Protectionism controversy breaks out in June as Argentina, like Brazil, tries to limit Mexico’s import cars in an effort to reduce its trade deficit with the country. Mexico balks with threats to appeal to the WTO.
New investments such as Toyota’s Etios plant in Brazil evidence of confidence in region.
Highlights of the year’s major events affecting the South American market:
- South America’s largest market of Brazil sees January sales of import vehicles plunge 47%, just weeks after the government’s 35% increase in the industrial products tax (IPI) takes effect and despite decisions by foreign producers selling in the market to absorb the extra cost instead of passing it on to consumers.
The tax hike is meant to bring local production rates in South America’s largest and most important market up to the level of domestic sales. It exempts vehicles with 65% local content.
- First-quarter deliveries fall 0.8% in Brazil, marking the first drop in January-March volumes since 2003. Analysts blame the IPI tax increase and tight consumer-credit lending by banks. As import sales slip 0.4%, Brazil decides to scale back its 35% tax, but leaders in President Dilma Rousseff’s government maintain the hike works as “an emergency brake” needed to stem the market’s sharp rise in imports.
- The Brazilian government in April announces a stimulus package for the auto-parts sector meant to increase local content in cars and trucks, another attempt at narrowing the gap between the industry’s sales and production rates.
- Mercedes-Benz says it will lay off 1,500 workers at a truck factory in Sao Bernardo do Campo, Brazil, due to production cuts. New emissions standards for 2012 compelled many truck buyers to pull ahead purchases last year, hurting sales.
- Brazil closes May with more grim news regarding its currency, the real, which is seeing persistent weakness because of the sovereign debt crisis in Europe. The weakened currency limits the action Brazil can take on reducing interest rates.
- The Brazilian states of Rio de Janeiro and Minas Gerais start the year’s second quarter in competition for a new assembly plant expected from
and PSA Peugeot Citroen of France. The auto makers formed an alliance in February, and a joint venture producing low-emissions small cars on a shared platform in Brazil is widely anticipated.
- GM offers buyouts to workers at its Sao Jose dos Campos, Brazil, assembly plant to bring employment in line with recent production cuts meant to cull growing vehicle inventories as sales slow. The auto maker does not provide an estimate of the number of jobs it plans to trim.
warns in June that its South American division is facing growing competitive and pricing pressures, as well as weakening currencies and unexpected and adverse changes in government policies affecting areas such as trade and access to foreign currency.
- General Motors posts a loss of $19 million in South America during the second quarter, but its international division still makes a profit of $557 million, the auto maker reports, primarily in China.
- Protectionism controversy takes the spotlight in late June, when Mexico and Argentina break zero-tariff auto-trade ties. Like Brazil, Argentina reportedly wants to limit Mexican imports in an effort to reduce its trade deficit with Mexico. Mexico promises to challenge Argentina’s plan by appealing to the World Trade Organization.
- The European Union strikes new free-trade agreements with Colombia and Peru, which over the next few years should serve as a springboard for exports to the emerging South American countries. EU auto makers historically have been shut out of the two markets due to high tariffs on imported vehicles and auto parts.
- Brazilian dealership group Fenabrave in July cuts its 2012 sales forecast to a 0.4% decline from an increase of 3.5%, blaming tighter lending practices by banks. It would mark the first loss in the market in nearly a decade, the group says.
- Vehicle sales soar 19% in Brazil to the best June on record and second-best month ever after the government eases its IPI tax a month earlier and banks loosen lending. The tax cut pushes the average price of a car down 10%. June production falls, however, due to action by auto makers earlier in the year fearing bloated inventories.
- June’s positive sales results bring confidence to the Brazilian auto makers. GM and Ford forecast a 3% gain for the second half, after deliveries contracted in the first six months. The auto makers see annual growth of between 1% and 1.5%.
- Brazil’s President Rousseff warns auto makers during an interview at the Summer Olympics in London to keep Brazilian workers on the job or the government will revoke recent tax breaks stimulating sales. Labor union leaders point to GM specifically, saying the auto maker has reduced its workforce in the country by 1,189 jobs in the past 12 months.
Anfavea, Brazil’s auto makers association, counters with data showing the industry’s 146,900 jobs at the beginning of July reflect the highest employment levels since January and are nearly 4,000 more than year-ago. After July’s strong sales showing, auto makers begin lobbying to extend the tax stimulus deadline past Aug. 31.
- Renault confirms plans to increase production at its assembly plant in Brazil’s southern state of Parana by some 100,000 units to reach 500,000 annually by 2013. The increase will accommodate a planned sales push in Latin America by the French auto maker.
- Venezuela President Hugo Chavez reveals in August that GM plans to more than double car and auto parts production in his country. He says Renault also is showing interest in building cars there. Industry Minister Ricardo Menendez tells Reuters GM wants to increase output to 120,000 units a year, up from almost 50,000 now.
- Abeiva, an association of auto importers in Brazil, announces plans to file a lawsuit to prevent the government from increasing the IPI tax on vehicles to as much as 55%, calling planned changes to the levy “absurd.”
- President Rousseff unveils a BR133 billion ($65.5 billion) government stimulus and investment package meant spur the struggling Brazilian economy. Her effort focuses on improving infrastructure shortcomings, such as road systems and ports that have been limiting economic growth in the country for years.
- Brazilian vehicle production shows signs of recovery with manufacturers reporting 8.8% growth in July from year-ago and besting a 3.1% gain in June. Auto makers are cranking out cars and trucks to meet improved consumer demand attributed to the government tax breaks and easier credit.
- Toyota, a relatively modest producer in Brazil compared with heavyweights such as Fiat and Volkswagen, considers a plan to make the country a production hub in the near future for exporting vehicles and parts to other emerging and mature markets.
The Japanese auto maker takes a first step in that direction by inaugurating a third assembly plant in the southeastern town of Sorocaba, which will produce 70,000 Etios compact cars annually. Analysts speculate Brazil could become the No.3 auto market worldwide by 2015.
- With hopes of avoiding a lawsuit threatened by importers, Brazil says it will adopt new criteria to determine which auto makers qualify for a lower IPI tax. An official in Rousseff’s government promises changes to the regulation soon.
- A group of former GM employees in Colombia sew their mouths shut and begin a hunger strike to draw attention to claims they have been wrongfully dismissed by the auto maker.
The workers, who say on-the-job injuries preventing them from performing their jobs led to their firings, briefly suspend the strike a week later and enter arbitration with GM via a third party.
The arbitration fails and the workers resume their strike, only to suspend it again to demonstrate their willingness to negotiate with GM. They continue their occupation of the U.S. Embassy in Bogota as the year’s fourth quarter opens.
- Longtime Brazilian auto maker Volkswagen celebrates production of the 7 millionth Gol at its facility in Sao Bernardo do Compo on Aug. 24.
- Analysts expect Argentina’s vehicle exports to decline as much as 17% this year, which would mark the greatest decrease on a percentage basis in a decade.
Experts blame the decline in demand on neighboring Brazil, which generally takes 80% of Argentina’s vehicle output. Although Brazil’s market shows new signs of life in the second half, they says it will not be enough to make up for Argentina’s 28% decline in exports.
- Peugeot launches sales of its 308 GTi 5-door hatchback in Argentina, another sign of the South American country’s promise. The launch comes as industry officials announce expectations for 800,000 vehicle sales in Argentina this year, up 18% from 2011.
- August vehicle sales in Brazil rise 28.3% from prior-year on record volume, as consumers rush to buy ahead of the expiration of government tax breaks. The resulting deliveries lead Fenabrave, the industry’s dealer group, to revise its 2012 sales forecast to an 8.05% increase compared with 2011.
- GM and Fiat report waiting lists of as long as 90 days for their most popular cars in Brazil, a result of government actions to spur sales. Fiat says it has added employees to keep pace with demand.
- Beiqi Foton reportedly is planning an assembly plant in the Brazilian state of Bahia. The factory, Foton’s first in the country, will begin production in the city of Camacari late next year. Foton joins other Chinese auto makers with investment plans for Brazil.
launches production in September of its all-new HB20 compact hatchback at its new assembly plant in Piracicaba, Brazil. The car is specially designed for the Brazilian market and the factory is Hyundai’s first in the country.
- Chile’s SQM, the world’s No.1 producer of lithium used in batteries for hybrid and electric vehicles, pays CIP19.2 billion ($40.6 million) for permission to develop the mineral domestically.
But the government later revokes the deal after allegations from competing bidders that SQM did not meet all the requirements of its application, as well as charges of nepotism. Allowing SQM to develop lithium in Chile would have boosted world supply by about 15%.
- Brazil’s September vehicle sales fall 7.9% on a daily rate basis, compared with like-2011, and decline 31.7% from August after consumers exit the market following an expiration of government measures to stimulate sales. Despite the government decision to extend stimulus measures through October, fears rise that the tax breaks have lost their punch after three months.
- Swedish truck maker Volvo says in October it will invest BR1.01 billion ($500 million) in its Brazilian operations to expand production and create an all-new brand for the country.
- German truck maker Daimler reveals plans to spend BR345 million ($170 million) on its Buenos Aries plant over three years. The Argentina investment, which Daimler credits to a growing economy in the country, will add 850 employees at the facility.
- The Brazilian government releases new fuel-efficiency and local-content rules in October, as promised a month earlier. The updated regulations still see heavy taxes on imported vehicles and a levy on domestic products.
However, they give auto makers building in the country as well as those importing their vehicles a loophole if they invest in fuel-saving research and development in the country. The rules also limit imports to Brazil from Mexico and require locally built vehicles to improve fuel efficiency by 12% over the next five years or face steep taxes, according to reports.
Rousseff’s government denies allegations of protectionist rulemaking, calling the steps “aggressive measures” meant to match programs in other countries.