Prepared by Nicoletta Batini, Thomas Dowling and Grace Bin Li (all WHD). We are thankful to Dennis DesRosiers for providing us with data and a useful conversation.
The introduction of NAFTA is estimated to have contributed until 2000 to an increase in North American motor vehicle production and sales of around 25 percent, although it is associated with a fall in employment in the United States and Canada (with corresponding gains in Mexico). Within the first ten years of NAFTA’s ratification, the value of NAFTA auto trade almost doubled. Since NAFTA was introduced, both Mexico and Canada have attracted substantial FDI in the auto sector from the United States and from outside the region.
In Canada 61 percent of total automotive production is attributable to Ford, GM and Chrysler. In the United States and Mexico the corresponding share is 53 percent and 49 percent, respectively
During 2007 nearly 2 million new U.S. cars were purchased with funds from home equity loans. Such funding was considerably less available in 2008.
The average effective rate on auto loans was not statistically significant when used instead of the Fed Funds rate. We use the Hodrick-Prescott filter to perform the trend-cycle decomposition.
The estimated coefficient on U.S. output is 7.3 with a t-statistic of 8.1.
Our baseline forecast is slightly more pessimistic than earlier-in-the-year forecasts by some other analysts like TD Economics and Scotiabank for 2010 (whose projections range between 13.7 and 13.9 millions of units sold for the region, respectively). At 13.8 million units for 2011 our baseline forecasts are also considerable more gloomy than TD Economics, for example, that expects sales to pass the 15 million mark in two years. However, they are much rosier than J.D. Power and Associates that puts sales in the region at below 13 million units following Q3 revisions to the U.S. outlook.
Measured by a sectoral employment aggregate that comprises about two thirds of all direct and indirect jobs.
The simple regression model that we employ predicts a large bounce back of sales from the double dip recession scenario in 2012 which compensates for the loss of sales in 2011.
Canada has historically aligned its Company Average Fuel Consumption (CAFC) with the United States’ CAFE standard and so new U.S. standards affect Canada as well. Currently, the CAFE standard is 27.5 miles per U.S. gallon (8.6 L/100 km) and has been set to increase to 30.2 miles per U.S. gallon (7.8 L/100 km) in 2011, and to 35 miles per U.S. gallon (6.7 L/100 km) by 2016.