Weakness in auto sector likely to extend to late 2009: analyst

Auto sales in Canada are heading for a decline of just over 10 per cent this year, a Scotiabank economist predicted Thursday.

Carlos Gomes, a senior economist and auto industry specialist, said purchases in Canada are forecast to slide from the 1.64 million vehicles sold in 2008 to 1.475 million in 2009 which would be the lowest figure since 1998.

"Vehicle sales held up better in Canada than in other mature markets through October but are now also being pulled lower by the global financial crisis, that has spilled into this country," Gomes said.

Month-over-month sales in December were off by 21 per cent, he said, and overall global sales of vehicles are expected to be weak.

"We expect the double-digit year-over-year declines to continue through the first half of 2009 amid a simultaneous recession in North America, Western Europe and Japan," Gomes said.

"Purchases are however expected to stabilize in the second half of 2009, limiting the slump in global car sales to an average decline of eight per cent this year. Nevertheless, the fall-off will be steeper than the five per cent average drop in global volumes in 2008 - the first downturn since 2001."

Separately, accounting firm KPMG said almost half of senior auto executives believe a revenue slump will continue to plague the industry for the next five years.

In an executive survey, KPMG found that 77 per cent of respondents expect to see a "dramatic" increase in the number of insolvencies. They also expect to see more restructurings, mergers and takeovers in the industry.

"Prior years' KPMG surveys saw modest improvements in optimism for the future; however, the 2008 survey saw a change for the worse as global economic instability intensified during the second half of 2008," said Doug Dawdy, a partner in KPMG Canada's transaction advisory services practice.