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Canadian car buyers can expect to see more tantalizing sales incentives at dealerships this fall as competition heats up among auto makers.

U.S.-based auto makers like Ford and Chrysler may have recorded solid Canadian sales in July, but Japanese manufacturers such as Toyota and Honda are on track to replenish their inventories and are gearing up to regain market share over the coming months.

The stage was set for more competition after U.S. auto makers began offering employee-pricing discounts and other promotions in June. At the time, their chief Japanese rivals were struggling to recover from parts and vehicle shortages in the wake of the March 11 earthquake and tsunami.

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"It is certainly a competitive market as we stand now, but once you get the Japanese [auto makers] getting more product at their dealerships, you're likely to see that will increase even further," said Carlos Gomes, a senior economist with the Bank of Nova Scotia who closely follows the auto industry.

Earlier this week, Toyota Motor Corp. assured investors that normal production would resume in September – about two months ahead of schedule. Honda Motor Co. Ltd., meanwhile, expects production at its North American plants to return to normal this month for all models except the 2012 Civic.

More normal production will ease supply constraints for Japanese auto makers, allowing them to compete more vigorously for sales. That, in turn, is expected to spur U.S. manufacturers to vie with more robust discounts of their own – especially since customer loyalty remains a huge advantage for Japanese auto makers. Experts suggest that some consumers have deliberately waited to buy new vehicles until companies like Toyota and Honda reload their stock this fall.

"I am expecting that by September you will see increased incentives by, not only Toyota, but most of the Japanese auto makers," added Mr. Gomes. "So, I am expecting a fairly healthy sales environment continuing for the rest of the year in Canada."

Overall, Mr. Gomes projects Canadian sales of cars and light trucks to increase to a total of 1.59 million units in 2011 from 1.56 million units last year.

In addition to juicier incentives, Kenrick Jordan, a senior economist with BMO Nesbitt Burns Inc., said a recovering labour market, decent income growth and relatively low interest rates will help spur Canadian auto sales for the remainder of 2011.

Predictions of deeper discounting came as various auto makers released their Canadian sales results for July on Wednesday.

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According to results compiled by Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc., total light vehicle sales fell 4.9 per cent in July on a year-over-year basis. He also noted that July sales data produced a "mixed bag" of results depending on the manufacturer.

"And it is the usual suspects … Audi, BMW, Hyundai, Kia, Volkswagen all having great months up in the double digit range from July last year. Honda and Toyota stilled racked with supply problems having under-performing months down in the double digit range," he wrote in a note to clients.

For its part, Ford Motor Co. of Canada Ltd. said total sales increased by 1 per cent compared to the same month last year and billed it as the company's best July since 1979. Its top sellers included the Fiesta, Fusion and Taurus as fewer Canadians opted for trucks.

Chrysler Canada Inc., meanwhile, said it saw its "best July sales in the company's history" after sales during the month increased 5 per cent versus one year ago.

Reid Bigland, president and chief executive officer of Chrysler Canada, credited record sales on the Jeep Wrangler, Dodge Journey and Dodge Charger. "This business is all about product and we currently have the strongest and most fuel-efficient vehicle lineup in the history of our company," he said.

Rounding out the Detroit Big Three, General Motors of Canada Ltd. said its total sales fell 15 per cent compared to last July. Still, Marc Comeau, vice-president of sales, service and marketing, suggested much of the decline resulted from a lack of stock.

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Supply disruptions resulting from the twin natural disasters in Japan continued to hamper Canadian sales of Japanese auto makers last month. Nonetheless, Honda Canada Inc. suggested "the worst is behind us" even as combined July sales by its Honda and Acura divisions marked a 24-per-cent decrease over last year.

Executive vice-president Jerry Chenkin said the company fully expects the situation to improve significantly over the coming months. "Once again, we apologize to our valued customers as we work hard to recover from this very difficult period," he added.

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