North American vehicle sales will likely taper off in coming months because of higher fuel costs and the economic impact of recent U.S. hurricanes, according to a report released today by Scotia Economics.

The loss of “employee discount” incentives is also expected to slow vehicle sales.

At the same time, however, current low inventories and the start of a new model year point to a boost in production, the report says.

Sales probably peaked in July for the current business cycle at an annualized 23.5 million units, the second-highest level on record, Scotia Economic says.

“In particular, the surge in gasoline prices to more than $1.20 Cdn per litre in Canada and in excess of US$3 per gallon (98 Cdn cents per litre) south of the border has significantly dampened consumer confidence.”

Other energy costs have surged, Scotia Economics notes.

“The U.S. Department of Energy expects U.S. households to pay an additional 71% more for natural gas this winter,” says Carlos Gomes, Scotiabank’s auto industry specialist.

“Heating oil bills are also projected to surge by 31%, while electricity users may see their costs rise by 17%.”

As a result, Gomes says, consumers are likely to postpone some discretionary purchases to pay for higher heating and gasoline bills.

Gomes says North American vehicle assemblies should climb to an annualized 16.8 million units in the final three months of 2005, up from an average of 16 million so far this year.

“The pickup in production will be greater in Canada, where several popular new domestically-made models will boost output to a five-year high,” he says.

U.S. passenger vehicle sales fell to only 16.3 million in September from an average of 17.3 million during the previous eight months, alongside a 47% plunge in sales of large gas-guzzling sport utility vehicles.

Canadian new-vehicle purchases slumped to an annualized 1.5 million units in September, from an average of 1.62 million during the previous eight months and a peak of 1.81 million in July, when “employee discounts” were introduced.