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Auto industry outlook

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Production of biodiesel and alternative energy is not the only pocket of strength in the argentine economy. More recently, we have learned that the outlook for the local auto industry is also bright. This year, production looks to reach the 700,000 units mark and those in charge already have plans to increase capacity given the strong demand that comes from Brazil. More efficiency, more productivity and factories expansion programs are all part of the picture and are all being discussed by the leaders of the auto industry.

The benefits are enormous. Increased capacity means better and more thorough training of workers, expansion of distributorship as well as the opening of new chanels of distribution and the need to solve some logistic problems which will require continuous investments. The Ministry of Industry estimates that in the near future, about usd 1 billion will be required to modernize and expand plants and that this funding is almost guaranteed to be used in the period right ahead, 2010-2012. Fiat, Ford and Peugeot Citroën will all participate in this “upgrade”.

According to some industry insiders, Brazil demands close to 3,4 million units per year. A figure that is expected to increase over time as the ratio of units owned per capita is actually lower than in countries such as Argentina. The same insiders opined that if Argentina is able to produce the expected quality, then the demand will be there. This, is already being seen in some manufacturers who have increased shifts and extended working hours. The more serious stats point to a 10% increase in production for 2011, at least. Almost all auto industry executives believe that the demand coming from Brazil is “sustainable, strong and would continue for at least another 3 years”.

However, not everything may fall into place. Some of the decision-makers are afraid that the autoparts agents they rely on for capacity expansion may not be there when they are needed the most. Same fears apply to training both new and old workers. Executives are accutely aware that any of the above can become major roadblocks so they are only “cautiously” optimistic. In addition, many count on the federal government to come forth to create additional infraestructure in the form of power generation and the like. Something that they have learned not to count on. But in spite of these potential problems and that the whole industry is not and cannot be completely and vertically integrated, there is a general sense that finally the auto industry has reached maturity.

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