The auto industry is propelling the economic recovery in both Canada and the U.S., according to the latest Canadian Auto Report released today by Scotia Economics.

“Vehicle production on both sides of the border climbed to an annualized 15.7 million units in April and May — a 10% year-over-year increase — and is scheduled to surge to 16.5 million in June, up from 13.9 million in late 2001,” says Carlos Gomes, Scotiabank’s auto industry specialist. “Assemblies fell to a decade low of only 13.6 million in early 2001.”

The sharp rebound in production reflects stronger-than-expected motor vehicle sales across North America so far this year and declining inventories at auto dealerships. At the end of April, U.S. auto dealers had only 59 days’ supply of new vehicles — down from an average of 67 days over the past 10 years and the lowest level for April on record since the mid-1980s.

“Rising vehicle production will further bolster economic conditions and brighten job prospects in both Canada and the United States in the second quarter,” says Gomes. “The pickup in assemblies will add more than 2 percentage points to U.S. GDP growth this summer — the largest contribution since 1998.”

In Canada, the auto sector alone has accounted for 26% of the overall increase in industrial activity since the September 2001 low — more than three times its normal share. Furthermore, rising vehicle assemblies and parts production will add nearly a percentage point to overall economic growth in the second quarter.

The auto sector is now hiring again after being at the forefront of layoff announcements over the past two years. “In Canada, the auto industry (assemblies and parts) has added 4,700 new jobs so far this year — a significant turnaround from the nearly 15,000 jobs lost since late 2000,” adds Gomes.

According to the report, Canadian assembly plants continue to widen their productivity advantage over facilities in both the U.S. and Mexico. However, an area of concern for the Canadian auto industry is that most of the new North American assembly plants coming on stream over the next five years will be located in the U.S. South.