Argentine Light-Vehicle Sales and Production Surge in April

Vehicle Sales Surge Further in April Thanks to Calendar Effects

Argentine vehicle sales surged a further 31% year-on-year (y/y) in April, with 59,151 units registered in the month, from 45,154 units in the same month last year, according to industry association ADEFA. April’s sales were also 3.2% higher than the strong March figure, but the data was slightly skewed because of the extra working days in the month as a result of the early Easter holidays and other calendar effects. Year-to-date (YTD) sales are up 21.6% y/y for the first four months of 2008 at 219,020 units. April 2008 benefited from two extra days compared to April 2007, worth around 4.5% per working day; therefore working-day-adjusted sales rose around 22% y/y in the month on a like-for-like basis.

The Volkswagen (VW) Group held top spot in the sales rankings as usual, with 12,141 vehicles sold in April, leaving sale for the YTD period up 12% y/y to 46,371 units from 41,160 units last year, still well below the market growth rate. General Motors’ (GM) Chevrolet brand came second as usual with 9,434 units sold in the month and 32,226 units in the YTD, a slight rise of 7% y/y. The Renault-Nissan alliance leapt into third spot for the month with combined sales of 8,489 units, taking the YTD total to 28,556 units, just behind rival PSA but leapfrogging Ford to take fourth spot for the first four months of 2008. Ford fell from third to fifth spot in April as PSA Peugeot-Citroën took fourth, after the U.S. carmaker registered 7,175 units for the month and 26,930 for the YTD, another below-market rise of just 9%. PSA meanwhile registered 7,672 sales in March to take fourth, but with accumulated sales of 29,210 units in the YTD it held third spot overall for the January-April period.

Argentine vehicle output rose strongly in April, by 31.5% y/y, again boosted by the extra working days, but also by a huge leap in exports. Production was also 10% ahead of the March figure at 54,622 units, from 41,527 units in April 2007. For the YTD, production recorded a healthy 28.9% y/y rise to 179,078 units from 138,962 units in the same period last year.

Export growth accelerated in April to 62.4% to 30,640 units, building on a strong start to the year, and the figure was just 24% higher than the March total. For the YTD, exports have increased 38.3% y/y to 99,218 units, accounting for over 50% of overall production, as demand from neighbouring Brazil and the relocation of production to the country kicks in.

Outlook and Implications

April's vehicle sales were boosted by the extra working days in the month, and once seasonally adjusted the 31% rise was closer to the overall market increase for the YTD at around 22% on a like-for-like basis. Nevertheless, this still represents very strong growth, something that Argentina has become accustomed to following a blip in February. The market had always been expected to pick up again, but the overall growth rate is expected to slow towards the end of this year; with most of the unusual calendar effects this year now accounted for, the second-quarter period will be an interesting barometer of the market. Global Insight forecasts that the light-vehicle market (ADEFA reports the total vehicle market including heavy commercial vehicles) will rise by around 8.5% in 2008 to just short of 600,000 units.

Vehicle demand is expected to remain strong in Argentina thanks to lower interest rates, as well as a larger portfolio of credit lines, and the economy is continuing to expand. The latest figures for January indicate GDP growth of 10.2% y/y, although this is a further indication that the economy is at risk of overheating. Supply still lags behind strong aggregate demand for Argentine products, making an adjustment a necessity in the short to medium term. The authorities, far from engineering a soft landing with a combination of fiscal and monetary policies, have been immersed in an aggressive fiscal expansion. In addition, any sustained global economic slowdown will naturally affect Argentina, first via lower demand and prices for its exporting commodities, and later by increasing the difficulty of raising funds. Lower unemployment and higher household incomes are also boosting vehicle sales. The medium-term outlook is more cautious, as inflation cannot be controlled through price-fixing.

Furthermore, tensions in the government over the development of the economy boiled over last month when Martín Lousteau stepped down as economy Mminister after only four months in the job. The minister presented his resignation after internal dissent proved harder to handle in recent weeks. A series of developments are believed to have precipitated his fall, notably President Cristina Fernández de Kirchner's annoyance at his recent comments on the need to contain inflation and stabilise the economy. Her rejection of his new economic plan confirmed irreconcilable differences in their approaches to policy, prompting his exit from government. Lousteau's economic package reportedly recommended, among other measures, reducing public spending, focusing on registering more moderate GDP growth, renegotiating Paris Club debt repayment, and increasing the tariffs of public utilities. Most of these proposals essentially clash with the incumbent "Kirchnerist" economic model for growth, as promoted by President Fernández's husband and predecessor, Néstor Kirchner (in office from 2003 to 2007). A few hours prior to Lousteau's resignation, Kirchner delivered a speech in which she lambasted those wanting a policy to "freeze the economy", further undermining the minister's position.

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