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North American Auto Industry Needs NAFTA: Scotiabank Report

Posted April 17, 2017

A report published today by Scotiabank forecasts that global automotive sales volumes are on track to climb to record highs for the eighth consecutive year. At the same time, however, it warns that the Trump administration’s push to renegotiate the North American Free Trade Agreement has created significant uncertainty for the auto sector, which it notes “has the most highly integrated supply chain of all manufacturing industries” under the trade pact.

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 at 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% of all auto industry shipments from the U.S. are now destined to the three NAFTA countries, the report states. This integration has boosted productivity and enhanced the industry’s global competitiveness, enabling it to increase its share of global exports.

According to the report’s findings, 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 5% 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 outperformance 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, warns the report.

Other highlights 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 7% 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% 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% y/y 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.

Click here to download the full Global Auto Report.