Rough trade: OEMs suffer in Mercosur import dispute

Argentina and Brazil are part of the four-country Mercosur trade agreement and are the two largest automotive markets in South America. Both have a large manufacturing base for vehicles and components, and most of their OEMs have a complementation strategy for exchanging products between the two countries. Argentina, in most cases, builds pick-ups and C …

Argentina and Brazil are part of the four-country Mercosur trade agreement and are the two largest automotive markets in South America. Both have a large manufacturing base for vehicles and components, and most of their OEMs have a complementation strategy for exchanging products between the two countries. Argentina, in most cases, builds pick-ups and C segment cars, while Brazil focuses on higher volume A and B segment cars. The same applies to components, with OEMs and suppliers also exchanging components so as to not duplicate investments in both countries.

Both countries have recently made it more difficult to import vehicles, as we can see below:

Argentina exports about 63% of the vehicles it produces, mainly to Brazil, but it also imports 62% of all the vehicles it sells. Significantly, most of the imports are from Brazil.

OEMs, such as BMW, which don’t have a local car plant or an export plan to balance their imports, are being kept from bringing their vehicles into Argentina.

Late in 2010, the Argentinean government began to put restrictions on imported vehicles, mainly from out of the Mercosur region, requiring a trade balance between imports and exports. So far, nine car manufacturer groups or brands have signed up to the trade balance agreement with the Argentinean government; Ford, Chery, General Motors, Volkswagen, Mercedes-Benz, Porsche, Fiat, PSA Peugeot Citroën and Alfa Romeo. Other OEMs, such as BMW, which don’t have a local car plant or an export plan to balance their imports, are being kept from bringing their vehicles into Argentina. This will be clearly highlighted at this month’s Buenos Aires Auto Show, which will mainly display vehicle brands tied to groups that have a local manufacturing plant, or have signed up to the trade balance agreement.

Also, in other non-automotive products, Argentina has for some time implemented non-automatic import licenses to several Brazilian products such as textiles, shoes, appliances and agricultural equipment.

But Brazil, whose market share of imported vehicles is much smaller than Argentina’s, has seen imports grow rapidly, thanks to its strong currency. The first five months of 2011 saw the imports market share reach 23.8%, almost 5 points higher than last year’s figure of 18.2%. Vehicles built in Argentina account for 46% of imports this year.

One thing is common to both Argentina and Brazil – ships bringing imported vehicles will face more than rough seas and stormy weather when reaching the Mercosur region.

In mid-May, the Brazilian government also put restrictions on imported vehicles, by requiring non-automatic import licenses, which can take up to 60 days to be approved.

This was of particular concern to the Argentinean government, because the automotive sector represents almost 40% of all Argentina’s exports to Brazil, and imports were held at customs. Negotiations took place in both countries, and the Brazilian government has recently agreed to expedite the license analysis to no more than 10 days.

The Brazilian government stated that it was not specifically targeting Argentina when requiring up to 60 days to analyse non-automatic import licenses, but Argentina was certainly hit hard due to the importance of the Brazilian market to its automotive industry.

It seems that the Brazilian government was really targeting vehicle import restrictions from Asian and European countries, where there is a bigger trade balance issue than with Argentina or Mexico in the automotive sector. One thing is common to both Argentina and Brazil – ships bringing imported vehicles will face more than rough seas and stormy weather when reaching the Mercosur region.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

Julian Semple is a Senior Consultant and Manager at CARCON Automotive in Sao Paulo, Brazil.

Julian Semple’s eight years as an automotive industry consultant were preceded by 27 years in automotive industry management positions, with responsibility for business strategy, cost management, manufacturing and product development at large corporations including Visteon and Ford in South America and North America.

CARCON Automotive specialises in market intelligence, product and business strategy in the Brazilian and Argentinean automotive markets. Clients include major automotive OEMs and Tier 1 suppliers.

Learn more about CARCON Automotive at www.carcon.com.br

Telephone: +55-11-2355-5873           E-mail: jgsemple@carcon.com.br

The AutomotiveWorld.com Expert Opinion column is open to automotive industry decision makers and influencers. If you would like to contribute an Expert Opinion piece, please contact editorial@automotiveworld.com

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