Economic News/Trends and Analysis — June 25, 2009

Auto Lending Conditions Improve In North America, According to Scotia Economics

    TORONTO, June 25 /CNW/ - Improving global financial markets have led to a
thawing in the once-frozen credit conditions, including in the auto loan
market, a development that is expected to boost vehicle sales in the second
half of 2009, according to the latest Global Auto Report releases today by
Scotia Economics.
    "The improvement in the North American auto loan market is highlighted by
Federal Reserve data which indicates that the loan-to-value ratio for new auto
loans in the United States recently increased to 89.1 per cent, the highest
level since August 2008, up from 86.4 per cent in February," said Carlos
Gomes, Scotiabank Senior Economist and Auto Industry Specialist. "The increase
in the loan-to-value ratio indicates buyers need a smaller down payment to
purchase a new a vehicle, and points to an easing in credit conditions."
    The report finds that an increase in auto loan approvals to the highest
level since April 2008 also provides evidence of improved credit conditions.
    "Loan approval rates have started to pick up in Canada, while
securitization activity has begun to improve with the Federal government's $12
billion securitization plan launched in early May," said Mr. Gomes.
"Asset-backed security issuance had virtually disappeared through April, while
the withdrawal of some major lenders from the auto-loan business over the past
year had dampened credit availability. However, the Bank of Canada indicates
that auto loans at chartered banks in Canada have remained readily available,
providing some offset."
    In addition, growth in overall household credit, of which autos account
for roughly 20 per cent, has recently started to trend higher. This suggests
that overall auto credit is once again advancing in Canada, reversing a five
per cent drop in 2008.
    The report also finds that other leading indicators of auto sales, such
as used car prices and consumer sentiment are also on the mend, pointing to
stronger vehicle sales ahead in both Canada and the United States. In the
United States, used car prices posted the fifth consecutive monthly increase
in May. In fact, last month, prices climbed above a year earlier for the first
time since October 2007, just before the advent of the latest U.S. recession.
In Canada, used car prices are still below a year earlier, but the decline
moderated in May to only two per cent, the smallest since mid-2006.

    Global auto sales

    Global auto sales have rebounded to the highest level since August, 2008
prior to the bankruptcy of Lehman Brothers in mid-September. As in previous
months, emerging markets led the way in May, but the positive momentum has
spread to mature markets.
    Sales in Western Europe climbed last month to the highest level since
early 2008. Purchases also improved in the United States, advancing to an
annualized 9.9 million units in May, up from an average of 9.4 million so far
this year. Retail volumes strengthened to an annualized 8.3 million, the best
level since January, and up from only 7.6 million in April. The improvement
reflects a pick-up in consumer confidence alongside greater signs of
stabilization in economic activity.
    Car and light truck sales in Canada have also steadied at an annualized
1.42 million units in recent months, up from a first-quarter average of 1.37
million. Despite the better tone, purchases were held back in May by a 50 per
cent year-over-year (y/y) fall off at a major automaker. Excluding this sharp
the drop, industry sales were down only 11 per cent y/y, the smallest decline
since last November, and roughly half the drop of the previous four months.

    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.

For further information: Carlos Gomes, Scotia Economics, (416) 866-4735,
carlos_gomes@scotiacapital.com; Paula Cufre, Scotiabank Public Affairs, (416)
933-1093, paula_cufre@scotiacapital.com

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