TORONTO — Canadians are moving upscale in their car and truck buying as big incentives from the automakers prompt a shift to larger and more expensive vehicles.

Small cars traditionally dominate Canadian vehicle sales, but their share of the market has slumped to less than 29 per cent so far this year -- the lowest level in more than a decade, says the latest Global Auto Report from Scotiabank.

That's down from a peak of 35 per cent in 2008, when gasoline prices were $1.20 a litre, about 20 per cent higher than current levels.

Job creation -- the key driver of vehicle demand -- has strengthened in Canada to an average of 43,000 per month, roughly triple the pace of employment growth in early 2010, while higher incentives by most automakers have reduced new vehicle prices by more than five per cent since February.

"Contrary to expectations, enhanced incentives have led to higher, not lower, average vehicle transaction prices, as Canadians take advantage of higher incentives to buy larger and more expensive models," Scotiabank economist Carlos Gomes said in the report, released Monday.

"New vehicle transaction prices have jumped by five per cent so far this year -- the largest increase since 1996, following the weak auto market of the first half of the 1990s."

He noted that while Statistics Canada says incentives cut new vehicle prices by one per cent in June, actual transaction prices jumped by nearly two per cent during the month, as consumers shifted purchases from small cars to more expensive vehicles, such as light trucks.

"In particular, 'employee pricing for everyone' and other incentives boosted light truck sales 25 per cent above a year earlier in June and July to a record annual rate of 930,000 units, well above the previous high of 830,000 in mid-2007."

Gomes said pickup trucks -- with cash incentives of more than $9,000 on some models, or nearly a third of the list price -- drove the surge, with sales up nearly 40 per cent so far this year.

Overall, the report says, Canadian sales advanced to an annualized 1.65 million units in July, lifting volumes at several automakers to the highest July on record.

It was the second monthly rebound in a row after a weak performance in May.

Scotia Economics said the recent improvement in sales has led it to raise its full-year 2010 Canadian sales forecast to 1.565 million units from 1.525 million.

Globally, car sales fell in July compared to a year ago in a significant slowdown from a 16 per cent surge in the first half of 2010.

Gomes said a "double-digit slump in Western Europe, due to the expiry of scrappage incentives, accounted for the fall-off."

"However, outside of Europe, purchases have also started to moderate, with volumes advancing year-over-year by only nine per cent last month -- the smallest gain since last summer."