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37% Annual Inflation Rate Batters Fleet Sales in Argentina

October 2016, by Mike Antich - Also by this author

Graphic courtesy of
Graphic courtesy of

Argentina is the second largest economy in Latin America. The economy is currently being battered by a high annual inflation rate of 37%. The unemployment rate is approximately 8.2% and GDP growth is an anemic 0.7%.

“The president of Argentina, Mauricio Macri, calculates that this is a price worth paying. His predecessor left Argentina’s economy in dire straits,” said Marcelo Tezoto, South America fleet sales development manager for GM. “In 2015, it ran a 5.8% fiscal deficit, inflation is currently around 30%. Borrowing on international credit markets will help him to tackle both the deficit and inflation.”

In addition, the government said it will reduce the country’s budget deficit in the coming years by gradually reducing government subsidies on electricity.

Data Box
  • Capital: Buenos Aires
  • Population: 43,646 ,358
  • GDP: US$177.72 billion
  • Total Vehicles (incl. private fleet): 23,120, 241

Argentina Automotive Market

The automotive industry in Argentina grew at 4% from January through April 2016. “There is a lot of pent-up demand in Argentina,” said Tezoto.

In 2015, GM invested US$740 million in its Rosario assembly plant. GM also launched the new Cruze in the Argentina market.

Argentina Economic Conditions

Argentina’s economy is experiencing a period of macroeconomic adjustment as a result of the structural reforms undertaken by the administration of President Macri. According to data released recently by the statistical office, in April 2016, industrial production contracted a sharp 6.7% on an annual basis, thus highlighting the effect of the government’s austerity measures.

Moreover, massive layoffs and record-high inflation rates are a cause of concern for Argentinians and consumer confidence hit the lowest level in nearly two years in May 2016.

After the drop in sales in January 2016, vehicle sales saw a double-digit increase, reaching a peak in May. It was the fourth month in a row with positive performance. This is based on data from the Argentinian Associations of Car Manufacturers and Dealers in May 2016, with the number of vehicle sales increasing to 58,007, up 24.9%.

Year-to-date, total automotive sales have been 274,358 units, up 10.6% over 2015.

Fleet Market Conditions

The total automotive market in Argentina, both retail and fleet, is the second-largest in South America.

While Argentina has the second-highest number of fleet vehicles in South America, and despite having made some progress, the country still has a very immature fleet management market.

Currently, there is also much economic uncertainty in Argentina, but not as much as Brazil. The market in Argentina is showing signs of picking up.

Incentives, or discounts, in the fleet channel are very aggressive, ranging from 13% to 25% in sales to fleet companies and government-tendered discounts reaching 30%.

Strongest Fleet Vocation Markets

The primary fleet market in Argentina is large multinational companies. Corporations usually purchase their fleet vehicles rather than lease them.

“In Argentina, dealers work together with GM in selling to multinational companies, along with small- and medium-sized companies,” said Tezoto.

The petroleum, mining, utilities, passenger transport, car rental agencies, and pharmaceutical industries are the strongest vocational segments for commercial fleet sales in Argentina.

Fuel Price Trends

Despite the sharp drop in the global price of fuel, Argentina continues to have one of the most expensive fuel prices in the South American region. In the regional ranking, Argentina is the second-most expensive country in South America. The average price per liter for gasoline in Argentina was 17.34 Argentine pesos, which equals US$1.16.

Interest Rates & Taxation

The impact of taxes in Argentina is very high as companies purchase vehicles using corporate lines of credit or by leasing them.

“The constant tax increases negatively influence fleet costs of companies,” said Tezoto.

A key factor stimulating interest rates is high inflation, which has been a weakness of the Argentine economy for decades.

Fleet Maintenance Trends

Parts availability remains a problem in Argentina, but it is getting better. In addition, the price of spare parts is also a problem.

Fleet Forecast for 2016

In 2016, the estimated total market for Argentina will be 620,000 units, with the fleet market comprising 8% of that volume. The estimated fleet market for all brands is around 49,600 units.

Uruguay and Paraguay:

 Economic Conditions

Over the last decade, the economy of Paraguay grew at an average of 5%; higher than its neighbors, Brazil, Argentina, and Uruguay. However, the Paraguayan economy continues to be very volatile, according to the World Bank.

In 2015 and 2016, economic growth in Paraguay has fallen to 3% due to the decline in international commodity prices and adverse weather conditions, which directly affects the value of Paraguayan exports, in particular soybean and beef.

Data Box
  • Capital: Montevideo
  • Population: 3,444,071
  • GDP: US$53.44 billion
  • Total Vehicles (incl. private fleet): 1,991,836

Likewise, the economy of neighboring Uruguay is contracting because of its proximity to the much larger economies of Argentina and Brazil, both of which are experiencing economic slowdowns, which has impacted the Uruguayan peso.

“There has been an appreciation of the dollar against the Uruguayan peso. This has caused a decreased competitiveness for GM against other OEMs such as Suzuki, Renault, Fiat, and VW,” said Marcelo Tezoto, South America fleet sales development manager for GM. “The depreciation of the peso has also resulted in a decrease in the value of commodities exported from Uruguay.”

Automotive industry sales have been declining for the past 13 consecutive months as of the end of the 1Q 2016. 

Another key factor for decreased fleet sales has been the government decision to purchase fewer vehicles.

Data Box
  • Capital: Asunción
  • Population: 6,683,941
  • GDP: US$27.62 billion
  • Total Vehicles (incl. private fleet): 1,227,469

Fuel Price Trends

The average price per liter for gasoline in Uruguay for August 2016 was US$1.48. There has been a slight increase in fuel prices related to higher revenues by ANCAP (Administración Nacional de Combustibles, Alcoholes y Portland), a state-owned company in Uruguay. ANCAP is involved in the production of petroleum products, Portland cement, and alcoholic beverages.

“At the same time, the country’s energy matrix is changing by incorporating ethanol fuels. Also, diesel is always taxed higher than other fuels,” said Tezoto.

In Paraguay, the average price per liter of gasoline in August 2016 was US$1.05.

Fleet Market Conditions

In Uruguay and Paraguay, current vehicle acquisition trends of the types of vehicles acquired is focused on the sale of NB and HB cars. The main incentive employed by OEMs is a percent discount off the list price.

Strongest Vocational Segment

The strongest vocational segments for fleet vehicle sales are multinational companies, such as Unilever, Coca-Cola, and Gillette. Another key vocational segment for fleet sales is the utility industry, which primarily acquires pickups and vans.

Used-Vehicle Market Trends

Current macroeconomic trends are influencing vehicle depreciation rates in Uruguay and Paraguay.

“The region is currently observing a slowing economy, which marks a more pronounced downward trend in the used-vehicle market. The resale market is saturated and several market players are not buying used vehicles due to the large inventory of unsold used vehicles,” said Tezoto.

Forecast for 2016

“In 2016, we expect a drop in fleet sales in the Uruguay and Paraguay markets due to a slowdown in their economies. Comparing 2015 with the same period in 2014, there was a 20% drop in the fleet markets in these two countries,” said Tezoto.

Editor's note: This article first appeared online in the Q3 Global Fleet Market Conditions supplement published in October of 2016.

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