FORECAST: Canadian 2007 auto sales to hit 8-year low

TORONTO -- Canadian vehicle sales in 2007 will drop to their lowest level in eight years as the economy weakens, and the industry will continue to shed jobs, a high-profile automotive analyst forecast today.

Dennis DesRosiers, president of DesRosiers Automotive Consulting Inc., said vehicle sales in Canada next year will fall by as much as 5 percent to about 1.54 million units, a level last recorded in 1999.

He said Canadians will not be able to maintain the pace of vehicle purchases made in recent years, when incentives, a strong Canadian dollar, and a reasonably healthy domestic economy were enough to lure buyers into showrooms.

"Canadians have overbought," DesRosiers told Reuters. "Canadians bought more vehicles in the last seven years than in any other seven-year stretch in history."

DesRosiers expects the Canadian dollar to fall in 2007, possibly to near 80 U.S. cents, which would drive up prices for vehicles as domestic manufacturers would have to pay more for imported components.

At midafternoon on Thursday, the Canadian dollar was at C$1.1543 to the U.S. dollar, or 86.63 U.S. cents, well off the 28-year high of 91.34 U.S. cents it reached in May and slightly above the eight-month low of 86.29 U.S. cents reached last week.

The Canadian economy has already started to show signs of weakness and economists predict that will carry into 2007 and force the Bank of Canada to lower interest rates.

DesRosiers said market share will continue to deteriorate for General Motors of Canada, Ford Motor Co. of Canada and DaimlerChrysler Canada -- the former Big Three of Canadian manufacturing -- as competitors such as Toyota Canada Inc. and Honda Canada Inc. continue to build a bigger presence.

"Whether it's a raw materials supplier, a tool supplier, a parts supplier, a union, a car dealer, a government who is dependent on (the Big Three) for taxes or a city dependent on them for economic development, they all have a negative adjustment to make," DesRosiers said.

DesRosiers said the shift in market share coupled with weaker demand for automobiles will result it more job losses next year.

In 2006, DesRosiers said about 15,000 jobs were lost in the automotive parts sector tied to GM Canada, Ford Canada and DaimlerChrysler Canada. On the flipside, about 6,000 jobs were added because of Toyota and Honda.

In the United States, the latest report on auto sales came in weaker than expected, raising concerns about whether the industry would face a slump next year rather then the flat market automakers are projecting.

Also Mexico, which together with the United States buys the bulk of vehicles exported from Canada, slashed its growth forecast for auto exports in 2007 because of an economic slowdown.

DesRosiers expects demand for smaller entry-level vehicles and larger luxury models to continue to grow next year. But the middle of the market, vehicles such as four-door sedans, minivans and crossovers, is expected to decline and hamper sales.

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