Automotive Blog

Is 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.

Argentina Registrations Change

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.

Note: If you want to read the post about Brazil, click here:

Augusto Amorim is senior analyst, South American light vehicle production forecast, IHS Automotive

Posted on July 22, 2013

About The Author

Augusto creates our South America light vehicle forecasts. With a background in journalism (he worked in the Brazilian press for 12 years) and a master's degree in consumer behavior, in addition to an MBA, Augusto is a great fit at IHS Automotive. Add to that his passion for cars and you have the perfect forecaster (not to mention blogger!) Augusto uses his eye for detail – double and triple checking his forecasted volumes and ensuring our data is the best available in order to help bring market success to our clients. He likes to get his work done on time and get it done right! As part of his forecasts, Augusto also writes reports about Brazil and tries to make the clients understand the reality down there. The government keeps changing the rules and that can be very complex for a foreigner.

Augusto first came to the United States in 2010 to work on his MBA in Boston. Augusto's family is located in Brazil but thanks to Skype, they remain in close touch. Although born and raised in Sao Paulo, Augusto is unusual because he doesn't care for soccer, doesn’t dance the samba and claims that the sun and his skin are not friends. When he's not working hard on his forecasts, Augusto loves to travel and is always amazed by how much he learns on his trips. So far, he has visited 27 different countries. A self-proclaimed "foodie," he also enjoys discovering new restaurants and coffee shops, where he regularly orders a cappuccino.