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Luxury Sales Accelerate In China CONTACTS US drives global sales higher in March. Canadian sales remain on a stronger-than-expected trajectory. German brands are the luxury leaders in China, and will benefit most from market opening measures. Carlos Gomes 1..73 Scotiabank Economics carlos.gomes@scotiabank.com GLOBAL SALES EDGE HIGHER IN MARCH Global auto sales increased 1.% y/y in March, as stronger US volumes and ongoing gains in most emerging markets more than offset a temporary decline in purchases across Western Europe. US volumes rose.% y/y last month, the strongest increase in two years, as sales to the rental car industry and other businesses jumped 11.% y/y and % y/y, respectively. Sales to US households were also bolstered by strengthening income and wage gains, helping to lift the overall US sales pace to an annualized 17. mn units in March. Last month s sales rate was in line with our above-consensus call for fullyear 1 sales, and well above the 17.1 mn average of the past 1 months. In fact, the US accounted for most of the increase in global sales last month, with purchases outside of the United States remaining in line with year-earlier levels. Chart 1 Luxury Sales Accelerate in China 3. mns of units y/y % change.. 1. Sales for top six brands, LHS Growth rate, RHS 3 1 Sales in Canada were also stronger than expected last month, totalling an annualized. mn, as light truck purchases (CUVs, SUVs, pickups and vans) jumped % y/y and garnered more than 71% of overall new vehicle sales, up from less than % as recently as 1. During the first quarter, Canadian overall purchases rose 1.9% y/y, with most of the strength centred in Ontario, where sales climbed nearly % y/y alongside an 11% y/y jump in fleet volumes. The rebound in fleet activity in Ontario is consistent with strengthening business investment in the province, which accelerated in late-17 at the fastest pace since mid-1. Sales gains in China picked up to.1% y/y last month, up from a 3% increase during the previous two months. This implies that the market is no longer being affected by the removal of the tax incentives offered on the purchase of small fuel-efficient vehicles. These incentives were introduced in late-1 to stimulate demand, were partially phased-out in January 17, and were fully removed on January 1 st of this year. Activity also remained solid in March across most emerging markets, even as the pace of sales gains moderated below % y/y in many countries. In contrast, Western Europe was the only region to report lower sales last month, with volumes temporarily falling % below a year earlier, partly due to fewer selling days as a result of the timing of Easter this year. The fall-off was broadly-based, with volumes edging lower in of 1 countries. We expect activity to rebound in coming months, as most economic indicators remain solid across the region. LUXURY DRIVES SALES GAINS IN CHINA Luxury automakers are the key drivers of sales gains in China this year, accounting for nearly half of the overall year-over-year sales improvement through March. In fact, the advance in China s luxury auto market in 1 is the fastest since the government s launch of its anti-corruption drive in 13. 1. 1 13 1 1 1 17 1 Sources: Scotiabank Economics, Bloomberg, companyreports. Chart 7 3 China: Elevated House Prices & Consumer Confidence number of 7 cities with rising prices House prices, LHS index, 1997= Consumer confidence, RHS 1 13 1 1 1 17 1 Sources: Scotiabank Economics, Bloomberg. 1 1 11 1 9 1

Volumes at the top six premium automotive brands in China have accelerated to nearly a % y/y increase through the end of March, a sharp improvement from the 1% average annual increase during 1 17.The out-sized surge in luxury volumes through March puts the largest premium automakers on target to surpass sales of.7 mn units in China this year, more than double the level that prevailed as recently as 13 (chart 1). In fact, China now represents nearly 3% of global volumes for the top six premium brands, up from less than % in 1. The rapid growth in luxury auto sales in China reflects ongoing strong gains in household wealth and rising consumer confidence. According to data from the government of China, overall wealth in China increased.7% last year, led by an 11.% jump in non-financial assets, mainly real estate. The upward trend in property prices remains in place in 1, with house prices advancing in of the largest 7 cities in China as of March (chart ). Auto sales are highly correlated with changes in house prices and gains in overall wealth, and the current advances represent a sharp difference from the backdrop in 1 1. At that time, slowing economic growth in China dampened house prices and limited the gain in luxury auto purchases to only % in 1 (chart 1). CHINA MOVES TO OPEN ITS AUTO MARKET The Chinese government made two major announcements this month, regarding its plans to ease restrictions on foreign automakers. The first announcement indicates that, beginning in, automakers will be allowed to own more than % of their business units operating in China. For electric carmakers, the change is due to come into effect this year. The : rule has been the cornerstone of China s auto industry since 199, and was designed to give local automakers time to acquire technology and build their brands before providing overseas companies with unrestricted access to the Chinese market. At that time, the Chinese auto market had annual sales of less the, vehicles, and accounted for less than 1% of global volumes. In contrast, total auto sales in China totalled. mn in 17, equivalent to nearly 3% of the global market. The government also announced that it will move to reduce the % tariff on imported vehicles as soon as possible. About 9% of all cars and light trucks sold in China are assembled locally, with only about 1.1 mn units imported last year. Western Europe dominates the shipment of foreign vehicles into China, accounting for more than % of all imported vehicles last year, up from 33% a decade ago. Other Asian countries are the next largest exporters of vehicles to China, accounting for nearly 3% of overall imports. North America exports nearly 3, vehicles, mostly European brands manufactured in the US, to China each year, and will also benefit from tariff reduction. INTERNATIONAL CAR SALES OUTLOOK (millions of units) 199 99 1 1 1 17 1f TOTAL SALES 39..9 7.1 77. 79. 1. North America* 1.3 17.. 1.1.7.93 Canada 1.7 1. 1.9 1.9.. United States 1. 1. 17.39 17. 17.13 17. Mexico..99 1.3 1. 1.3 1.3 Western Europe 13.11 13.7 13. 13.97 1.3 1. Germany 3.7 3.3 3.1 3.3 3. 3.9 Eastern Europe 1.1 3. 3.1 3.1 3.1 3.9 Russia.7 1.7 1. 1.3 1. 1.7 Asia.91 17.1 3.9 3. 37. 3.79 China**.3 7.31.1 3.7..9 India.31 1.3..9.19.33 South America 1. 3.17 3.33 3.7 3.9 3.77 Brazil.9 1.9 1. 1.39 1. 1.1 *Includes light trucks. **Includes crossover utility vehicles from. Sources: Scotiabank Economics, Ward's Automotive Reports, Bloom

CANADA/US MOTOR VEHICLE SALES OUTLOOK 1991 1 1 17 1 Average Jan-Feb** Annual f (thousands of units, annualized) CANADA 1,39 1, 1,99,1,, Cars 797 77 1 Domestic 3 9 39 3 1 1 Imports 1 3 19 Light Trucks 1 9 1,7 1,397 1,7 1,39 (millions of units, annualized) UNITED STATES 1. 1. 17. 17.1 17. 17. Cars.3.9.9.1.. Light Trucks 7. 7.. 11. 11.7 11. NORTH AMERICAN (millions of units, annualized) PRODUCTION* 1. 1.3 1.1 17. 17.3 17.7 CANADA...37.19.1. UNITED STATES 11.7 9. 1.1 11.3 11. 11. MEXICO 1.1.9 3.. 3.91.1 *Includes light, medium and heavy trucks. **Canadian sales are Scotiabank estimates. Sources:Ward's Automotive Reports, Statistics Canada. VEHICLE SALES OUTLOOK BY PROVINCE* (thousands of units, annual rates) 199 1 1 17 1 Average Jan-Feb ** Annual f CANADA 1, 1, 1,99,1,, ATLANTIC 1 1 13 13 13 CENTRAL 93 1,3 1, 1,3 1,3 1, Quebec 3 11 3 7 Ontario 7 3 7 7 9 1 WEST 9 9 9 9 Manitoba 9 7 1 Saskatchewan 3 9 1 Alberta 1 3 3 British Columbia 1 179 1 3 31 31 *Includes cars and light trucks. **Scotiabank estimates. Sources: Statistics Canada, Canadian Vehicle Manufacturers' Association. 9 thousands of units 7 Ontario Quebec 3 9 9 1 1 3 7 17 1 1 7 VEHICLE SALES BY PROVINCE thousands of units Atlantic Alberta British Columbia 9 9 1 1 7 thousands of units Manitoba 3 Saskatchewan 9 9 1 1 Includes cars and trucks (light, medium and heavy). Shaded bars indicate U.S. recession periods. Source: Statistics Canada. 3

AUTO MARKET SHARE BY MANUFACTURER CANADA* 17 1 17 1 Jan to Mar Jan to Mar Mar Mar Units % of Total Units % of Total Units % of Total Units % of Total TOTAL 131.. 1.. 1.3. 3.. Big Three. 19. 3.3 19.3 1. 19.9. 1. General Motors 13.. 13.9 11..7.9.9 11. Ford 7...7. 3..9 3.. Chrysler...7...1 1.1. Japanese.1 7.. 7. 3. 9.3. 7. Honda. 1. 19.7 1.. 17.. 1. Toyota 17. 13.1 1. 13. 7.9 1.9 7.7 1.3 Nissan 11.7.9.1..7 9.3.7. Mazda 7.7.9.3. 3..3.9.3 Mitsubishi 1.7 1.3 1.3 1..7 1.. 1. Subaru 3.7. 3.1. 1.. 1.. Hyundai 13.. 11. 9..9 9.7. 9. Volkswagen.3.3.1.7 3..7 3.1. Kia 7.3. 7.1.9 3.. 3.. BMW.3 3.3. 3. 1..7 1.9 3. Mercedes-Benz....1.3 3. 1.9 3. Other. 3.. 3.9.1 3..3. *Source: Dealer sales from the Global Automakers of Canada. TRUCK MARKET SHARE BY MANUFACTURER CANADA* 17 1 17 1 Jan to Mar Jan to Mar Mar Mar Units % of Total Units % of Total Units % ot Total Units % of Total TOTAL 9.. 317.. 1.9. 13.. Big Three 1..7 13.7 1. 7.9.1 7.7 1.9 General Motors 7. 1.1 1. 1.1 3. 1..3 17. Ford.7 1..3 17.1 3. 1.3 3. 1.9 Chrysler. 19.. 1.. 1. 3. 17. Other Domestic 9.7 3.3 1. 3.. 3...1 Japanese.1.7 9.9 9.9 3..3. 9.7 Honda.9 7.1.7 7... 9.1. Toyota 7.7 9. 3. 9. 11..9 13. 9. Nissan 1.9 7. 3. 7..1 7.. 7.7 Mazda 7.. 9. 3.1 3.1.. 3.1 Mitsubishi.7.9.3 1. 1..9.1 1. Subaru.7.3.. 3.. 3.. Hyundai 11. 3.7.1 3.... 3.3 Kia....1 3..3 3..3 Other Imports 1.9 7. 9.7 9..9.9 11..7 LIGHT TRUCKS 9. 97. 3. 97. 1.1 97.9.1 97.3 *Source: Dealer sales from the Global Automakers of Canada.

AUTO SALES BY PROVINCE 17 1 17 1 Jan to Feb Jan to Feb Feb Feb CANADA 7. 9. 3. 37. ATLANTIC.1..1. Newfoundland..9.. Nova Scotia 1.7.. 1.1 New Brunswick 1. 1.1.. Prince Edward Island...1.1 CENTRAL. 7... Quebec 1. 1. 9.9 9. Ontario 3. 9. 1. 1.1 WEST 17.7 17. 9. 9. Manitoba 1...9 1.3 Saskatchewan 1.1 1.1.. Alberta.. 3.3. British Columbia 9.1 9... Source: Statistics Canada. TRUCK SALES BY PROVINCE* 17 1 17 1 Jan to Feb Jan to Feb Feb Feb CANADA 1. 177.. 9. ATLANTIC...1.1 Newfoundland.. 1.3 1. Nova Scotia. 3... New Brunswick 3.1 3.3 1. 1.7 Prince Edward Island.... CENTRAL 9.1.7 1.. Quebec 9. 31.9 1.7 1. Ontario. 7. 3. 39.7 WEST.3. 9.9. Manitoba..3 3. 3.7 Saskatchewan..3 3.. Alberta.. 13. 1. British Columbia. 1.1.3. *Light, medium and heavy trucks. Source: Statistics Canada.

CANADIAN MOTOR VEHICLE PRODUCTION 17 1 17 1 Jan to Mar Jan to Mar Mar Mar TOTAL 99. 3. 19. 17. CAR 199. 17.1 7.. Chrysler.7. 1.. GM 3.9 13. 11.1.1 Honda..1 19. 1. Toyota 3. 1. 3. 17. TRUCKS*. 3.1 13.7 1. Chrysler 7..1.. Ford. 9. 3. 3. GM 9. 1. 3.1 1.7 Honda.3.1.7 19.3 Toyota 9.3. 3.1 7. Others 3.. 1. 1. *Light, medium and heavy trucks. Source: Ward's Automotive Reports. 3. quarterly Canada Motor Vehicle Production 3. Canada World Auto Trade Balances billions of dollars 3. 3. Total Assembled vehicles.. 3 3.. Total 1. Cars 1. 1. 1. 1. 1. - - Trucks* Parts.. - -. 9 1 1. -3 9 1 1-3 Millions of units, seasonally adjusted annual rates. *Light, medium and heavy trucks. Source: Ward's Automotive Reports. 1 data are January-February annualized. Source: Statistics Canada.

New & Used Car Prices Scotiabank Car Price Indicators Canada Used* year-over-year per cent change 1 New 1 - CPI - -1 79 9 9 9 9 9 1 1 1 1 1 1 1 1 *Scotiabank estimate from Canadian Black Book data. Sources: Canadian Black Book, Statistics Canada. Scotiabank Car Price Indicators Canada thousands of dollars by age of car, seasonally adjusted 1 Year Year Year 79 9 9 9 9 9 1 1 1 1-1 1 1 1 1 Scotiabank estimate from Canadian Black Book data. Scotiabank Car Price Indicators United States year-over-year per cent change 1 Used 1 - New CPI - -1 79 9 9 9 9 9 1 1 1 1-1 Consumer price indices for new and used cars. Shaded areas indicate recession periods. Source: U.S Bureau of Labor Statistics. 7

CANADIAN CORPORATE FINANCIAL PERFORMANCE MOTOR VEHICLE DEALERS AND REPAIR SHOPS Net Income Pre-Tax Inventory Interest Debt/ Return on After Tax Profit Turnover Coverage Equity Shareholders ($ mil) Margin (%) Ratio Ratio Ratio Equity (%) Annual 799.93.3..7 1.9 9 1..1..7 1.37 7 9 1.1. 3.3. 1.13 11 1.3. 3.1. 1. 9 139 1..3..7 1.99 19..91.3.11 1.9 11 1 1.99.17.19. 17. 1 17 1.97..3.3 1.71 13 1.3.... 1 71..9 7.1 1.9 1.3 1 99.3.1 7. 1.93 1.31 1 93..3 7.7 1.9. 17 3.1.9 7.. 1.3 Quarterly at annual rates 1Q...99 1.9 1. 17Q1 19..31..1 1.3 Q 39.3.3.99.11. Q3 39.3.1.1. 3. Q 31..1 7. 1.9 1.1 Average (9 17) 1..9 3.7.31 1. Low (9 17) -..31 1. 3.7-1. Definition of Ratios: Pre-tax Profit Margin: pre-tax income/sales Inventory Turnover Ratio: sales/inventory Source: Statistics Canada. Interest Coverage Ratio: (pre-tax income and interest payments)/(interest payments) Debt/Equity Ratio: (short-term and long-term debt)/total equity Return of Shareholders Equity: after-tax income/total equity number of bankruptcies Retail Auto Dealer Bankruptcies 17 1 1 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. New car dealers only; cumulative total during the year. Source: Office of the Superintendent of Bankruptcy.

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