Defying all the naysayers, the U.S. economy continues to move forward, albeit with painstaking caution.

Two sectors always set the tone for the overall economy – housing and automobiles. Both are on upward inclines.

Previous Economy at a Glances have set out the improvement in residential markets. Permits, starts and prices are all climbing. The inventory of unsold vacant properties is falling.

In this article, though, let’s look more closely at what’s happening in the auto sector both north and south of the border.

According to Autodata Corporation, U.S. light motor vehicle sales in September were 14.9 million units, seasonally adjusted and annualized. That was the highest monthly figure since before the recession.

September’s level was a month-over-month increase of 2.9% and a year-over-year gain of 13.7%.

The trend in monthly sales, with some fits and starts, has been consistently moving higher. A return to strong pre-recession market conditions will require a figure of 16.0 million units, but that no longer seems unattainable. 

The September year-to-date change in light vehicle sales – built up from individual company results – was +14.5% versus the first three quarters of last year.

Passenger cars sales at +19.5% so far this year have been outperforming light trucks, +9.6%.

The ranking of the five top sellers in the U.S. market by unit sales has been as follows: General Motors (1.97 million units so far this year); Ford (1.69); Toyota (1.57); Chrysler (1.25); and Honda (1.07).

It is the year-over-year percentage changes that are more interesting, however. Too bad it’s an apples and oranges comparison.

Both Toyota (+31.6%) and Honda (+24.0%) have recorded huge increases because their results last year were so weak. Tsunami damage to ports and factories in Japan in the spring of 2011 halted production and limited the availability of product. 

For the Detroit Three, the standout year-over-year sales gain has been recorded by Chrysler/Fiat, +23.9%.

Ford (+5.3% year to date) and GM (+3.4%) have turned in more modest advances.

Among other car manufacturers, one particular eye-catching statistic is Volkswagen’s 32.3% sales gain year to date in 2012. This has a special relevance for Canada.

Canada is no longer the number one foreign supplier of vehicles and parts to the U.S. market. Mexico has earned that honor. A big part of the reason is a giant Volkswagen plant in Puebla (100 kilometres south of Mexico City) that targets cross-border customers. 

Lately, Canada and Japan have been about tied for second place. German and South Korean automakers also figure prominently in the U.S. sales figures.

With respect to the former, currency issues play a role. The values of the greenback (on account of the Federal Reserve’s ultra-low interest rate policy plus its quantitative easing) and the Euro (due to debt issues in largely Mediterranean member states) have been racing each other to the bottom.

The luxury German brands have made decent gains so far this year, with Daimler AG at +15.1% and BMW at +7.1%. The latter has a slight advantage in terms of the actual number of unit sales

Among South Korean manufacturers, Hyundai has sold more units year to date (540,000 units) than Kia (435,000), but its percentage increase has been less, +9.5% versus +18.4%.

DesRosiers Automotive Consultants compiles motor vehicle sales data for Canada. While there has been a significant improvement over last year (+6.6%), the pace has been only about half the American rate of increase.

That’s partly explained by the fact we didn’t slip into as serious a decline as our American friends in the recession. The latest (September) monthly sales figure in Canada, at 1.71 million units seasonally adjusted and annualized, was close to a decade-long high. 

Total unit sales so far this year in Canada are being led by Ford (219,100), followed by Chrysler/Fiat (193,400), GM (176,200) and Toyota (137,100). Notice that I haven’t mentioned the fifth-place company yet. That’s because it’s a surprise. Hyundai (107,600 units) is positioned ahead of Honda (97,700).

According to year-to-date sales gains, the Japanese producers are way out front with Honda at +26.1% and Toyota at +25.6%. As in the U.S., this is the Japanese storm-disaster aftermath effect.

Among South Korean manufacturers, Hyundai (+3.4%) is trailing Kia (+19.4%). 

As for the Detroit Three, Chrysler/Fiat is leading (+6.2%), with Ford flat (0.0%) and GM in decline (-5.8%).

For the Canadian sector, the question is whether or not the recent agreement between the autoworkers union (CAW) and the Detroit Three is favorable enough to light a fire under new capital projects. The capacity utilization rate (89.6% in the second quarter) in “transportation equipment”, which is mainly comprised of the motor vehicle sector, is sufficiently high to warrant a spate of investment announcements.

The “rub” lies elsewhere. What incentives can be expected from government and how do our labour agreements stack up vis à vis alternative locations?

The newly-ratified Canadian auto agreement with the Detroit Three stipulates a wage freeze for three years, a two-tier system of compensation and a sizable signing bonus. New-hires will receive much lower hourly pay than those with seniority.

The period of time it will take to eliminate the wage gap – so that everyone doing the same job is rewarded equally – will be stretched out. In the meantime, the average pay scale will be lowered.

These labour cost adjustments are viewed as necessary to compete with plants mainly in the southern U.S. that have “right-to-work” legislation (which supports non-union employment) and a much cheaper labour climate in Mexico.

There’s another important aspect of the Canadian auto scene I haven’t mentioned yet. The share of total sales taken by the Detroit Three has fallen to 45.1%. Imports account for more than half of all sales and a couple of import nameplates – especially Toyota and Honda – have large non-union assembly plants. Their investment criteria are a bit more of a mystery

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.