Vehicle sales in North America weakened in April, slumping to the lowest level in a decade, according to the latest Global Auto Report released by Scotia Economics.

The United States accounted for virtually all of the weakness, with passenger vehicle sales dropping to an annualized 14.4 million units, the lowest level since the height of the Asian currency crisis in the late 1990s, and down from a full-year 2007 total of 16.1 million units.

Light trucks led the decline, with record gasoline prices prompting consumers to abandon gas-guzzling vehicles and shift to more fuel-efficient cars and crossover utility vehicles.

“While the shift towards small fuel-efficient vehicle favours foreign manufacturers, the gas-price spike combined with deteriorating economic conditions also cut into sales at Toyota, a bellwether for the health of the U.S. car-buying consumer,” says Carlos Gomes, Bank of Nova Scotia senior economist and auto industry specialist. “In contrast, vehicle purchases rebounded in Canada last month, climbing to a record for April.”

According to the report, Canadian vehicle sales have been stronger-than-expected in 2008, with sales advancing 6% year-over-year, a record-setting pace of an annualized 1.78 million units through April and four per cent above the record set in 2002.

“The strength reflects improved vehicle affordability, as automakers have lowered new vehicle prices to bring them more in line with U.S. prices, as well as ongoing employment gains,” says Gomes. “As a result, we have raised our full-year 2008 forecast to 1.69 million units, the second-highest level on record, from our previous estimate of 1.61 million.”

“Price reductions have been particularly effective in boosting vehicle sales in Central and Atlantic Canada. In particular, purchases in Ontario have advanced by 3.5 per cent so far this year, at a time when a sputtering economy has reduced real household disposable income growth to the lowest level in six years,” adds Gomes. “Sales gains have been even stronger in Quebec and Atlantic Canada, with purchases in both regions defying expectations and posting double-digit gains, a better performance than in Western Canada, where fundamentals are stronger.”

Despite the record-setting pace so far this year, Scotia Economics expects Canadian sales to moderate in the second half of 2008 and early next year, as economic conditions continue to soften alongside a deteriorating U.S. economy and rising gasoline prices.