editing by Peter Galloway

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