Global vehicle sales are dropping sharply, and while sales in Canada have held up so far in the downturn, they’re set to take a turn for the worse in 2009, according to Scotia Economics.

In a new report on the global auto sector, Scotiabank senior economist and auto industry specialist Carlos Gomes says he expects new vehicle sales in Canada to be 1.5 million units in 2009, down from 1.67 million this year and an average of 1.6 million so far this decade.

“We expect the sharp erosion in global economic conditions and equity markets will increasingly take a toll on Canadian prospects,” he says.

This is despite October sales that were much stronger in Canada than in other countries. Vehicle sales in Canada climbed 2% year-over-year during the month, at an annualized 1.64 million units — only marginally lower than the 1.7-million unit average through September.

In addition, used car prices — a leading indicator of new vehicle demand, have edged up in recent months, as the lower Canadian dollar has cut into the number of vehicles imported from the United States. Imports slumped 35% year-over-year in October when the Canadian dollar fell below US90¢, partly reversing the 84% surge during the previous nine months.

Preliminary estimates indicate some softening in Canadian purchases in November, the report says.

Globally, the “precipitous fall-off” in sales is led by sharp declines in the United States, Western Europe and Japan. It’s steepest in the United States, where vehicle purchases plunged 32% year-over-year in October to a 25-year low of 10.6 million units, down from an average of 14.1 million units during the previous nine months.

Preliminary data suggest that sales remained close to this level in November as well, as consumer confidence remains at a record-low and the job market continues to deteriorate.

The report emphasizes the importance of the industry to both the Canadian and American economies, accounting for 13.5% of overall Canadian manufacturing and more than 7% of American factory output.

Furthermore, the industry has invested more than $35 billion in Canada over the past decade, accounting for more than 17% of overall manufacturing investment.

The drop in demand will reduce operating rates at assembly plants across North America to roughly 76% in 2008, one of the lowest levels on record, according to Gomes.

“Highlighting the difficult conditions facing automakers, operating rates at the Detroit Three will likely remain below 70% through the end of the decade, well below the 80% rate they were facing when they began to close plants earlier this decade,” he says.