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Customer LoginsIs there any logic to Argentina's auto market?
If you follow my posts, you have read that there is not much logic in Brazil's automotive market (if not, you can follow the link at the bottom of the blog). Today, I will show that neighboring Argentina faces the same problem.
Argentina is struggling with inflation. Last year, inflation was 10% according to the government, but opposition in Congress says it was 25% - the highest rate in South America and only behind Venezuela. The government is known for reporting lower inflation and higher GDP growth to the point that the IMF issued a declaration of censure earlier this year after being dissatisfied with Argentina's explanation about its numbers. The country was granted a few months to explain its economic indicators. If it fails to do so again, it can be forced out of the IMF and lose its G20 status.
For this year, Polk is working with an inflation forecasted at 24.3%. I will not talk about how inflation "eats" up people's money, but one should assume that Argentineans would not be interested in buying cars in order to spend their money on more important things. However, the automotive market has become a shield against inflation and registrations grew 7% in the first half of the year in comparison with the same period of 2012. Even if a car loses about 20% of its value as soon as it leaves the dealer network, it is lower rate than the rate of inflation.
What is interesting to note is that the market leaders are not doing a good job with customer retention. Volkswagen, which had a market share of 20.2% in 2012, is down 8.4% so far in 2013. Registrations of Chevrolet, the vice leader with 16.7% last year, has already fallen 6.9%. On the other hand, BMW's registrations have increased 135% and Land Rover's have soared 197%.
Traditionally a small market for luxury products, Argentina is taking advantage of another economic factor. The country is virtually banned from international capital markets so its reserves are the only source to pay off debt. To keep dollars from leaving the country, the government has adopted several measures, including pushing OEMs to set prices in pesos, the local currency. For these prices, the official rate is applied, which is already up 10% this year. On July 15, the official rate was 5.44 pesos for a dollar. However, there is an unofficial market where the dollar was 8.55 pesos.
For example, a BMW 335i has a price tag of 483,500 pesos. According to the official exchange rate, the sedan would cost less than $89,000, but $57,000 following the "black" rate. For this reason, people who have dollars are selling it in the "black" market and buying luxury vehicles. The government estimates that Argentineans have taken about $160 billion out of the banking system or the country. How would you feel if buying a luxury car would make you save money?
The light vehicle forecast challenge is to know when this trend will cease. Between 2002 and 2012, Argentina's compound annual growth rate was 24%, even though registrations fell 2% last year. In Q4 2012, Polk forecasted that Argentineans would buy 786,000 light vehicles in 2013, but already revised it to 882,600 units. That represents a growth of 10.9% this year, but it should cool down to 6.6% next year, 4.4% in 2015 and 2.2% in 2016.
Learn more about Brazil's auto market.
Augusto Amorim is senior analyst, South American light vehicle production forecast, IHS Automotive
Posted 22 July 2013