In an eastern province of Paraguay, more than 300 police officers tried to evict 150 landless farmers from an estate owned by a political opponent of Fernando Lugo, the Paraguayan president. Six police officers and 11 farmers died. One week later, the Senate voted to impeach Mr. Lugo for his “poor performance” during the forced eviction. He was immediately replaced by the Vice President, Federico Franco, who will be in charge of the 6.3 million person country until next August, when Mr. Lugo's term ends.
Brazil, Argentina and Uruguay – the countries that form Mercosur along with Paraguay – withdrew their ambassadors from Asuncion. However, the main political consequence came days later, when the three countries decided to suspend Paraguay from the economic bloc. This turned out to be great news to another South American country, Venezuela. Paraguay was the only one yet to approve Venezuela as part of the Mercosur and, without Paraguay being able to object, Brazil, Argentina and Uruguay welcomed Venezuela. The nation led by Hugo Chavez will be part of the Mercosur effective July 31.
But how will this political arrangement impact the automotive industry? In theory, it would allow the import and export of vehicles and parts within the four countries – five when Paraguay comes back, in April 2013 – without taxes. In reality, it may not be that easy.
Several political and economic decisions – mainly the need of pre-approved imports and the amount of dollars that a company can buy – made it almost impossible to import cars to Venezuela in the recent years. Audi, for instance, sold 262 cars in 2008, but only two in 2009. Fiat went from 1,185 units in 2009 to 199 in the following year.
Local production was also affected because of the lack of imported parts and the difficulty to lay off employees, many from unions with close relations to the government. Registrations shrank to 99,342 units last year from 389,719 units in 2007. As the following graph shows, registrations in Venezuela look like a roller coaster, going from annual increases of over 100% to declines of 55% from one year to the next.
Rich in oil, Venezuelans traditionally drove large American cars and light trucks. Jeep makes the Liberty (still called the Cherokee in South America) and the Grand Cherokee in Venezuela – imported from North America by the other South American countries. Ford assembles the Fiesta with parts imported from Brazil. Chevrolet has been the market leader since 1994 and had a share of 37.8% last year. Its Aveo was the best seller in the country, with 13,965 units registered in 2011. Polk forecasts that 14,028 units will be registered this year.
Famous for calling former president George W. Bush “devil” and saying that the United Nations smelled sulfur after Mr. Bush’s speech, Mr. Chavez seems to favor countries he sympathizes with. Iran’s Khodro supposedly produces cars in Venezuela under the Venirauto brand, but there aren't statistics about it. With China’s Chery, it is the same thing: the local media reports long lines to buy the locally assembled vehicles, but there is no registration data because the government is involved in both assembly and import of vehicles. Peugeot sells vehicles produced solely in Argentina.
It is virtually impossible to compete with companies supported by the government or with companies that can have dollars easier to import from specific markets. Hence, some products are not updated – the Hyundai Elantra currently produced in Venezuela was originally launched in South Korea in 2000 – and some OEMs do not even update their website. Volkswagen, for example, still shows the previous Passat online – the last unit of the sedan was sold in Venezuela in 2006.
Presidential elections are scheduled for October, but it is unlikely that much will change. The opposition candidate, Henrique Capriles Radonski, trails Mr. Chavez in some polls. Even if the president does not survive the cancer that he has been treating in Cuba, Nicolás Maduro, the current Foreign Minister, is likely to replace him – and they are very like-minded.
Therefore, Polk's light vehicle forecast is not optimistic. We anticipate an average growth of 2.5% between 2012 and 2023 given the political situation should be the same for the next decade. Our forecast for this year is 104,879 units, reaching 133,500 light vehicles in 2023. As Venezuela enters the Mercosur as a political act to punish Paraguay, we should not expect changes in the automotive industry.
Posted by Augusto Amorim, Lead Analyst – South America Forecasting, Polk (07.26.2012)