Carlos Gomes (416) 866-4735 carlos.gomes@scotiabank.com Global Economic Research Global Auto Report Global Auto Report is available on: www.scotiabank.com, Bloomberg at SCOE and Reuters at SM1C Scotiabank Economics Scotia Plaza 40 King Street West, 63rd Floor Toronto, Ontario Canada M5H 1H1 Tel: (416) 866-6253 Fax: (416) 866-2829 Email: scotia.economics@scotiabank.com This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents. TM Trademark of The Bank of Nova Scotia. Used under license, where applicable. C anadian auto sales climbed 6% last year, and will likely edge up further in 2013, advancing to 1.69 million units — the second- highest level on record. The resource-rich provinces of Alberta, Saskatchewan and Newfoundland & Labrador will continue to lead gains. Purchases in these provinces set record highs in 2012, climbing above the 2007 peak. In contrast, even with a moderate gain this year, volumes in the rest of Canada will remain 6% below the 2002 peak. Labour markets, demographic trends and development activity are strongest in Western Canada, while a ramp-up of several projects on the east coast will support regional gains. Commodity prices have rebounded since last summer, and will be underpinned over the coming year by the recent pick-up of economic growth in China and improving global financial market conditions. Global equity markets have advanced by more than 20% since mid-2012, including 5% during the first four weeks of 2013. Alberta will be the auto industry’s growth leader in 2013. Vehicle sales in Alberta climbed to 239,000 units last year — the second-highest on record. We expect volumes to advance to 244,000 units in 2013, approaching the 2007 peak of 249,000 cars and light trucks. Sales will be bolstered by a buoyant labour market, record population inflows and a continuing, albeit single-digit increase in energy sector investments. Unemployment in Alberta has dropped to only 4.5% — the lowest level in Canada and nearly 3 percentage points below the national average. Meanwhile, population growth accelerated to 2.5% last year — nearly triple the advance in the rest of Canada. Alberta’s driving-age population is increasing at even a faster pace. Despite these positive developments, the improvement in vehicle sales will be dampened by some slowing in energy sector investment. The export price for Canadian heavy crude has fallen to a substantial discount from international benchmark prices due to export pipeline constraints. The sharp widening in the discount for Canadian heavy crude oil is hurting Alberta’s public finances, prompting its premier to warn last week of a $6 bn revenue shortfall for the 2013-14 fiscal year. Vehicle sales in Saskatchewan climbed to a record-high 55,000 units in 2012, buoyed by a solid gain in farm incomes and ongoing expansion of the mineral sector. An increase in purchases to 56,000 units is projected for 2013, bolstered by the government of Saskatchewan’s commitment to spent at least $2.5 bn on infrastructure over the next several years and the scheduled start-up of the Cigar Lake uranium mine in late 2013. Despite declining mineral and natural gas production in Saskatchewan over the past year, the province still expects investments of nearly $45 billion in major resource projects over the next decade — a development which will keep labour and auto markets among the strongest in Canada. Newfoundland & Labrador also reported record car and light truck sales in 2012, with volumes jumping to 33,000 units — 29% above the 2001-08 average. Purchases will be boosted this year by a rebound in offshore oil production and increased iron ore output. After weakening in the first half of 2012 alongside slowing global economic activity, China’s imports of iron ore jumped to record highs late last year, setting the stage for higher prices and a ramp-up in iron ore production across Newfoundland in 2013. Oil output is also set to rebound, with production resuming at both the Sea Rose and Terra Nova projects, after being offline for maintenance last year. However, longer-term gains in car and light trucks sales will be constrained by weak vehicle-buying demographics in Newfoundland. In fact, the demographic outlook is worse for the province than for its Maritime Resource-Rich Provinces Will Continue To Drive Sales Gains In Canada January 30, 2013 1.2 1.3 1.4 1.5 200 250 300 350 400 00 02 04 06 08 10 12 thousands of units Vehicle Sales Resource-Rich Provinces* (LHS) Rest of Canada (RHS) forecast millions of units * Alberta, Saskatchewan, Newfoundland & Labrador. Record Sales In Resource-Rich Provinces 2 Global Economic Research Global Auto Report January 30, 2013 neighbours. The vehicle-buying population in Newfoundland & Labrador declined by 0.2% last year and is projected to slump 0.5% annually over the next five years. In contrast, the number of potential vehicle buyers across Atlantic Canada is projected to continue to edge higher. Vehicle sales in Manitoba advanced 6% last year, in line with the improvement across Canada. We expect a further modest gain in 2013, underpinned by increased agricultural and construction activity. The value of building permits in Manitoba jumped by nearly 30% last year, nearly three times the advance in the national average. A gradual pick-up in global demand for the province’s diversified exports will also support further gains in auto sales. In particular, aerospace shipments in Manitoba surged 20% last year, outpacing gains in other sectors. Vehicle sales in British Columbia rose 10% last year to 173,000 units — the highest level since 2008. Volumes will be supported over the coming year by rising exports to Asia — the destination for more than 40% of the province’s international shipments — and the ongoing revival in the U.S. housing market. However, despite an improving external environment, offshore exports account for less than one-quarter of overall economic activity in B.C. Households are the key drivers of the economy, accounting for 62% of overall activity — nearly 7 percentage points above the national average. In particular, we expect a slowing labour market and declining residential real estate prices to weigh on consumer confidence — British Columbians were the most upbeat Canadians in late 2012 — limiting the gain in vehicle sales to less than 1%. Car and light truck purchases in Ontario jumped above 600,000 units last year for the first time since 2006, led by a 9% increase in fleet purchases. Household volumes improved a more moderate 4%, but set a decade high of 530,000 last year. Further modest gains are expected in 2013, as the ongoing improvement in manufacturing — led by a revival in the auto sector — more than offsets restraint from both the federal and provincial governments. The auto parts sector led Ontario’s manufacturing employment growth last year, advancing by 5% — the strongest increase since the turn of the millennium. Further gains are scheduled for 2013, as vehicle production strengthens to 2.6 million units — the highest level since 2005. Quebec’s auto market lagged last year, with volumes advancing by only 1% alongside sluggish employment growth and increased taxes. Purchases are expected to edge up to 417,000 units in 2013, supported by rising private sector investment and a modest improvement in the key aerospace sector. The largest aerospace company in Quebec recently announced a near-doubling in aircraft orders last year, and employment in the sector has begun to reverse a four-year slide. The increase in vehicle sales across New Brunswick was also smaller than the national average. However, last year’s 1% advance was enough to lift sales to a decade high of 39,000 units. Further gains will be supported over the coming year by rising exports to the United States. Cross-border shipments are the main driver of the provincial economy, with international and inter-provincial exports accounting for nearly 80% of overall economic activity. Increased potash production, following the completion of a $1.7 bn investment, combined with rising lumber exports to the U.S. will boost provincial spending and help lift vehicle sales to 40,000 units in 2013. Nova Scotia posted a 7% advance in vehicle sales last year to 48,000 units. A further small improvement will be underpinned by expansion of the Halifax Shipyard to accommodate the building of combat ships starting in 2015. Several other projects, including construction of the Halifax Convention Centre, will also boost employment and vehicle purchases in the coming year. International Car Sales Outlook 1990-99 2000-09 2010 2011 2012e 2013f TOTAL SALES 39.20 49.64 56.82 58.89 61.87 64.47 North America* 16.36 18.38 13.96 15.22 17.07 17.72 Canada 1.27 1.59 1.56 1.59 1.68 1.69 United States 14.55 15.79 11.55 12.73 14.40 15.00 Mexico 0.54 1.00 0.85 0.90 0.99 1.03 Western Europe 13.11 14.39 12.98 12.80 11.76 11.76 Germany 3.57 3.33 2.92 3.17 3.08 3.14 Eastern Europe 1.18 2.71 3.14 3.90 4.25 4.50 Rus sia 0.78 1.53 1.91 2.65 2.93 3.08 Asia 6.91 11.64 22.47 22.50 24.02 25.46 China 0.43 3.56 9.41 10.04 10.65 11.75 India 0.31 0.89 1.87 1.95 2.05 2.15 South America 1.64 2.52 4.27 4.47 4.77 5.03 Brazil 0.94 1.57 2.69 2.64 2.84 2.98 *Includes light trucks. (millions of units) 3 Global Economic Research Global Auto Report January 30, 2013 Canada/U.S. Motor Vehicle Sales Outlook Vehicle Sales Outlook By Province* 1991-05 2006-09 2010 2011 2012e 2013f Average CANADA 1,398 1,592 1,557 1,589 1,677 1,690 Cars 797 841 711 691 760 767 Domestic 583 527 394 433 470 475 Transplants 178 278 235 257 280 282 Imports 214 314 317 258 290 292 Light Trucks 601 751 846 898 917 923 UNITED STATES 15.5 14.0 11.6 12.7 14.4 15.0 Cars 8.3 6.9 5.7 6.1 7.2 7.6 Light Trucks 7.2 7.1 5.9 6.6 7.2 7.4 NORTH AMERICAN PRODUCTION* 15.58 13.25 12.15 13.46 15.77 16.48 CANADA 2.50 2.18 2.07 2.13 2.46 2.60 UNITED STATES 11.67 9.10 7.74 8.64 10.30 10.70 MEXICO 1.41 1.97 2.34 2.69 3.01 3.18 *Includes transplants; light, medium and heavy trucks. **U.S. sales and North American production to November. (millions of units, annualized) (millions of units, annualized) (thousands of units, annualized) 200 300 400 500 600 700 800 200 300 400 500 600 700 800 80 84 88 92 96 00 04 08 12 Ontario Quebec Includes cars and trucks (light, medium and heavy). Shaded bars indicate U.S. recession periods. thousands of units 50 75 100 125 150 175 200 225 250 275 50 75 100 125 150 175 200 225 250 275 80 84 88 92 96 00 04 08 12 British Columbia Atlantic thousands of units Alberta 20 30 40 50 60 70 20 30 40 50 60 70 80 84 88 92 96 00 04 08 12 Manitoba Saskatchewan thousands of units 1994-05 2006-09 2010 2011 2012e 2013f Average CANADA 1,446 1,592 1,557 1,589 1,677 1,690 ATLANTIC 102 117 122 119 126 128 CENTRAL 936 983 990 997 1,034 1,038 Quebec 366 406 414 408 416 417 Ontario 570 577 576 589 618 621 WEST 408 492 445 473 517 524 Manitoba 42 44 44 47 50 50 Saskatchewan 36 44 46 50 55 56 Alberta 166 225 200 218 239 244 British Columbia 164 179 155 158 173 174 *Includes cars and light trucks. (thousands of units, annual rates) 4 Global Economic Research Global Auto Report January 30, 2013 Auto Market Share By Manufacturer — Canada* Truck Market Share By Manufacturer — Canada* Units % of Total Units % of Total Units % of Total Units % of Total TOTAL 693.6 100.0 760.0 100.0 46.0 100.0 48.0 100.0 Big Three 179.5 25.9 182.6 24.0 9.3 20.1 10.4 21.8 General Motors 77.6 11.2 72.0 9.5 4.4 9.5 4.0 8.3 Ford 69.9 10.1 68.1 8.9 3.5 7.6 3.6 7.6 Chrysler 32.0 4.6 42.5 5.6 1.4 3.0 2.8 5.9 Japanese 283.8 40.9 317.6 41.8 23.2 50.6 22.2 46.2 Honda 73.2 10.6 87.1 11.5 6.9 14.9 9.1 19.0 Toyota 85.3 12.3 106.6 14.0 6.9 15.1 6.2 12.8 Nis san 46.7 6.7 42.5 5.6 3.2 6.9 2.1 4.4 Mazda 56.8 8.2 55.4 7.3 3.8 8.4 2.6 5.4 Mitsubishi 7.3 1.1 8.0 1.0 0.8 1.8 0.8 1.6 Subaru 10.8 1.6 14.4 1.9 1.3 2.9 1.2 2.5 Hyundai 89.2 12.9 96.9 12.8 4.7 10.1 5.2 10.8 Volkswagen 44.8 6.4 50.9 6.7 3.0 6.4 3.3 6.9 Kia 40.8 5.9 54.7 7.2 2.1 4.5 2.4 5.1 BMW 20.4 2.9 21.2 2.8 1.4 3.2 1.7 3.5 Mercedes-Benz 19.9 2.9 20.1 2.6 1.6 3.5 1.9 3.9 Other 15.2 2.2 16.0 2.1 0.7 1.6 0.9 1.8 *Source: Dealer sales from the Association of International Automobile Manufacturers of Canada. Jan to Dec Dec DecJan to Dec (thousands of units, not seasonally adjusted) 2011 2012 2011 2012 Units % of Total Units % of Total Units % ot Total Units % of Total TOTAL 924.5 100.0 954.9 100.0 72.1 100.0 63.4 100.0 Big Three 570.3 61.7 564.2 59.1 43.0 59.7 35.8 56.5 General Motors 165.2 17.9 154.9 16.2 13.9 19.3 10.6 16.8 Ford 206.1 22.3 208.0 21.8 15.9 22.0 13.3 20.9 Chrysler 199.0 21.5 201.3 21.1 13.2 18.4 11.9 18.8 Other Domestic 34.9 3.8 41.6 4.4 3.8 5.2 2.8 4.4 Japanese 195.3 21.1 221.4 23.2 16.9 23.5 15.6 24.6 Honda 49.9 5.4 61.6 6.5 4.2 5.8 4.1 6.4 Toyota 77.0 8.3 85.4 8.9 6.8 9.4 6.0 9.5 Nissan 38.0 4.1 39.7 4.2 3.5 4.8 2.8 4.4 Mazda 12.4 1.3 16.3 1.7 1.0 1.4 1.0 1.5 Mitsubishi 13.2 1.4 11.7 1.2 1.2 1.7 0.9 1.5 Subaru 16.2 1.8 16.6 1.7 1.1 1.6 1.6 2.5 Hyundai 40.0 4.3 39.3 4.1 1.8 2.5 2.7 4.2 Kia 24.3 2.6 23.1 2.4 1.4 1.9 1.5 2.4 Other Imports 59.7 6.5 65.3 6.8 5.2 7.2 5.0 7.9 LIGHT TRUCKS 894.9 96.8 917.1 96.0 68.7 95.4 60.6 95.6 *Source: Dealer sales from the Association of International Automobile Manufacturers of Canada. Jan to Dec Dec DecJan to Dec (thousands of units, not seasonally adjusted) 2011 2012 2011 2012 5 Global Economic Research Global Auto Report January 30, 2013 Auto Sales By Province Truck Sales By Province* 2011 2012 2011 2012 Jan to Nov Jan to Nov Nov Nov CANADA 645.4 710.9 50.8 55.0 ATLANTIC 51.7 58.4 3.7 4.4 Newfoundland 11.7 13.4 0.8 0.9 Nova Scotia 22.0 24.4 1.6 1.9 New Brunswick 15.4 17.4 1.1 1.3 Prince Edward Is land 2.6 3.2 0.2 0.3 CENTRAL 458.5 500.5 36.9 39.7 Quebec 212.5 227.0 16.9 18.4 Ontario 246.0 273.5 20.0 21.3 WEST 135.2 152.0 10.2 10.9 Manitoba 14.7 16.1 1.1 1.2 Saskatchewan 11.1 12.5 0.8 0.9 Alberta 49.7 55.4 3.8 3.7 British Columbia 59.7 68.0 4.5 5.1 (thousands of units, not seasonally adjusted) 2011 2012 2011 2012 Jan to Nov Jan to Nov Nov Nov CANADA 857.3 893.9 73.7 73.9 ATLANTIC 62.2 63.2 5.2 4.8 Newfoundland 17.2 18.4 1.5 1.4 Nova Scotia 20.8 21.5 1.8 1.7 New Brunswick 21.4 20.3 1.7 1.5 Prince Edward Is land 2.8 3.0 0.2 0.2 CENTRAL 485.1 489.1 40.1 40.1 Quebec 172.9 172.3 14.0 13.5 Ontario 312.2 316.8 26.1 26.6 WEST 310.0 341.6 28.4 29.0 Manitoba 30.0 32.3 2.6 2.6 Saskatchewan 35.7 39.8 3.2 3.4 Alberta 156.5 174.5 14.9 15.4 British Columbia 87.8 95.0 7.7 7.6 *Light, medium and heavy trucks. (thousands of units, not seasonally adjusted) 6 Global Economic Research Global Auto Report January 30, 2013 Canada — Motor Vehicle Production Canada — World Auto Trade Balances Canadian Motor Vehicle Production* 2011 2012 2011 2012 Jan to Dec Jan to Dec Dec Dec TOTAL 2,135.1 2,463.7 173.5 151.0 CAR 990.5 1,040.4 77.3 67.5 Chrysler 194.6 240.2 15.8 16.5 Ford 76.5 0.0 0.0 0.0 GM 317.9 319.6 23.3 19.9 Honda 179.9 226.4 21.0 15.3 Toyota 221.6 254.2 17.2 15.8 TRUCKS** 1,144.6 1,423.3 96.2 83.5 CAMI (GM/Suzuki) 0.0 0.0 0.0 0.0 Chrysler 301.5 345.7 26.3 21.7 Ford 243.9 255.9 18.9 17.9 GM 343.9 363.5 26.3 20.6 Honda 54.1 183.6 5.3 10.5 Toyota 191.3 265.0 18.5 11.9 Others 9.9 9.6 0.9 0.9 *Production data from Ward’s Automotive Reports. **Light, medium and heavy trucks. (thousands of units, not seasonally adjusted) 0.2 0.6 1.0 1.4 1.8 2.2 2.6 3.0 3.4 0.2 0.6 1.0 1.4 1.8 2.2 2.6 3.0 3.4 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 quarterly Total Millions of units, seasonally adjusted annual rates. * Light, medium and heavy trucks. Cars Trucks* -30 -20 -10 0 10 20 30 40 50 -30 -20 -10 0 10 20 30 40 50 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 billions of dollars Assembled vehicles Total Parts 2012 data are January-November annualized. 7 Global Economic Research Global Auto Report January 30, 2013 Scotiabank Car Price Indicators — Canada Scotiabank Car Price Indicators — Canada Scotiabank Car Price Indicators — United States New & Used Car Prices -15 -5 5 15 25 -15 -5 5 15 25 79 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Used* * Scotiabank estimate from Canadian Black Book data. CPI New year-over-year per cent change 2 4 6 8 10 12 14 16 18 20 2 4 6 8 10 12 14 16 18 20 79 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 1 Year Scotiabank estimate from Canadian Black Book data. 4 Year thousands of dollars by age of car, seasonally adjusted 2 Year -15 -5 5 15 25 -15 -5 5 15 25 79 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Consumer price indices for new and used cars. Shaded areas indicate recession periods. Used New year-over-year per cent change CPI 8 Global Economic Research Global Auto Report January 30, 2013 Retail Auto Dealer Bankruptcies 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 1999 487 0.82 6.83 2.31 2.41 9.58 2000 400 0.75 6.79 2.10 2.02 6.46 2001 521 0.75 7.06 2.13 1.98 8.37 2002 773 1.02 7.48 3.09 2.04 11.28 2003 594 0.91 5.30 2.65 2.91 10.14 2004 571 0.69 4.98 2.25 3.17 10.49 2005 799 0.93 5.35 2.55 2.74 12.90 2006 942 1.20 5.16 2.64 2.75 14.37 2007 1089 1.41 5.05 3.36 2.56 15.13 2008 1142 1.43 5.04 3.51 2.44 14.66 2009 1392 1.84 5.34 4.85 2.07 16.99 2010 1645 2.05 4.98 5.33 2.15 18.61 2011 1939 2.21 4.91 5.08 1.77 17.65 Quarterly at annual rates 2011Q3 1816 1.89 5.01 4.08 1.75 16.19 Q4 2948 3.20 5.20 6.05 1.58 24.19 2012Q1 2396 2.73 4.39 5.53 1.74 19.98 Q2 2772 2.86 4.79 6.33 1.68 22.33 Q3 2296 2.40 4.88 5.28 1.52 17.54 Average (89-11) 686 1.14 6.20 2.79 2.39 10.78 Low (89-11) -68 0.10 4.30 1.10 3.57 -1.20 Definition of Ratios: Interest Coverage Ratio: (pre-tax income and interest payments)/(interest payments) Pre-tax Prof it Margin: pre-tax income/sales Debt/Equity Ratio: (short-term and long-term debt)/total equity Inventory Turnover Ratio: sales/inventory Return of Shareholders’ Equity: after-tax income/total equity 0 5 10 15 20 25 30 0 5 10 15 20 25 30 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. New car dealers only; cumulative total during the year. number of bankruptcies 2012 2010 2011 . resource-rich provinces of Alberta, Saskatchewan and Newfoundland & Labrador will continue to lead gains. Purchases in these provinces set record highs in 2012,. demographics in Newfoundland. In fact, the demographic outlook is worse for the province than for its Maritime Resource-Rich Provinces Will Continue To Drive Sales