Automakers have slashed third-quarter North American production schedules by 8% over the past three months, alongside slowing U.S. sales and bulging inventories.

Cutbacks will continue in the fourth quarter and in 2007, as the macroeconomic backdrop continues to weaken, according to report released today by Scotia Economics.

“We estimate that lower vehicle production alone will trim more than half a percentage point off U.S. economic growth in the second half of 2006,” said Carlos Gomes, Scotiabank’s auto industry specialist. “In Canada, vehicle output is also set to post a double-digit decline in the final months of 2006, with most automakers trimming production.”

North American vehicle production is now set to total an annualized 15.8 million units in the third quarter, down from an average of more than 17 million in the first half. Output will move even lower in the fourth quarter, slumping to an annualized 15.2 million units — the lowest level since the economic downturn of the early 1990s.

Slowing U.S. sales are the main culprit for the production cutbacks. U.S. purchases weakened to an annualized 16 million units in August — the lowest level since November 2005 — and down from an average of 16.6 million units between January and July.

“We expect U.S. volumes to continue to weaken over the coming year, with full-year 2007 vehicle sales likely to fall below 16 million units for the first time since 1998 — at the height of the Asian currency crisis,” said Gomes.

A recent earnings warning by DaimlerChrysler highlights the increased headwinds facing the auto industry. The company’s Chrysler division posted a sales gain in the United States of three per cent, year over year, through the first quarter, but sales subsequently slumped 16% between April and August, leading to a double-digit decline year-to-date.

In contrast, Canadian vehicle purchases posted a late-inning sprint in late summer, climbing 8% above a year earlier and setting a record high for an August. Scotia estimates that purchases totalled an annualized 1.75 million units in August, up from an average of 1.59 million year to date through July. Double-digit gains in Alberta have more than offset weaker sales in most other regions, lifting Canadian vehicle sales by 0.4% through August.