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The Toyota plant in Woodstock, Ont., will add 400 employees to boost production of its RAV4 crossover utility vehicles.MARIO ANZUONI/Reuters

The auto industry – the engine of the Ontario economy – is revving up again, piggybacking on growing momentum in U.S. sales and a recovery by Japanese auto makers from last year's natural disasters.

Vehicle production in Canada, shipments of Canadian-made vehicles and parts, and other key economic indicators show the auto recovery growing more robust, powered by healthy sales increases on both sides of the border.

"The industry dynamics have changed significantly," Bank of Nova Scotia economist Carlos Gomes said Thursday.

The rebound is crucial for an industry that represents one-quarter of Canada's manufacturing sector and sends a positive signal for the broader Canadian economy.

The auto industry provides hundreds of thousands of direct and spinoff jobs and is bouncing back smartly from the trough of the Great Recession in late 2008 and early 2009 when it was effectively flat on its back.

The key factor behind the recovery and growing optimism is pent-up demand in the U.S. market, which is the destination for about 80 per cent of the vehicles put together by the five auto makers that operate assembly plants in Ontario.

The rebound is finally leading to new jobs in the industry in Canada after auto makers and parts companies hired only grudgingly in the slow recovery after the industry bottomed out in 2008-09 and Chrysler LLC and General Motors Corp. went into Chapter 11 bankruptcy protection. Hiring is now picking up speed along with the recovery.

It's particularly noticeable in Woodstock, Ont., where a Toyota Motor Manufacturing Canada Inc. plant will add 400 employees to boost production of RAV4 crossover utility vehicles to 200,000 next year from the current level of 150,000.

In just one example of the spinoff benefits, Toyota Boshoku Canada Inc. will add between 80 and 100 jobs, pushing its work force to more than 400 people. Toyota Boshoku, which is about a 10-minute drive from the assembly plant in Woodstock, makes seats, door trim panels and other interior components for the RAV4. The hiring of new employees is well under way, Gloria Chisholm, senior manager of human resources, said Thursday.

Ford Motor Co. of Canada Ltd. will add about 300 people at its Oakville, Ont., assembly complex in the first quarter of 2013 to make more Edge, Flex, MKX and MKT crossovers. Most of those jobs will go to employees laid off last year when Ford's St. Thomas assembly plant near London was closed.

One of the key indicators of the industry's growing momentum is the value of vehicle shipments, which jumped above $5-billion in August for the first time since 2007, DesRosiers Automotive Consultants Inc. said in a report. Auto makers assembled 2.003 million vehicles this year through the end of October, up 24 per cent from 1.621 million in the same period last year.

In another indication of the growing strength of the recovery, Honda Motor Co. Ltd. said Thursday that its North American production hit a record 161,142 vehicles in October, up 29 per cent from a year earlier. Japan's earthquake and tsunami last year disrupted vehicle and parts shipments across the global network of Japanese auto makers.

The key to Canada's brighter automotive picture is sales, which could hit 1.7 million vehicles in Canada this year and are approaching 15 million in the United States, although they're not expected to hit that level until 2013. The last time U.S. sales hit 15 million was 2007 and Canadian sales have reached the 1.7 million level just once – in 2002.

Sales are jumping because the average age of cars in U.S. driveways now stands at 11 years old.

"Yes, it's pent-up demand and not just a [Hurricane] Sandy rebound," Morgan Stanley auto analyst Adam Jonas said in a note to clients earlier this week.

Mr. Gomes noted that U.S. households are in a much stronger position to pay for a new car purchase than they were five years ago.

Interest payments on mortgage and other debt plus the costs of gasoline and home heating took up 20 per cent of disposable income in 2008, he said. Those costs amount to about 16 per cent of disposable income today, which is the the lowest level in about a decade, he said.