Argentina Autos Report Q4 2009

Argentina's 9% month-on-month (m-o-m) increase in vehicle sales in June, to 43,802 units, has led many - including the Argentine Asociacion de Concesionarios de Automotores (Acara) - to believe that the country's autos market will begin to rebound. However, as BMI explains in this Q09 Argentina Autos Report, private consumption is still likely to be dented by the rising unemployment level and the weakening exchange rates. The consumption should be dented by nearly 1.4% year-on-year (y-o-y) decline this year and a further 1% fall in 2010.

With our forecast of a 1% y-o-y fall in the country's real GDP this year and a further 0.9% contraction next year, we caution that Argentina is likely to be more deeply affected by the ongoing crisis than other regional markets (such as Brazil) will be. Within the autos industry, Brazil has been largely helped by the ongoing industrial tax break, which has resulted in robust sales growth in the market. In Argentina, on the other hand, demand has remained almost unmoved by the US$1bn low-cost loan package introduced by the government in December of last year, which indicates the degree of pessimism in the market. In view of this, BMI has maintained its sales forecast of a more than 17-18% y-o-y fall in sales - to around 509,000 units this year. This is likely to be followed by a further 3.5% decline in 2010, to nearly 495,900 units. Although the market is likely to recover thereafter, it will be unable to reach its pre-crisis level until 2013.

Meanwhile, Argentina's export-oriented production suffered adversely from slowing economic activity in its neighbouring markets such as Brazil, Mexico, and Chile. National carmakers therefore continued to cutback production by 31.5% y-o-y - to 196,106 units - in H109. BMI forecasts the end of year production will fall by 27-30% this year, to 12.5mn units. However, we see plenty of upside potential once the market recovers in 2011. At this point, growth is likely to be led by the influx of new investments in the industry. Chinese carmaker, Chery, has announced one such investment in a new assembly plant in the Chaco Province, in northern Argentina. Chery's investment will add to the production capacity that is already provided by locally operating foreign carmakers - General Motors, PSA Peugeot Citro?<

In BMI's Business Environment Ratings for the autos industry in America, Argentina has increased its score this quarter (by 1.5 points) to 61.2 points. The increase comes from significant improvements in its limits of potential returns in the country and improved scores on risks to realisation of returns. This implies that although Argentina may be poorly hit by the ongoing economic crisis, there remains plenty of potential for new investments in the long term.