This will be a pivotal year for Latin American automotive markets. While demand will increase in Mexico and Central American markets will revive, other markets in the region face slowdowns in demand, currency devaluations and corrections.
John Price, managing director of Americas Market Intelligence – Miami, recently presented an exclusive Latin American market outlook for 2014 to members of the Overseas Automotive Council (OAC) of the Automotive Aftermarket Suppliers Association (AASA). He noted some of the top opportunities for automotive suppliers in the region:
· Mexican demand will grow.
· Depressed Central American and Caribbean markets will revive.
· The slowdown of new car sales in South America will age the vehicle parc, stimulating aftermarket parts and materials demand.
One of the primary risks for Latin America in 2014 will come from China, according to Price. Chinese economic policy has shifted from export manufacturing and infrastructure to internal consumer demand. The resulting decrease in China’s infrastructure investment will dampen global demand for raw materials. South American metals exporters like Brazil, Peru, Chile, Argentina and others now will earn less from their Chinese exports, putting a dent in their GDPs, he said.
This change in Chinese policy also will impact South American currencies, which are 95-plus percent correlated with the price of commodities. In 2014, several South American countries face the difficult policy trade-off of a weaker currency or higher interest rates, which could hurt demand for housing, machinery and other large ticket items, he explained.
Price also shared these insights on specific countries within the region:
Mexico has gradually become a competitive export manufacturer again. It is now taking increased share of an expanding U.S. economy in aerospace, automobiles, electronics, IT and other product categories. Mexico’s increased production in oil and gas will come on line by 2015-26 thanks to new finds (gas) and new investments (Pemex reform).
In Brazil, some 58.2 percent of citizens use their monthly salary to pay off “installment debt,” according to a new survey by the Instituto Brasileiro de Economia (Brazilian Institute of Economics, Ibre-FGV). Yet the survey also showed most debts were short-term: 78.4 percent had installment repayment plans of six months or less, and only 10.1 percent had taken out plans for 12 months or more.
Colombia’s improved security has helped investment in its vast natural resource endowments (coal, oil, gas, gold, industrial metals) often found in remote regions formerly controlled by guerillas. Resources account for most of Colombia’s forecasted 8 percent export growth in 2014. Colombia’s GDP should grow at close to 5 percent per year over the next three years.
Argentina continues to grow, in spite of having one of the least effective governments in the region. The government’s new “corralito” (banking reforms) which helps slow capital flight creates a sense of urgency among consumers who feel compelled to buy assets (like cars and real-estate) before their savings erode due to 30 percent inflation.
In Chile, voter sentiment was leaning to the left with polls suggesting widespread angst against bankers, large corporate interests and the country’s historic laissez-faire economic policies. The right wing’s unity is in question due to widespread corruption allegations directed against the outgoing Piñera administration. Despite the political upheaval, Chile’s massive mining industry will help sustain greater than 4 percent GDP growth over the mid-term.
Venezuela also is experiencing political upheaval with a major shift predicted by some in 2014. Income divisions are widening as the upper classes can travel abroad and exploit foreign exchange loopholes while the middle and lower classes struggle with declining spending power and shortages of basic goods.
In the Dominican Republic, the Medina administration inherited record government debt and declining tax revenue from the outgoing Fernandez administration. Gold now accounts for 10 percent of the country’s exports and a higher share of tax revenue. Continued increases in public spending will ensure strong growth in the short term – as long as gold prices remain above $1,100 per ounce.
Price’s presentation is available to OAC members by contacting [email protected]. For more information about John Price and Americas Market Intelligence, visit www.americasmi.com.
Editor’s note: The AASA Overseas Automotive Council works to keep members up-to-date on current global business conditions and emerging markets. For more information, contact Curtis Draper, OAC executive director, at [email protected] or 919-406-8856.
The AASA China Aftermarket Forum (CAF) is a consortium of full-service suppliers that meets on a quarterly basis to discuss opportunities within the Chinese aftermarket and to identify ways to address challenges in the growing segment. For more details about CAF programs and initiatives, click here.
The AASA Overseas Automotive Council (OAC) promotes the sale in foreign markets of automotive and heavy-duty products manufactured in North America. Those products include components, accessories, chemicals, hand and power tools, service maintenance and repair equipment, and paint and body supplies for both cars and trucks. OAC has more than 350 members in more than 40 countries. More information is available through its website.
AASA exclusively serves manufacturers of aftermarket components, tools and equipment, and related products. It promotes a collaborative industry environment, providing a forum to address issues and serving as a valued resource for members.
Subscribe to Aftermarket Business World and receive articles like this every month….absolutely free. Click here.
