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Gov’t renews auto-trade deal with Brazil

Economy Minister Axel Kicillof glances at Industry Minister Débora Giorgi at yesterday’s meeting in Brasilia, Brazil.
By Francisco Aldaya
for the Herald
Less optimism from neighbouring industry leader, new meeting next week

Economy Minister Axel Kicillof and Industry Minister Débora Giorgi yesterday secured the extension of an auto-trade deal with Brazil, succeeding in agreeing to a boost in auto part exports, which comprised the main chunk of the US$3.1 billion deficit in exchanges with the neighbouring country last year.

The ministers met with Brazilian Development Minister Mauro Borges and car company and chamber representatives from both countries in Brasilia, with both sectors seeking to revitalize the industry’s depleted commercial balance.

“There was an agreement ... for Brazilian companies to buy Argentine auto parts in greater quantities,” an official source told state-run news agency Télam, adding that both countries agreed to boost imports of finished cars, while a credit system for up to US$2 billion for purchases will be instituted.

On the Brazilian side, there was much less optimism about what was achieved in the Brasilia meeting with industry leaders saying that the two sides will be sitting down again next week to discuss the restrictions that both countries face in the auto trade.

“There was a consensus on the need to more deeply examine” the issue, the president of the Brazilian association of vehicle manufacturers, Anfavea, Luis Moan said, according to Reuters.

In 2013, Argentina mustered a US$389-million surplus in finished car sales for the year, but a whopping US$2.767 billion deficit in auto parts.

Minimal exports of auto parts to Brazil form part of “a structural problem that will be repaired gradually,” IDESA consultancy director Jorge Colina told the Herald, playing down the potential for an immediate positive impact of a smaller trade deficit on a struggling domestic sector.

“The layoffs we are seeing have almost nothing to do with lesser demand in Brazil,” because “the great majority of production goes to the domestic market,” Colina added.

UBA Economist Mariano Kestelboim told the Herald a drop in local vehicle production has more to do with decreased domestic demand rather than less demand from Brazil, although it does play a factor.

“There is talk of production dropping to a more reasonable level, say 750,000 units this year,” Kestelboim told the Herald. The ADEFA chamber reported 791,007 units last year, up 3.4 percent from 2012.

Brazilian imports of Argentine auto parts, the key to the deficit, have been traditionally low, meaning lower demand would not impact local production greatly.

During the first quarter, exports of cars to Brazil, which accounted for 88.3 percent of all auto sales abroad, dropped 17.8 percent to 65,641 on the same period last year, the lowest in four years.

Similarly, Brazil exported 34.7 percent less in the first quarter, sending 68,000 units abroad.

Peugeot and Citroën joined Fiat, Renault and Iveco yesterday confirmed new suspension of workers, bringing the number of auto factory workers suspended in the last week to at least 3,500.

Since January, the sector’s output has plummeted, with production dropping 16 percent in the first quarter of 2014 compared to the same three months last year.

More domestic an issue

Problems on the other side of the border are not irrelevant, though, with production also dropping 8.4 percent in Brazil and demand waning in turn.

Aside from the tax hike, Colina also points to the peso’s depreciation by approximately 15 percent in January as pivotal in the downward spike in domestic production.

“The majority of national cars are sold domestically, and with economic activity and consumption stagnant, there are no more sales,” he added.

Circumstantial

So far, organized labour and car company bosses have not raised the alarm, with SMATA auto workers’ union boss Ricardo Pignanelli saying it’s simply looking for suspended workers to be reinstated.

“The industry’s problem is circumstantial,” and will “last only until August or September” when the sector finalizes adjustments to the devaluation, tax hike, and consequent drop in luxury car sales, Pignanelli said.

Likewise, Fiat Argentina CEO Cristiano Rattazzi said he does “not think the situation is serious,” agreeing with Cabinet Chief Jorge Capitanich that the drop in production “depends a lot on what happens in Brazil.”

Nonetheless, he called for a diversification in export destinations to depend less on Brazil, and expressed concern over inflation and its effects on the cost of production, for which he blamed “Argentines, because they accept it.”

@franma1990
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