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Car sales fall in Argentina

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Car sales fell in Argentina a 35% with respect to last year. The main reasons for this large decrease in sales are the economic crisis the country is going through, the decrease in exports to Brazil, and the increase in taxes to luxury cars.

As a result for this decline, the local producers (Renault, Citroën, Peugeot, and Volkswagen) stopped their production, and told workers to not show up to work, while they payed them 65% of their wages. Volkswagen also started a plan of early retirement, to allow their workers to retire at the age of 62. Meanwhile, the union SMATA is negotiating to avoid the firms to fire workers.

Cars stocks are starting to increase, and these firms do not want to go through Detroit’s 2005 crisis all over again. But, is it the same type of crisis?

Initially the answer would be no, since its origin is not that these brands are being substituted by the Japanese firms. This is why the firms are not already downsizing, but only ‘taking a break from production’. Additionally, the problem is external to the country and there is not much they can do to fix it apart from reducing their production to avoid the increase in stock.

On the other hand, in the long run, if sales do not pick up, the cities that rely on the car production might face a similar future to Detroit’s current situation. With the lack of jobs people would move out and stop paying taxes, the retired population would still need their pension (legacy costs), and adding up to the list of similarities, corruption and lack of leadership are becoming a tradition in Argentina, and could possibly lead major industrial cities to bankruptcy.

What would be the decisions that firms should take to avoid what happened in 2005 (at a smaller scale), in the Argentinian market?

How bad is it for the Argentinian production to rely on Brazil’s economy?

One Comment

  1. Unfortunately such crises can last many years; the attempt to “dollarize” the economy with a “fixed forever” exchange rate failed. That amplifies internal political issues. While the country is comparatively large and has a reservoir of human capital and institutions and infrastructure, so holds potential as a large, productive economy. Auto firms however need stable markets, so we may see de facto exit from the market until such time as there’s a consensus over “real” recovery.

    May 15, 2014

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