Profitabilty in the auto industry is up, fueled the strongest U.S. growth in twenty years, says the latest Canadian Auto Report from Scotia Economics.

Per vehicle earnings for the Big Three automakers reached $960 in key U.S. markets in early 2004, more than a four-fold increase over the previous year. Cost-cutting restructuring efforts combined with new higher-priced models, especially light trucks, are responsible for the gains.

"Despite rising gasoline prices, the shift towards light trucks continues unabated across North America, boosting profitability at the Big Three. Light truck volumes in the United States climbed 10% year-over-year in the first quarter compared with a 2.5% decline in car sales," says Carlos Gomes, Scotiabank's auto industry specialist. "Purchases are climbing in every truck segment, including large, gas-guzzling SUVs such as the Chevy Suburban and Tahoe, whose volumes have climbed by 4% so far this year."

Since January, there has been steady improvement in vehicle sales in Canada. Volume for the Big Three automakers showed the strongest improvements, as volumes grew 10% over last year's sales levels.

"We expect Canadian vehicle sales to continue to advance in coming months, buoyed by a strengthening economy, low interest rates and significant replacement demand," says Gomes. Purchases in Canada will likely climb to 1.625 million units this year, up from 1.596 million in 2003.

Profitability gains are also helping North American parts manufacturers. The Canadian and U.S. suppliers included in the Scotiabank sample had year-over-year sales growth of 9% in the first quarter and an annualized return onshareholders' equity of 14%, reversing losses during the second half of 2003.

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