South America is a very diverse continent. Brazil, its main country, forbids diesel passenger cars and speaks Portuguese, but is surrounded by Spanish speaking countries. French Guiana still belongs to France, something not very common nowadays. Consumer behavior is also different: Toyota, for example, is the market leader in Peru and has a higher share in the countries closer to the Pacific Ocean, while customer loyalty in Brazil and Argentina goes toward brands from Europe and the United States.
And there are the governments. Chile suffered the region's worst military dictatorship in the late 20th century, but that led the country to an economic growth and openness. While new presidents – who have been elected by the Chilean people since 1989 – did not change the basis radically, other countries face changes each time a new president takes office.
We saw that happening in Brazil in 2011. Even though the president belongs to the same party as her predecessor, Dilma Rousseff raised taxes for imported vehicles. A few month later, she wanted to cancel a free-trade agreement with Mexico, which led to import quotas in 2012. And this year starts with new rules for the automotive industry that forces OEMs to produce more in the country if they want to pay fewer taxes.
Argentina, the second biggest country in South America, has also had issues with Mexico, with which it now has an agreement with quotas, as Brazil does. Argentina requires that OEMs importing vehicles need to export, even if they do not produce there – so they may need to buy honey or wine from local producers to export. Furthermore, everything that is imported needs to be pre-approved by the government, often delaying imports.
In Venezuela, although Hugo Chávez has been around for a while, his idea of socialism is hurting the automotive industry badly as years go by. President since 1999, he saw his fellow Venezuelans buy 452,778 light vehicles in 2007, but only 99,345 in 2011 – our automotive forecast shows Venezuela stable in 2013, up to 103,400 light vehicles. That happened because of several interventions in industrial policies, such as restriction to imports, access to foreign money and companies’ ability to lay off employees. In 2012, Hyundai stopped assembling cars in Venezuela.
With that stated, we see Brazil, Argentina and Venezuela facing a protectionism wave, while Chile is a very open market. There are almost 500 models from 59 different makes (think of the only place outside South Korea where Samsung sells vehicles) and some Chinese brands already sell more than traditional ones, such as Volkswagen and Ford. As Colombia and Peru develop their economies, they also seek free-trade agreements with developed countries. For instance, Colombia has one with the United States; Peru has another one with Japan.
The diversity in South America is part of the challenge that companies face while expanding operations. But there are many others, which you can read about in Polk’s white paper "Strategic Questions for Automotive Business Planners." It brings a helpful "Q&A" based on current research, market data and Polk’s view on the auto industry progressing in the near-term. Download it now and let us know how you see the future.
Posted by Augusto Amorim, Lead Analyst – South America Forecasting, Polk (01.09.2013)