South America’s versatile markets show more promise for 2018

South America is large and heterogeneous. Over recent years, there has been a great deal of instability in the region, both political and economic, but some countries have shown decent growth rates, and have introduced sensible recovery measures. Others, however, are facing greater difficulties. Venezuela is a case in point: it has been buffeted by soaring inflation and political conflict. Brazil, due to its size and the nature of its economy, requires separate analysis. This article, therefore, will focus on four countries that, although dissimilar from each other, are of relevance in the regional context: Argentina, Chile, Colombia, and Peru. In terms of production and sales in the automotive sector, all these countries have a solid basis, whether thanks to local manufacturing, free trade agreements, or an urban middle class with growing purchasing power. This region saw economic recovery during 2017, along with real attempts to raise the level of business activity. In Peru, Pedro Paulo Kuczynski’s first year as president has seen measures to encourage both public and private investment – especially in infrastructure – and job creation. For his part, Maurício Macri, Argentina’s president, has shown an increasing desire to open up the economy and attract investments. However, inflation in the country continues to be a concern. Changes in GDP and inflation indicators in these countries are shown in Figures 1 to 4. Argentina The Argentine automotive industry performed strongly in 2017. The country’s economy is caught between an inflation rate that remains stubbornly above forecast, high-interest rates, a fiscal deficit and a balance of trade that, according to estimates, will reach US$6bn. For the manufacturers and dealers, however, it has been a good year, thanks above all to the tax relief granted by the government. According to ADEFA (the Association of Vehicle Manufacturers), between January and November, the monthly output of vehicles exceeded 2016 levels on seven occasions. Between May and October, a monthly average of 45,000 units was manufactured. In 2016, this level was achieved only in the months of March and November. Sales to dealers also improved year on year, peaking at 80,000 units in May and June, as shown in Figure 5. Exports by the sector kept up the same pace, with 2017 figures easily beating those for the previous year between May and October. The year-end performance is in line with expectations. It should be remembered that at the end of 2016, people were waiting to see the results of the macroeconomic adjustments announced by the president. These measures only started to take real effect in 2017. Tax rates for the sector were cut from 30% to 10%, and the tax on diesel oil was abolished. The tax cuts helped to encourage demand for vehicles and competition between manufacturers. Lines of credit for the purchase of vehicles were also increased, and new ones made available. We expect the results of the stimulus to be even more apparent in 2018, with the automotive industry taking on added economic importance. The sector accounts for 5% of the country’s GDP, and it is estimated that there are 197 cars for every thousand inhabitants. Although this is a high ratio for the region, it is still far below European levels of 500 cars for every 1,000 inhabitants. Data from 2015 indicates that of the 11 manufacturers in the country, Volkswagen is in the lead, with a market share of 18.6%. Ford and General Motors are next, with shares of 14.8% and 13.6%, respectively, leaving Renault (12.3%) and Toyota (12.2%) disputing fourth place. Colombia Colombia's economy grew 2% in the third quarter of 2017 – a very positive sign after expansion of 1.2% in the previous quarter. Data from Focus Economics indicates that this improvement is due to factors such as a sustained rise in government expenditure and the resumption of exports of oil (this sector has been recovering after the collapse of prices in 2014-2016) and agricultural commodities. In spite of this, ANDI (the National Business Association of Colombia) says that the country is facing a set of uncertainties, with major challenges in the area of competitiveness. Inflation in 2017 should be close to 4.2%, slightly above the Central Bank’s target. In relation to the transformation industry, DANE (the National Administrative Department of Statistics) reports that production shrank by 0.7% during the first eight months of 2017, year on year, and total sales by 0.9%. Data issued by Andemos, Colombia’s Automotive Association, reveals that 253,698 new vehicles were released to the market in 2016, 10.5% less than in the previous year when the figure was 283,380. The aggregate total up to November 2017 shows that the downward trend is being maintained. New vehicles for the 11-month period totalled 212,814 units, against 220,230 for the same period of the previous year. The ratio of car ownership also fell from 5.9 per thousand inhabitants, in 2015, to 5.2 in 2016. If we look at brand preference up to November 2017, the five top-ranked names are: Chevrolet, with 46,697 units sold and a market share of 21.9%; Renault, with 42,167 units (19.8%); Nissan, with 18,968 units (8.9%); Kia, with 17,829 units (8.4%); and Mazda, with 16,468 (7.7%). Of the total of 212,814 new vehicles on the road in Colombia up to November 2017, 70,571 (33.2%) were manufactured locally. A further 42,171 vehicles (19.8%) came from Mexico and 27,011 (12.7%) from South Korea. The remainder were imported from Brazil, Japan, European countries, China, Thailand, the United States, India, and elsewhere. Chile The Chilean economy has faced a series of problems in recent years. Falling investment in mining and lower copper prices have reduced the population’s purchasing power and undermined confidence. Whereas between 2000 and 2013 GDP grew by 4.5% p.a. on average, since then it has remained below 2%. The automotive market suffered accordingly, with a 17.2% fall in sales between 2014 and 2015. In the last two years, however, things have started looking up. In 2017, the price of copper, Chile’s main export, rose by 25%; the unemployment rate has remained stable, and the Central Bank of Chile forecasts GDP growth of 3.5% in 2018. On top of this, Chileans will go into the New Year with a new president in charge, and this will help restore confidence. The vehicle market has kept in line with these changes. According to ANAC (the National Automotive Association of Chile), up to November 2017, 326,139 had been sold in the country, a 19.1% year on year increase. The previous year was also a good one: 305,540 light vehicles were sold, against 282,232 in 2015. The association’s report, with figures up to November, shows also that in some months of 2017 sales were back to 2013 levels, which were the highest in recent years: see Figure 6. This trend is in line with ANAC’s projections. The association sees 2017 as the first in a period of four years of market recovery. Moreover, it is certainly true that the Chilean market has room to grow. It is estimated that the country has one car for every 4.3 inhabitants, against 3.7 in Argentina and 3.5 in Brazil. The Chilean market depends on exports, as the country has not had any local manufacturing since 2008. In the last seven years, a series of free trade agreements have been signed, with the United States, Europe and Asia. In spite of a large number of partnerships, the market is dominated by the Asian manufacturers. In the private car segment, 26.63% come from Korea, 15.16% from China and 13.6% from India. These proportions are borne out by the list of top-selling makes in the country, with Hyundai in the lead, with a 12% market share, and Kia in second place, with 11.1%, followed by Suzuki with 10.4%. Peru The Peruvian market is believed to be one of the most promising in the region. Between 2011 and 2015, GDP grew at an average annual rate of 5.9%. In 2017, it has continued to do well, with year-on-year growth of 2.5% in the third quarter. Investment and consumption have followed this trend, with government investment up by 4.6%, private investment 4% higher, and internal demand also rising by 4%, compared with the previous year. The country is expected to end the year with growth of 2.5%, and to achieve 3.5% in 2018. GDP rose by 3.6% in 2016, to a total of US$192.1bn. The outlook for vehicle sales is buoyed by an increase in urban middle-class income, low-interest rates, easy credit and low customs tariffs. For the country as a whole, 122,156 light vehicles were sold and/or registered during the period from January to September, according to a report by the AAP (Peruvian Automobile Association). Import levels continue to rise, as the chart shows (Figure 7) and exceeded the totals for 2016 in eight of the nine months analysed. As with Chile, Peru has no automotive industry of its own and depends on a network of commercial partners with which it has free trading agreements. Asian countries are the main market suppliers. Between January and September 2017, the three major best-selling light vehicles were Toyota (with a 17.3% market share), Hyundai (with 15.8%) and Kia (with 12.2%). Registrations of new vehicles up to October were in the same proportion, according to data issued by the National Superintendence of Public Registries. Foreign manufacturers are taking an increased interest in the country, in view of the forecast of 24% market growth over the next five years. There is only one car for every 12.3 inhabitants in Peru, and this encourages the companies to expand their operations. Added to that, the market sees prospects of improvements in the highway infrastructure, and the possibility of better links to other countries on the continent. Outlook for 2018 According to ECLAC (the Economic Commission for Latin America and the Caribbean), the region’s economy has benefited from a rise in commodity prices, lower global interest rates and an increased appetite for risk on the part of foreign capital, which is now regarding the region more favourably. In 2018, plentiful international liquidity, exports, and internal demand will favour the region. The commission forecasts a 2% rise in GDP in South America next year. If current growth rates are maintained, Argentina’s GDP should expand by 3% in 2018; Chile’s by 2.8%; Colombia’s by 2.6%; and Peru’s by 3.5%. The International Monetary Fund (IMF) projects a 1.9% increase in the GDP of Latin America and the Caribbean for 2018. This article appears in Greenstreetsoftware.info's 'Guide to the greenstreetsoftware.info in 2018', available exclusively to Greenstreetsoftware.info subscribers

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