Global Economic Research July 31, 2009

Carlos Gomes (416) 866-4735

carlos_gomes@scotiacapital.com

Global Auto Industry Revives

— China Leads the Way, But an Upturn has Begun in Most Regions

A cyclical recovery is underway in the global auto industry. Sales in June

posted their best performance since last July, after bottoming earlier this year.
Purchases have started to improve in most regions, led by China in the developing 50000
Car Sales in Developing Nations
Remain in the Fast Lane
real US$ GDP per capita* US
markets and Germany in mature markets. Vehicle production has also started to 45000
Germany Canada
rebound, enabling the auto sector to help drive the global economy towards recovery. 40000
Japan
Global car sales climbed to an estimated 48.0 million units (annualized) in the second 35000
quarter, up from an eight-year low of 43.0 million in the opening months of 2009. Global 30000
economic conditions have begun to stabilize, with consumers becoming more confident 25000
and taking advantage of low borrowings costs and competitive pricing. Over the past 20000
Korea
three economic cycles, car sales bottomed at least one quarter prior to an 15000
improvement in the global economy.
10000
Brazil
China is spearheading the recovery in both the auto market and the global 5000 China
economy. Car sales in China accelerated to a 48% y/y surge in June, lifting purchases above 0 India
vehicles per thousand people

an annualized 7.0 million units for the first time on record, and well above the 5.9 million 0 200 400 600 800 1000
unit peak reached in March 2008 prior to the sharp global economic downturn. Noteworthy, *Logarithmic trendline
our data only include cars. If trucks and buses are included, vehicle purchases in China are
on the way to exceed 10.5 million units this year and surpass the United States as the world’s largest vehicle market.
Government stimulus and tax incentives are spurring the revival in China. Economic activity advanced by 7.9% y/y in the second
quarter, up sharply from a low of 6.1% in the opening months of 2009. Automakers boosted vehicle assemblies by 38%
y/y in June after a stronger-than-expected surge in sales in response to cuts in retail taxes and increased vehicle subsidies in rural areas.
Auto sales in China have been increasing rapidly since 2001, and this pace is expected to continue well into the next
decade. China’s real per capita income is now approaching US$4,000 — a level normally associated with accelerating growth
in vehicle sales. For example, incomes in China are now roughly the same as Korea’s in the mid-1980s. In the subsequent
decade, car sales in Korea surged by nearly 30% annually — nearly 3 times faster than income growth. Similar accelerations
in vehicle sales occurred in Japan and Canada through the early 1970s, and a decade earlier in the United States.
Much of the growth in China has been concentrated in compact cars with engine size of 1.6 litres or smaller. This
segment now accounts for more than 70% of the market, and will dominate going forward. More than 60% of households
are middle-income earners or lower, and the government will continue to pursue policies that focus on fuel efficiency. The
recent tax cut from 10% to 5% on the purchase of cars with engines smaller than 1.6 litres is an example.
General Motors — the top-selling brand in China — padded its lead this year, with first-half sales soaring
38% to 814,000 units — a level fast approaching the 948,000 vehicles it sold in the United States. As recently as
2004, GM sold roughly 10 vehicles in the United States for each model sold in China. Highlighting the importance of
China in GM’s revival strategy, the company expects to double its sales to 2 million units over the next five years, and
plans to launch more than 30 new models in the country. Other automakers, including Nissan and Honda, also continue
to expand their assembly facilities in China.

OTHER EMERGING MARKETS ARE ALSO REBOUNDING

With the exception of Russia, where purchases remain in hibernation, car sales have recently climbed to record highs in
the other key emerging markets of Brazil and India. In Brazil, a combination of tax breaks, lower prices and improved
confidence lifted sales to a record annual rate of 3.1 million units in June — 21% above a year earlier, and the third

Scotia Economics
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Email: scotia_economics@scotiacapital.com
This Report is prepared by Scotia Economics as a resource for the
clients of Scotiabank and Scotia Capital. While the information is from
sources believed reliable, neither the information nor the forecast shall
be taken as a representation for which The Bank of Nova Scotia or
Scotia Capital Inc. or any of their employees incur any responsibility.

Global Auto Report is available on: www.scotiabank.com, Bloomberg at SCOE and Reuters at SM1C
Global Economic Research July 31, 2009

increase in the past four months. Year-to-date sales have
advanced 4% in Brazil, led by a 28% surge at Ford — the
fourth-largest automaker in Brazil, behind Fiat, Volkswagen and
General Motors. Ford’s sharp gain reflects the popularity of its
new Fiesta. The Fiesta is slated for North America next year, and
will be produced in Mexico starting in the first half of 2010.
Unemployment has begun to recede in Brazil, falling to 8.1%
in June, supporting the consumer-led recovery. Demand is being
underpinned by record-low borrowing costs, lower taxes and
increased government spending. Policymakers lowered the key
lending rate by an additional 50 bps in July and a full 500 bps so
far this year. Real wages are also increasing 3% y/y, boosting
confidence and helping to sustain domestic demand.
Conditions are also stabilizing in India, with the decline in
business sentiment starting to be reversed alongside significant
monetary stimulus. Car sales have climbed by 9% so far this year
and will be bolstered in coming months by the recent launch of
the low-cost Tata Nano (US$2,500).
In Western Europe, government scrappage programs have led
to stronger-than-expected car sales in the first half of 2009.
However, the improvement in other indicators has lagged. In
particular, unemployment continues to move higher and further
labour market adjustment lies ahead. As a result, we expect car
sales in Western Europe to soften next year, as the boost from the
scrappage programs fades.
Germany is the main beneficiary of vehicle scrappage. A state-
backed rebate of 2,500 euros (US$3,500) per trade in for models
older than nine years has boosted first-half volumes by 26%. Full-
year sales will probably total 3.7 million, up from 3.1 million in
2008 and an average of 3.3 million over the past decade. However,
the program is scheduled to expire at the end of 2009.
NORTH AMERICA PASSES THE INFLECTION POINT
Sales in North America bottomed in the opening months of 2009,
and will be buoyed in coming months by the recently implemented
“cash-for-clunkers” program in the United States. The legislation
provides consumers with trade-in vouchers up to $4,500 to buy a
new vehicle, provided that the their new car gets 10 miles-per-gallon
(mpg) better gas mileage than the trade-in model. For light trucks,
the improvement must be 5 mpg better than the replacement model.
Vehicles being replaced must have been built in 1984 or later, and
the price of the new model must not exceed $45,000.
Other leading indicators of auto sales, such as used car prices
and consumer sentiment are also on the mend in both the United
States and Canada, pointing to stronger sales ahead. In the United
States, used car prices have increased year-over-year for two
consecutive months for the first time since October 2007, just
before the advent of the latest U.S. recession. In Canada, used car
prices are now roughly unchanged from a year earlier — the best
performance since mid-2006, and a significant improvement from
nearly a double-digit decline last summer. Consumer confidence is
also rebounding in both countries. In particular, the number of
households indicating that it is a good time to undertake a major
purchase, such as a vehicle is at one of the highest levels since
early 2008. In addition, as we pointed out last month, credit
availability and approval rates are on the rise in both countries.
Economic activity is poised to get a much-needed shot in the
arm from the auto industry revival. With sales on the upswing
and inventories back down to normal levels, the re-start of idled
auto assembly plants will boost third-quarter economic activity
across North America by roughly two percentage points. This
represents a sharp reversal from the past nine months, when the
economic downturn was intensified by significant auto industry
cutbacks.

International Car Sales Outlook

1990-99 2000 2001-06 2007 2008 2009f
(millions of units)

TOTAL SALES 39.20 46.64 48.63 54.92 52.17 48.19

North America* 16.36 19.77 19.45 18.83 15.85 12.44
Canada 1.27 1.55 1.60 1.65 1.64 1.42
United States 14.55 17.35 16.81 16.09 13.19 10.20
Mexico 0.54 0.87 1.04 1.09 1.02 0.82

Western Europe 13.11 14.75 14.54 14.75 13.54 12.93

Germany 3.57 3.38 3.32 3.15 3.09 3.71

Eastern Europe 1.18 2.38 2.36 3.58 4.01 3.41

Russia 0.78 1.03 1.25 2.31 2.73 2.18

Asia 6.91 7.85 10.23 14.42 15.07 15.78

China 0.33 0.61 2.26 5.15 5.04 6.30
India 0.31 0.60 0.75 1.18 1.20 1.32

South America 1.64 1.89 2.05 3.34 3.70 3.63

Brazil 0.94 1.17 1.30 1.98 2.19 2.30

*Includes light trucks.

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Global Economic Research July 31, 2009

Canada/U.S. Motor Vehicle Sales Outlook

1991-05 2006 2007 2008 2009
Average Jan-May ** Annual f

(thousands of units, annualized)

CANADA 1,398 1,614 1,654 1,642 1,395 1,420
Cars 797 863 858 898 725 750
Domestic 583 573 549 558 413 440
Transplants 178 271 291 305 258 290
Imports 214 290 309 340 312 310
Light Trucks 601 751 796 744 670 670
(millions of units, annualized)
UNITED STATES 15.5 16.5 16.1 13.2 9.5 10.2
Cars 8.3 7.8 7.6 6.8 4.8 5.2
Light Trucks 7.2 8.7 8.5 6.4 4.7 5.0
(millions of units, annualized)
NORTH AMERICAN
PRODUCTION* 15.58 15.86 15.42 12.90 7.05 8.40
CANADA 2.50 2.57 2.59 2.08 1.18 1.40
UNITED STATES 11.67 11.24 10.74 8.68 4.63 5.50
MEXICO 1.41 2.05 2.09 2.14 1.24 1.50

*Includes transplants; light, medium and heavy trucks. **U.S. sales and North American production to June.

Vehicle Sales Outlook By Province*

(thousands of units, annual rates)

1994-05 2006 2007 2008 2009

Average Jan-May Annual f

CANADA 1,446 1,614 1654 1,642 1,395 1,420

ATLANTIC 102 110 118 127 106 111

CENTRAL 936 997 1001 1,010 873 885

Quebec 366 396 408 430 373 372
Ontario 570 601 593 580 500 513

WEST 408 507 535 505 416 424

Manitoba 42 44 45 46 43 41
Saskatchewan 36 38 44 48 45 46
Alberta 166 236 249 232 184 190
British Columbia 164 189 197 179 144 147

*Includes cars and light trucks.

800 800 275 275 70 70

thousands of units thousands of units thousands of units
250 250
700 700
225 225 60 60
Ontario Manitoba
600 600 200 200
British 50 50
175 Columbia 175
500 500
150 150
Quebec 40 40
400 400 125 125
Alberta
100 100 30 30
300 300
75 Atlantic 75 Saskatchewan

200 200 50 50 20 20
7980 82 84 86 88 90 92 94 96 98 00 02 04 06 08 7780 82 84 86 88 90 92 94 96 98 00 02 04 06 08 7780 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Includes cars and trucks (light, medium and heavy).

Shaded bars indicate U.S. recession periods.

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Global Economic Research July 31, 2009

Auto Market Share By Manufacturer — Canada*

(thousands of units, not seasonally adjusted)

2008 2009 2008 2009

Jan to June Jan to June June June
Units % of Total Units % of Total Units % of Total Units % of Total

TOTAL 493.5 100.0 375.4 100.0 95.9 100.0 74.0 100.0

Big Three 162.3 32.9 93.6 24.9 31.5 32.8 19.0 25.7
General Motors 98.5 19.9 51.8 13.8 18.1 18.9 10.9 14.7
Ford 28.9 5.9 25.9 6.9 6.8 7.0 6.6 9.0
Chrysler 34.9 7.1 15.9 4.2 6.6 6.9 1.5 2.0

Japanese 242.1 49.1 185.6 49.4 45.8 47.7 34.0 46.0

Honda 68.9 14.0 48.1 12.8 12.7 13.3 9.1 12.3
Toyota 87.1 17.6 61.2 16.3 17.0 17.7 11.3 15.2
Nissan 30.0 6.1 28.1 7.5 5.2 5.4 5.4 7.3
Mazda 38.4 7.8 33.2 8.8 7.5 7.9 5.8 7.9
Suzuki 4.9 1.0 3.7 1.0 0.9 1.0 0.6 0.9
Subaru 6.3 1.3 5.7 1.5 1.0 1.0 0.9 1.2

Volkswagen 18.3 3.7 15.6 4.2 3.6 3.8 3.6 4.8

Hyundai 29.5 6.0 37.0 9.9 6.0 6.3 7.1 9.6
BMW 11.0 2.2 10.6 2.8 3.0 3.1 2.9 3.9
Mercedes-Benz 10.1 2.0 9.7 2.6 2.0 2.2 1.9 2.6
Other 20.2 4.1 23.3 6.2 4.0 4.1 5.5 7.4

*Source: Dealer sales from Motor Vehicle Manufacturers’ Association; latest data from The Globe and Mail.

Truck Market Share By Manufacturer — Canada*

(thousands of units, not seasonally adjusted)

2008 2009 2008 2009

Jan to June Jan to June June June
Units % of Total Units % of Total Units % ot Total Units % of Total

TOTAL 409.9 100.0 356.4 100.0 66.9 100.0 66.3 100.0

Big Three 271.1 66.3 226.5 63.6 45.1 67.3 40.0 60.3
General Motors 92.6 22.6 82.9 23.3 14.2 21.3 11.5 17.3
Ford 84.5 20.7 82.1 23.0 15.3 22.8 20.8 31.3
Chrysler 94.0 23.0 61.5 17.3 15.6 23.2 7.7 11.7

Other Domestic 19.8 4.6 9.4 2.6 3.1 4.7 1.6 2.4

Japanese 87.7 21.5 81.4 22.8 13.4 20.0 16.5 24.9

Honda 25.5 6.2 21.7 6.1 3.8 5.7 4.7 7.1
Toyota 34.1 8.3 36.2 10.2 5.4 8.1 7.3 11.1
Nissan 14.5 3.6 11.4 3.2 2.0 3.0 2.1 3.1
Mazda 8.5 2.1 5.6 1.6 1.0 1.5 0.9 1.4
Suzuki 1.7 0.4 1.4 0.6 0.3 0.5 0.6 0.9
Subaru 2.5 0.8 3.5 1.2 0.9 1.3 0.9 1.4

Hyundai 13.7 3.3 15.4 4.3 2.0 3.0 3.0 4.6

Other Imports 17.6 4.3 23.7 6.7 3.3 5.0 5.2 7.8

LIGHT TRUCKS 390.3 95.4 345.8 97.0 63.8 95.3 64.4 97.1

*Source: Dealer sales from Motor Vehicle Manufacturers’ Association; latest data from The Globe and Mail.

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Global Economic Research July 31, 2009

Auto Sales By Province

(thousands of units, not seasonally adjusted)

2008 2009 2008 2009

Jan to May Jan to May May May

CANADA 397.8 300.7 109.4 83.2

ATLANTIC 33.7 24.6 10.0 7.7

Newfoundland 7.6 5.7 2.4 1.9
Nova Scotia 14.8 10.8 4.3 3.4
New Brunswick 9.8 6.9 2.8 2.1
Prince Edward Island 1.5 1.2 0.5 0.3

CENTRAL 266.5 209.5 72.8 57.5

Quebec 130.5 104.8 36.4 28.8
Ontario 136.0 104.7 36.4 28.7

WEST 97.6 66.6 26.6 18.0

Manitoba 9.3 6.5 2.5 1.8
Saskatchewan 7.2 5.7 1.9 1.5
Alberta 39.3 25.3 10.7 6.8
British Columbia 41.8 29.1 11.5 7.9

Truck Sales By Province*

(thousands of units, not seasonally adjusted)

2008 2009 2008 2009

Jan to May Jan to May May May

CANADA 342.6 291.9 78.8 72.8

ATLANTIC 23.3 22.2 5.4 6.4

Newfoundland 6.1 5.7 1.4 1.8
Nova Scotia 8.8 8.5 2.0 2.4
New Brunswick 7.5 7.2 1.8 2.0
Prince Edward Island 0.9 0.8 0.2 0.2

CENTRAL 189.5 167.3 44.8 41.4

Quebec 69.8 60.6 17.0 15.1
Ontario 119.7 106.7 27.8 26.3

WEST 129.8 102.4 28.6 25.0

Manitoba 10.9 10.6 2.3 2.8
Saskatchewan 13.0 11.8 2.8 3.0
Alberta 65.2 49.6 14.8 11.7
British Columbia 40.7 30.4 8.7 7.5

*Light, medium and heavy trucks.

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Global Economic Research July 31, 2009

Canadian Motor Vehicle Production*

(thousands of units, not seasonally adjusted)

2008 2009 2008 2009

Jan to June Jan to June June June

TOTAL 1,144.7 608.9 205.7 108.6

CAR 614.9 351.7 110.5 64.7

Chrysler 118.4 43.7 19.7 0.9
Ford 68.0 42.4 11.8 7.5
GM 171.9 83.1 32.9 22.9
Honda 146.1 108.5 24.3 17.7
Toyota 110.5 74.0 21.8 15.7

TRUCKS** 529.8 257.2 95.2 43.9

CAMI (GM/Suzuki) 83.9 24.0 10.9 8.8
Chrysler 152.6 59.9 27.9 1.4
Ford 116.1 64.6 20.3 15.0
GM 65.6 27.1 17.9 0.0
Honda 53.3 12.4 7.5 3.8
Toyota 42.8 61.4 7.8 14.0
Others 15.5 7.8 2.9 0.9

*Production data from Ward’s Automotive Reports. **Light, medium and heavy trucks.

Canada — Motor Vehicle Production Canada — World Auto Trade Balances

3.4 3.4 50 50
quarterly billions of dollars

3.0 3.0 40 40

Total Assembled vehicles

2.6 2.6 30 30

2.2 2.2 20 20
Total

1.8 1.8 10 10
Cars

1.4 1.4 0 0

1.0 1.0 -10 -10

Parts
Trucks*
0.6 0.6 -20 -20

0.2 0.2 -30 -30

82 84 86 88 90 92 94 96 98 00 02 04 06 08 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Millions of units, seasonally adjsted annual rates. 2009 data are January-May annualized.
* Light, medium and heavy trucks.

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Global Economic Research July 31, 2009

New & Used Car Prices

Scotiabank Car Price Indicators — Canada

year-over-year per cent change
25 25
Used*

15 New 15

5 5
CPI

-5 -5

-15 -15
79 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
* Scotiabank estimate from Canadian Black Book data.

Scotiabank Car Price Indicators — Canada

20 20
thousands of dollars by age of car, seasonally adjusted
18 18

16 16

14 14

12 1 Year 12
10 10

8 8
2 Year
6 6

4 4 Year 4

2 2
79 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Scotiabank estimate from Canadian Black Book data.

Scotiabank Car Price Indicators — United States

year-over-year per cent change
25 25

Used
15 15

New
5 CPI 5

-5 -5

-15 -15
79 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Consumer price indices for new and used cars.
Shaded areas indicate recession periods.

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Global Economic Research July 31, 2009

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 1996 141 0.63 7.05 1.98 1.79 2.45
1997 256 0.80 6.82 2.46 1.97 4.26
1998 217 0.76 6.33 2.07 2.25 3.91
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 1.38 5.05 3.22 2.54 15.08
2008 808 1.10 5.00 2.90 2.39 10.62

Quarterly at annual rates

2008Q1 780 1.13 4.63 2.87 2.45 10.60
Q2 1152 1.36 5.62 3.67 2.44 15.72
Q3 928 1.24 5.08 3.14 2.35 11.88
Q4 372 0.63 4.70 1.99 2.32 4.69
2009Q1 600 0.94 4.44 2.83 2.44 7.94

Average (89-08) 524 1.01 6.37 2.41 2.44 9.56

Low (89-08) -68 0.10 4.59 1.10 3.57 -1.20

Definition of Ratios: Interest Coverage Ratio: (pre-tax income and interest payments)/(interest payments)
Pre-tax Profit 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

Retail Auto Dealer Bankruptcies

30 30
number of bankruptcies

25 25
2009

20 2008 20

2007
15 15

10 10

5 5

0 0
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.

New car dealers only; cumulative total during the year.